Will Service Fees Paid to Local and Federal Governments be Deductible

With the introduction of the CT regime in the UAE, there have been many queries from the entities regarding the calculation of the taxable income and the applicable deductions that could be used to reduce the taxable income. The FTA has been making all the efforts to provide the guidance regarding the implementation of the CT on the businesses and also regarding the calculation of the taxable income. There are certain highlights that are to be considered while the taxable income of an entity is calculated, as it requires strong expertise and knowledge of the regulation regarding the CT. In this blog, we have shed light on the query of whether the service fees paid to the local or federal government are deductible under the UAE CT regime.

What is Deductible Expenditure?

As per the CT regime, the taxable persons can reduce certain expenditures while calculating the taxable income based on certain criteria that are to be met. This reduction in expenditure would result in reduced taxable income, which would ultimately reduce the tax liability of the taxable person. As per the regime, the expenditure that could be reduced from the taxable income should be incurred strictly for the purpose of the business wholly and exclusively. These expenses, which are incurred, must be legitimate in nature and must have been incurred in the normal course of operation of the business. On the other hand, if there is any capital expenditure, then it would not be eligible to be included in the deductions and hence could not be deducted from the taxable income.

You can also read: Update The Information In The Tax Records Before The Grace Period Ends

Is the Service Fee Paid to the Government Deductible?

The service fee paid to the government, which might include the license fees, license renewal fees, visa or immigration fees, registration fees, etc., is considered to be deductible from the taxable income based on the condition that this expenditure must be considered as necessary for the business operations and hence is wholly and exclusively for the business purposes. The expenditure could be deducted if it is not a capital expenditure.

What Are The Different Non-Deductible Expenses Under UAE Corporate Tax?

There are certain payments that might be made to the government entities that are not under the purview of the UAE corporate tax to be considered as deductible expenses from the taxable income.

• The fines or penalties that might be imposed on the taxable person, which are paid or payable to the government, are not considered deductible under the UAE CT.
• Any bribes or other illegitimate payments won't be considered as deductible expenditure under the CT law.
• Any other expenditure that is not incurred as part of the business of the taxable person will not be considered as deductible under the law.

What Are the Important Records to be Maintained in Relation to the Deductible Expenses?

There are certain documents and records that are to be maintained in order to get the deductions under the corporate tax law, which include the following:

• Receipts and invoices related to the expenditure: The descriptive invoices and the receipts are to be maintained related to the transaction, which might be incurred during the business operations.
• Bank records and statements: Bank records and statements are to be maintained, which could be used as evidence for the payments made in relation to the business operations.
• Documents of contracts and agreements: The documents related to any of the contracts, licenses, or agreements, etc., must be maintained, which could be related to any incurred expenses.
• Other relevant documents: If there are any other relevant documents that should be maintained, then they should be kept in order to ascertain the deductible expenses under the CT law.

You can also read: All About Participation Exemption Under UAE Corporate Tax

How Can CDA Help You?

CDA’s well-trained tax team is on standby to enable you to identify the deductible expenditure of your business whereby the tax liability could be reduced. Our team will enable you to stay compliant with the CT laws along with reducing the tax expenses. We assure you that our experts will assist you in maintaining all the required documents and enabling your business to implement a streamlined CT framework.

To know more about our CT assistance, connect with our team now.