An expense is generally deductible for UAE corporate tax if it is incurred for the purpose of your business and is not capital in nature. Some items are restricted, such as client entertainment, which is limited to 50%, and some are never deductible, such as fines and personal costs. Always check the current law and FTA guidance for your case.
The general test
UAE corporate tax starts from your accounting profit and then adjusts it. Under Federal Decree-Law No. 47 of 2022, an expense is generally deductible when it is incurred wholly and exclusively for business purposes and is not capital expenditure. Capital items are not deducted in one go; they are depreciated or amortised through the accounts. Three questions help in practice:
- Was the cost incurred to earn the business's income, not for the owner's private benefit?
- Is it a running cost rather than the purchase of an asset?
- Does the law or FTA guidance specifically restrict or block it?
Secondary guidance from firms such as Crowe and KPMG describes the test the same way, but treat their summaries as a starting point and confirm against the Decree-Law and the FTA's corporate tax guides.
Common expenses at a glance
| Expense | Usual treatment | Note |
|---|---|---|
| Salaries and staff costs | Deductible | Must be genuine and for business work |
| Rent and utilities | Deductible | Apportion if part is private use |
| Professional fees | Deductible | Audit, accounting, legal, if for the business |
| Client entertainment | 50% deductible | Applies to customers, suppliers and partners |
| Entertainment for staff to do their jobs | Generally fully deductible | Confirm against the current guidance |
| Fines and penalties | Not deductible | Including tax and traffic penalties |
| Bribes | Not deductible | Never allowed |
| Dividends and owner drawings | Not deductible | A distribution of profit, not a cost |
| Personal expenses of owners | Not deductible | Includes private events and family costs |
The 50% entertainment rule
Only half of qualifying entertainment, amusement and recreation spend for customers, suppliers, shareholders and other business contacts is deductible. The rule can cover meals, hospitality venues, transport and admission fees linked to the event. A common mistake is to record a client dinner as a staff cost to avoid the limit. Keep the guest list, the business purpose and the receipt so the 50% treatment can be shown to be correct.
Mixed business and private use
Where a cost serves both business and private purposes, only the business part is deductible. A car used for client visits and weekends, a phone used for both work and family, or a flat used partly as an office are typical examples. Allocate on a fair and reasonable basis that you can explain, such as mileage logs or floor area, and apply it consistently from year to year.
Payments to related parties
Payments to connected persons, such as management fees paid to a shareholder, must be at arm's length to be deducted in full. Document the service, the pricing basis and the evidence the service was received. See the arm's length principle and the related party disclosure form.
Records that support a deduction
- A tax invoice or receipt in the company's name.
- The business reason, written down at the time.
- Contracts, approvals and delivery evidence for larger items.
- Payment proof that matches the invoice.
- Workings for any apportionment between business and private use.
The FTA can ask for records for the period the law requires. See how long to keep tax records.
Other restricted items to watch
Interest is limited by a separate cap for larger borrowers, covered in the interest deduction limit. Costs linked to exempt income, such as income that qualifies for the participation exemption, are not deductible against taxable income. See participation exemption. Losses are dealt with separately; see loss carry-forward.
Practical steps before you file
Review the ledger before the return is prepared. Move private items out of company expenses, apply the 50% limit to entertainment, remove fines and check that capital purchases are in the fixed asset register, not in expenses. A clean ledger makes the return faster and the audit shorter. Our corporate tax return filing service starts with this review.
Worked examples
A consultancy pays AED 24,000 for a team dinner for its own staff after a project and AED 24,000 for a dinner with a client. Under the rules as summarised by the firms above, the client dinner is limited to 50%, so AED 12,000 is deductible, while the staff dinner is treated as a staff cost and is generally deductible in full if it is a business benefit and not a private event. The same invoice amounts produce very different tax results, which is why the ledger needs separate accounts and clear narrations.
A trading company pays an AED 3,000 traffic fine for a delivery van and an AED 9,000 repair bill for the same van. The repair is deductible; the fine is not. Booking both under vehicle costs hides the fine and risks a disallowance on review. Create a non-deductible expenses account and post fines, penalties and similar items there from the start.
Capital against revenue
A laptop for AED 4,500 is an asset. It is not deducted on the day it is bought; it is depreciated over its useful life through the accounts, and the depreciation charge is what reduces taxable profit. Repairs that only keep an asset working are revenue costs. Improvements that extend its life or raise its output are capital. Where the line is unclear, record the reasoning in the file. See fixed asset register and depreciation.
Costs before you start trading
Many founders pay for formation, licensing, legal and set-up costs before the first sale. Whether and when those costs are deductible depends on their nature and on the period in which the business begins. Keep the invoices and agree the treatment with your adviser when the first accounts are prepared, instead of leaving them in a suspense account.
A pre-filing review checklist
- Entertainment is separated and limited to 50% where it relates to external guests.
- Fines, penalties and bribes are excluded.
- Owner and family costs are removed or recorded as drawings.
- Related-party charges have contracts and pricing support.
- Large one-off costs have a written business reason.
- Capital items are in the asset register, not in expenses.
Where to read the official text
For authoritative wording, use the FTA website, which publishes decisions, guides and public clarifications, the Ministry of Finance site for ministerial decisions and the UAE legislation portal for federal laws. Advisory summaries are useful for orientation but can contain errors or lag behind amendments. Before you rely on a figure or a deadline in a filing, check it against the primary source and note the date you checked it in your file.
Questions we hear often
Owners most often ask three things: whether the expense is still deductible if the company has a loss, whether a deduction can be carried forward and whether a personal purchase on the company card is a problem. A loss does not change whether a cost is deductible, but losses carry rules of their own; see loss carry-forward. A personal purchase on a company card should be recorded as a shareholder loan or drawing, not as an expense, and reimbursed or settled. Owner accounts that remain unexplained can lead to questions from auditors and banks.
Small businesses and small business relief
Eligible businesses can elect for small business relief for tax periods up to the end of 2026, which treats them as having no taxable income, subject to conditions. The relief is ending, so businesses that used it should prepare for ordinary rules. Even under relief, a clean ledger matters. See small business relief ending in 2026.
A good year-round process
- Code every expense to the right account when it is entered.
- Keep non-deductible items in separate accounts.
- Review entertainment and related-party accounts every quarter.
- Prepare a tax adjustment schedule before the audit starts.
- Keep documents for the required retention period.
Frequently asked questions
Generally those incurred wholly and exclusively for business purposes that are not capital in nature, unless the law restricts them. Salaries, rent, utilities and professional fees are typical examples.
No. Only 50% of qualifying entertainment for customers, suppliers and other business contacts is deductible. Confirm the current rule in the Decree-Law and FTA guidance.
No. Fines and penalties are not deductible, and neither are bribes, dividends or personal expenses of the owners.
Only the identifiable business portion. If it cannot be identified directly, allocate on a fair and reasonable basis and keep the working.
Generally no. Capital items are depreciated or amortised in the accounts over their useful life, and the deduction follows the accounting treatment.
You need records that support each deduction, such as tax invoices, contracts and proof of payment. Missing records can lead the FTA to disallow the deduction.