Is the cost of an employee's family visa deductible?

Article 28 – Deductible Expenditure 1. Expenditure incurred wholly and exclusively for the purposes of the Taxable Person’s Business that is not capital in nature shall be deductible in the Tax Period in which it is incurred, subject to the provisions of this Decree-Law. 2. For the purposes of calculating the Taxable Income for a Tax Period, no deduction is allowed for the following: a. Expenditure not incurred for the purposes of the Taxable Person’s Business. b. Expenditure incurred in deriving Exempt Income. c. Losses not connected with or arising out of the Taxable Person’s Business. d. Such other expenditure as may be specified in a decision issued by the Cabinet at the suggestion of the Minister. 3. If expenditure is incurred for more than one purpose, a deduction shall be allowed for: a. Any identifiable part or proportion of the expenditure incurred wholly and exclusively for the purposes of deriving Taxable Income. b. An appropriate proportion of any unidentifiable part or proportion of the Federal Decree-Law No. 47 of 2022 and its amendments – Unofficial translation (as published by the Ministry of Finance) 36 expenditure incurred for the purposes of deriving Taxable Income that has been determined on a fair and reasonable basis, having regard to the relevant facts and circumstances of the Taxable Person’s Business.

Company F has purchased items on behalf of its subsidiary. Accordingly, AED 700,000 that is not incurred for the Business of Company F is disallowed while determining Taxable Income, assuming there is no reimbursement of expenditure by the subsidiary to Company F. If there was a partial reimbursement of expenditure by the subsidiary to Company F, then only the amount that is not reimbursed would be disallowed in the hands of Company F as it was not incurred for the Business of Company F. Further, Company F has incurred AED 200,000 for the entertainment of shareholders’ family members. Since this expenditure is not incurred for the Business of Company F, it is disallowed. 5.3.4 Expenditure incurred for more than one purpose As noted in Section 4.5.4, if expenditure is incurred partly for Business purposes and partly for some other purpose, the amount must be apportioned so that only the part relating to the derivation of Taxable Income will be allowed as a deduction. (A) Employee travel expenditure: Company F has incurred AED 70,000 on travel expenses for its employees, AED 20,000 of which relates to personal travel by employees during weekends or nonworking hours. However, since the entire expenditure of AED 70,000 is incurred for the benefit/wellbeing of the employees, i.e. as part of the company’s efforts to reward/retain the employees, it is directly connected to the Business of Company F. Therefore, the whole cost will be considered to be incurred for the purpose of the Business of Company F – in the same way as a fair market employee benefit, for instance – and hence, will be allowed as a deduction, i.e. no adjustment is required while determining Taxable Income, provided the aggregate amount is in line with the arm’s length standard. (B) Shared employee cost: Company F has incurred AED 2,000,000 towards Ms K’s salary cost (including housing allowance, health insurance for employee and their dependents, air travel allowance for employee and their dependents, etc.). Ms K spends 30% of her time working for Company Q. From the total salary of Ms K, i.e. AED 2,000,000, an apportionment based on the time spent working for Company F and Company Q will mean that AED 1,400,000 (70% of AED 2,000,000) will qualify as Business expenditure related to Company F’s Business. The remaining AED 600,000 (30% of AED 2,000,000) will not be allowed as Business expenditure. Accordingly, AED 600,000 will be disallowed, i.e. added back, while determining the Taxable Income of Company F, unless this cost is recharged to Company Q at arm’s length. Corporate Tax Guide | Determination of Taxable Income | CTGDTI1 56