<\/p>\n
As UAE companies prepare for corporate tax, the primary focus remains on revenue streams and on free zone tax benefits.<\/p>\n
Any business-related expenses \u2013 generally assumed to be tax deductible \u2013 often escape a comprehensive analysis. But these expenses form an equally important aspect of determining taxable income. Any error in tax positions could result in future penalties.<\/p>\n
Another issue relates to non-deductible expenses. Any fines and penalties \u2013 otherwise claimed as an expense in the account books \u2013 should be added back to the profits to determine the taxable income. Exception applies to amounts awarded as compensation for damages or breach of contract<\/p>\n
Such expense restriction is generally not a significant concern for most companies. The quantum of statutory penalties are generally not substantial.<\/p>\n
The car rental industry, however, could face strong headwinds from such expense restrictions. Depending on their fleet size, rental companies regularly pay fines for traffic violations committed by their customers.<\/p>\n
It is often claimed that the violation is committed by customers and not by the rental companies. That the rental company is only a facilitator\/conduit between the customers and the authorities.<\/p>\n
The veracity of any such claims hinges on identifying as to who is statutorily liable to pay such fines. One needs to also examine if the restriction on their deductibility is absolute or depend on the recoveries made from customers.<\/p>\n
A common query regarding expense deductibility relates to product samples and marketing gifts. The items could be provided to existing as well as potential customers. Except for permitted entities, the UAE tax laws restrict the expense deduction for donations, grants or gifts made to an \u2018entity\u2019.<\/p>\n
As the law refers to \u2018entity\u2019, it is often argued \u2013 based on a literal interpretation of the tax laws – that the gifts made to individuals are not restricted for tax purposes.<\/p>\n
I have regularly counselled that understanding the context of tax policies is important for interpreting the tax laws. The context of the corporate tax policy does not suggest that gifts to individuals should be allowed as a deductible expenditure.<\/p>\n
Taxpayers could seek an official clarification to determine if the gifts and grants to individuals would be allowed as a deductible expenditure.<\/p>\n
Any expenditure incurred \u2018wholly and exclusively\u2019 for the purposes of a taxpayer\u2019s business is deductible from taxable income. Having led the tax functions at a leading industry player, my first thoughts always visualise the soft-drink beverage industry.<\/p>\n
It often operates on a two-company model \u2013 the concentrate manufacturing company and the bottling company. A substantial portion of its media ad spend expense is incurred by the concentrate manufacturer. In certain countries, the tax authorities have stressed that the advertised product \u2013 the beverage bottle – is never manufactured by the concentrate manufacturer and, axiomatically, the ad expense does not relate to their business.<\/p>\n
In the UAE context, such an argument could also risk the \u2018exclusivity\u2019 requirement for expense deduction.<\/p>\n
Similar tax conundrums would be faced by brand owners and marketing offices incurring marketing expenses for products never manufactured or sold by them.<\/p>\n
To highlight the importance of tax policy context and its understanding, the apt example would be that of the airline industry. Only 50 per cent of the expenditure incurred in connection with meals or transportation provided to its customers is deductible. It is generally referred to as \u2018entertainment\u2019 expenditure.<\/p>\n
As the passengers are nothing but customers of airlines, would the 50 per cent restriction apply to their entire operating expenditure? Only a contextual reading would provide the correct answer to such question.<\/p>\n
Tax laws are not written for specific industries. A perfunctory analysis of the tax laws and errors in understanding implications is likely to result in financial penalties. Business owners need to understand the importance of a comprehensive tax analysis.<\/p>\n
UAE conglomerate looks to legally protect nearly $1b of its investments in the<\/p>\n
Dubai: Al Habtoor Group has issued a formal notice initiating an investment dispute against Lebanon, as the UAE conglomerate\u2019s sets out to legally protect nearly $1 billion (Dh3.67 billion) of its investments in the country.<\/p>\n
The notice is in connection with Lebanon\u2019s breach of the Bilateral Investment Treaty between the UAE and Lebanon, the company said in a statement, referring to an agreement put in place\u00a0to protect UAE investments in Lebanon territory\u00a0since 1999.<\/p>\n
\u201cIn particular, Lebanon and its central bank have imposed restrictions preventing Al Habtoor Group from freely transferring its funds amounting to over $44 million (Dh161.6 million) from the Lebanese banks,\u201d Al Habtoor Group further revealed.<\/p>\n
\u201cLebanon has also failed to secure a safe and sound environment for Al Habtoor Group\u2019s businesses and investments. As a result of Lebanon\u2019s actions, Al Habtoor Group has incurred and continues to incur significant losses and damages.\u201d<\/p>\n
With Lebanon now finding itself mired in deep financial crises that threaten\u00a0to further destabilise the country, foreign investors particularly from the Gulf Cooperation Council (GCC) states are concerned about protecting their business interests.<\/p>\n
<\/p>\n","protected":false},"excerpt":{"rendered":"
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