UAE VAT: Best Practices for Managing Deductible Business Expenses

A key concern under UAE corporate tax is whether input VAT, though recoverable under VAT law but not claimed, qualifies as a deductible expense. Businesses are now advised to separately track unrecovered input VAT to avoid compliance risks.
The deductibility of compensatory payments, such as liquidated damages not “awarded” by courts, raises uncertainty. A literal reading of tax laws could disqualify mutually agreed compensation from being considered deductible business expenses.
Car rental companies face challenges deducting traffic fines paid on behalf of customers. These fines, not considered awarded or compensatory, may be non-deductible, complicating tax treatment despite recovery from lessees as income.