UAE Corporate Tax deductible expenses must be incurred wholly and exclusively for the purposes of the taxable person's Business under Article 28 of Federal Decree-Law No. 47 of 2022. Non-deductible expenses — including bribes, personal expenses, fines, and entertainment above the 50% limit — must be added back to Accounting Income when determining Taxable Income. Abdelhamid & Co. (FTA TAAN 20033908, MOE LC0106-01) provides Corporate Tax Compliance Reviews for businesses across Dubai, Sharjah, and the UAE.
General Deductibility Rule Under UAE Corporate Tax Law
The general rule under Article 28(1) of the Corporate Tax Law is straightforward: expenditure is deductible if it is incurred wholly and exclusively for the purposes of the Taxable Person's Business and is not capital in nature. Non-deductible expenditure must be added back to the accounting net profit when computing Taxable Income.
This rule applies to all businesses in the UAE — whether incorporated in Dubai, Sharjah, Abu Dhabi, Ajman, or operating through a Free Zone entity. Our Corporate Tax Compliance Review service identifies add-backs before the return is filed.
Deductible vs. Non-Deductible — Quick Reference Table
| Expense Type | Deductible? | Rule / Article |
|---|---|---|
| Salaries and employee costs | Yes (if arm's length) | Art. 28(1) |
| Rent, utilities, office expenses | Yes | Art. 28(1) |
| Pre-incorporation expenses | Yes (if incurred within 3 years) | Art. 28(1) & MD 126/2023 |
| Entertainment (client hospitality) | 50% only | Art. 32 |
| Capital expenditure (depreciable assets) | Via depreciation only | Art. 28(6) |
| Interest expense (general rule) | Up to 30% of adjusted EBITDA | Art. 30 |
| Fines and penalties (government) | No | Art. 33(1)(a) |
| Bribes and illicit payments | No | Art. 33(1)(b) |
| Corporate Tax itself | No | Art. 33(1)(c) |
| Dividends paid to shareholders | No | Art. 33(1)(d) |
| Expenses to derive exempt income | No | Art. 28(2)(b) |
Entertainment Expenditure — The 50% Rule
Entertainment expenditure incurred to entertain business partners, customers, or suppliers is deductible at only 50% of the amount incurred, under Article 32 of the Corporate Tax Law. The remaining 50% must be added back when computing Taxable Income.
Example (Dubai hospitality company): A hotel management company in Dubai spends AED 200,000 entertaining clients at corporate events. Only AED 100,000 is deductible for Corporate Tax purposes. The AED 100,000 balance is added back to Accounting Income.
Note: Employee entertainment (team-building events, seasonal functions) is NOT subject to the 50% limit — it is fully deductible as employment-related expenditure.
Related Party Payments and Arm's Length Principle
Payments to Connected Persons (shareholders, related entities, family members of a shareholder) must comply with the arm's length standard under Article 34 of the Corporate Tax Law. Any excess above the arm's length amount is non-deductible.
Example (Sharjah manufacturing company): A Sharjah manufacturer pays its sole shareholder AED 500,000 annual management fees. Market rate for comparable services is AED 200,000. Only AED 200,000 is deductible; AED 300,000 must be added back to Taxable Income.
Capital Expenditure vs. Revenue Expenditure
Capital expenditure — costs that create an enduring business asset (machinery, vehicles, leasehold improvements) — cannot be deducted in the year incurred. Instead, they are capitalised and deducted over the asset's useful life through depreciation or amortisation, in line with the accounting standards applied by the business.
Example: A Sharjah logistics company spends AED 600,000 on a warehouse extension. This is capital in nature and must be depreciated over the asset's useful life — it cannot be expensed in full in Year 1.
Pre-Incorporation and Pre-Trade Expenses
Expenses incurred before a business commences operations in the UAE may still be deductible, subject to conditions. Under Ministerial Decision No. 126 of 2023, pre-incorporation expenses incurred within 3 years prior to the start of the first Tax Period are deductible if they would have been deductible had they been incurred during the Tax Period itself.
Common Mistakes UAE Businesses Make with Deductible Expenses
- Claiming the full amount of client entertainment without applying the 50% cap
- Deducting the full Corporate Tax itself (which is explicitly non-deductible)
- Expensing capital costs in full rather than deprecating them
- Failing to apply arm's length pricing on related party management fees
- Deducting government fines and regulatory penalties
Our Corporate Tax team in Sharjah reviews expense classifications before filing to prevent costly adjustments or penalties.
Frequently Asked Questions — Deductible Expenses UAE Corporate Tax
Are employee salaries fully deductible for UAE Corporate Tax?
Yes, employee salaries are generally fully deductible as they are wholly and exclusively incurred for Business purposes, provided they meet the arm's length standard where the employee is a Related Party or Connected Person.
How much of entertainment expenses can I deduct for UAE Corporate Tax in Dubai?
Only 50% of client entertainment expenditure is deductible under Article 32. The remaining 50% must be added back to Accounting Income when determining Taxable Income.
Are penalties and fines deductible under UAE Corporate Tax?
No. Government-imposed fines, penalties, and compensatory payments are explicitly non-deductible under Article 33(1)(a) of the Corporate Tax Law.
Can a Sharjah company deduct pre-incorporation expenses?
Yes, subject to conditions. Expenses incurred up to 3 years before the first Tax Period are deductible if they would have been deductible during the Tax Period, per Ministerial Decision No. 126 of 2023.
Are dividends paid to shareholders deductible for Corporate Tax in the UAE?
No. Dividends paid to shareholders are distributions of profit, not Business expenditure, and are explicitly non-deductible under Article 33(1)(d).
Related Services
See also our CT Return Filing, Compliance Review, and CT Registration services. Visit our Insights page or the Federal Tax Authority for official Corporate Tax guides.
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