CORPORATE TAX · DEDUCTIBLE EXPENSES · UAE

What Expenses Are Deductible for Corporate Tax in the UAE?

A practical guide to allowable and disallowed expenses, special limits, and the records you need

Knowing which expenses are deductible is one of the most practical parts of UAE Corporate Tax. Claim too little and you overpay; claim the wrong items and you risk adjustments, penalties, and awkward questions from the Federal Tax Authority.

The starting point is simple: business costs that are genuinely incurred for the business and properly evidenced are generally deductible, while personal, capital, penalty, and distribution items are not. A few categories, such as entertainment, interest, and related-party payments, come with special rules.

This guide sets out the general rule, common deductible and non-deductible items, special limits, record-keeping, and mistakes to avoid. Our tax services team helps UAE businesses prepare accurate Corporate Tax computations and returns.

1. The General Rule for Deductibility

Under UAE Corporate Tax, taxable income starts from accounting profit, then adjusts for items the law treats differently. In general, an expense is deductible when it is incurred wholly and exclusively for the purposes of the business, is not capital in nature, and is properly supported and recorded.

Not sure whether your business falls under the tax? See who is required to pay Corporate Tax in the UAE.

2. Commonly Deductible Expenses

Expense	Why it is usually deductible	Keep in mind
Staff salaries, bonuses, and benefits	Incurred for running the business	Payroll records and contracts; owner remuneration must be reasonable
Rent and office or premises costs	Needed to operate	Lease agreement and invoices in the company name
Utilities, internet, and telecom	Business running costs	Business use only; apportion mixed use
Professional fees (audit, accounting, legal)	Support operations and compliance	Engagement letters and invoices
Marketing and advertising	Generates revenue	Proof of spend and business purpose
Cost of goods sold and raw materials	Direct cost of sales	Stock records and supplier invoices
Business travel	Incurred for business trips	Purpose, dates, and receipts; personal elements excluded
Depreciation of business assets	Spreads cost of capital assets over their life	Follows accounting treatment and the tax rules for the asset
Bad debts, where conditions are met	Customer balances that are actually unrecoverable	Evidence of recovery efforts and write-off
Insurance and licence fees	Required to operate	Policy documents and renewals
Software, subscriptions, and IT costs	Needed for business systems	Check if capital or recurring
Interest on business borrowing	Cost of funding the business	Interest limitation rules may apply, see section 4

3. Expenses That Are Not Deductible

• Fines and penalties: generally not deductible, other than certain compensation for damages
• Bribes and illegal payments: never deductible
• Dividends and profit distributions: distributions to owners are not business expenses
• Corporate Tax itself: tax paid under the Corporate Tax law is not deductible
• Non-business or personal expenses: costs of the owner's private life, even if paid by the company
• Capital expenditure: treated through depreciation rules instead of an immediate deduction
• Expenses linked to exempt income: may not be deductible, depending on the relevant rules
• Recoverable input VAT: VAT you can claim back is not an additional expense
• Donations to non-qualifying bodies: deductible only where the recipient qualifies

4. Expenses With Special Limits

Item	General position
Client entertainment	Only a percentage of entertainment, hospitality, and similar expenses is deductible
Net interest expense	May be limited by an interest cap relative to earnings, with a de minimis allowance for smaller amounts
Qualifying donations	Deductible only to approved recipients and within any applicable limits
Related-party and connected-person payments	Must be at arm's length and for real business benefit
Tax losses	Losses carried forward may be limited in how much taxable income they can offset

5. Related-Party and Owner Payments

• Payments to related parties should be at arm's length: what independent parties would agree
• Owner or director salaries should be for real work and be reasonable for the role
• Management fees and royalties need agreements, evidence of services, and a sensible basis
• Loans from owners or group companies need documented terms and interest rates
• Personal expenses paid by the company should be reimbursed or treated as drawings

For groups, read our guides on multinational company transfer pricing and a retail business optimized tax structure.

6. Capital vs Revenue Expenses

Type	Examples	Tax treatment (general)
Revenue expense	Rent, salaries, repairs, utilities, marketing	Deducted in the period incurred
Capital expense	Buying property, vehicles, machinery, major fit-out	Not deducted at once; relief through depreciation or similar rules
Mixed cost	Repairs that improve or extend an asset	May be partly or fully capital; analyse the facts

7. Evidence and Record-Keeping

• Valid tax invoices and receipts in the company's name
• Contracts, quotes, and approvals showing business purpose
• Bank statements matching payments to invoices
• Payroll, WPS, and employment records
• Workings for apportioned and adjusted items
• Records kept for the legally required period

Use our checklist of documents needed for accounting services. Clean books from our accounting and bookkeeping services make deductions easy to prove.

8. Illustrative Example

9. Sector Notes

Sector	Points to watch
Restaurants and hospitality	Entertainment, staff meals, delivery commissions; see restaurant chain VAT implementation
Funds and investment vehicles	Costs linked to exempt or investment income; see investment fund accounting UAE
Financial institutions	Regulatory costs, provisions, and reporting; see how to comply with Central Bank requirements
Free zone companies	Expenses linked to qualifying and non-qualifying income
Small businesses	Check eligibility for relief; keep records from the start

Our tax services and advisory team can review your expense policy, and our audit and assurance services can test it independently.

10. Common Mistakes

• Claiming personal or owner expenses as business costs
• Deducting full entertainment costs without checking the limit
• Not keeping valid invoices or supporting documents
• Treating capital purchases as normal expenses
• Ignoring the arm's length test for related-party payments
• Adding back nothing at year-end because the books were "closed"
• Leaving the tax computation to the last minute before the deadline

Frequently Asked Questions