LMKG Chartered Accountants

Deductible Expenditures

  • Expenditure incurred wholly and exclusively for the purposes of the Taxable Person’s Business.
  • If expenditure is incurred for more than one purpose, then proportionate deduction incurred for the purposes of deriving Taxable Income. (Expenditures incurred on Exempt Income will not be considered).
  • Borrowing Cost if capitalized in accordance with accounting standards.
  • Amounts Incurred in connection with raising finance shall be considered as Interest expense. These include Guarantee fees, arrangement fees & Commitment fees.
  • Interest Expenses Incurred on;
  • Performing & Non performing debts,
  • Investment schemes,
  • Asset back debt securities,
  • Futures, Forward Contract
  • Options, Interest rate & Foreign exchange swap agreements & financial derivatives
  • Lease/Hire Purchase,
  • Factoring,
  • Repo, Reverse Repo transactions,
  • Inter Company Loans.
  • Financial Islamic instrument,
  • Finance element of Finance/Non-Finance Lease.
  • Foreign Exchange gains/Losses Accruing on interest.
  • Interest expenses incurred on debt agreements entered prior to 09th December 2022 shall be allowed on Actual Basis I.e. Net Interest Expenditure arising on debt instrument.
  • De Minimis Net Interest Expenditure Rule to be followed on debt agreement’s entered after 09th December 2022 which is as under;
  • Where the Net Interest Expenditure does not exceed AED 12 Mn, then Actual Net Interest Expenditure.
  • Where the Net Interest Expenditure exceeds 30% of Accounting Earnings before Interest, Taxes, Depreciation & Amortization (EBITDA) then, Higher of AED 12 Mn or 30% of (EBITDA).
  • The amount of Net Interest Expenditure disallowed may be carried forward and deducted in the subsequent (10) ten Tax Periods in the order in which the amount was incurred.
  • Accounting Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) = Taxable Income + Depreciation + Amortization + Any Interest Income or Expenditure relating to assets /liabilities held prior to Dec 2022.
  • Net Interest Expenditure includes Interest expenditure during the year and Interest expenditure carried forward Less Interest Income

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