A UAE resident company subject to Corporate Tax incurs AED 200,000 of entertainment expenditure during a tax period on hosting dinners and event tickets for its customers and suppliers. Under Article 32 of Federal Decree-Law No. 47 of 2022, how much of this AED 200,000 is deductible in calculating its taxable income?
- The full AED 200,000, because entertainment expenditure incurred for customers and suppliers is treated the same as any other ordinary business expense under Article 28
- AED 100,000, because Article 32 limits the deduction for entertainment expenditure incurred to entertain customers, shareholders, suppliers, or other business partners to 50% of the amount incurred, with the remaining 50% permanently disallowed
- AED 0, because Article 32 disallows entertainment expenditure in full regardless of who it is incurred for
- The full AED 200,000, but only if the company first obtains prior written approval from the Federal Tax Authority before incurring the expenditure
Why B? And why not the others?
Correct answer: B. AED 100,000, because Article 32 limits the deduction for entertainment expenditure incurred to entertain customers, shareholders, suppliers, or other business partners to 50% of the amount incurred, with the remaining 50% permanently disallowed
Article 32 of Federal Decree-Law No. 47 of 2022 specifically limits the deductibility of entertainment expenditure incurred to entertain customers, shareholders, suppliers, or other business partners to 50% of the amount incurred, treating the remaining 50% as a permanent, non-deductible disallowance rather than a timing difference. On AED 200,000 of qualifying entertainment expenditure, that means AED 100,000 is deductible and AED 100,000 is permanently added back in computing taxable income. The option allowing full deduction under the general deductibility rule is wrong because Article 32 carves entertainment expenditure out of the general rule with its own specific 50% cap. The option disallowing the expenditure in full is wrong because Article 32 permits half the cost to be deducted, not none of it. The option conditioning full deductibility on prior Federal Tax Authority approval is wrong because Article 32's 50% limitation applies automatically by operation of law and does not involve any pre-approval mechanism.
Source: UAE Federal Decree-Law No. 47 of 2022, Article 32 (Entertainment Expenditure -- 50% deduction limitation)