UAE Corporate Tax deductible expenses are costs incurred wholly and exclusively for business that are not capital in nature, deductible in the period they arise under Federal Decree-Law No. 47 of 2022. Some costs are partly deductible — entertainment is capped at 50% — while fines, bribes and dividends are never deductible. Abdelhamid & Co (FTA TAN 30003958) advises businesses in Dubai, Sharjah and Ajman.
The General Rule for UAE Corporate Tax Deductible Expenses
Under the FTA guidance, expenditure is deductible if it is incurred wholly and exclusively for the purposes of the business and is not capital in nature. Where a cost serves both business and non-business purposes, only the business portion is deductible on a fair and reasonable apportionment. Our Corporate Tax services help UAE companies classify every expense correctly before filing.
Capital expenditure is not deducted outright; instead it is recognised over time through depreciation or amortisation, matching the accounting treatment used in the financial statements.
Deductible, Partly Deductible and Non-Deductible — A Summary
| Expense type | Corporate Tax treatment |
|---|---|
| Staff salaries and business rent | Fully deductible |
| Client entertainment | 50% deductible |
| Employee/staff entertainment | Fully deductible |
| Fines and administrative penalties | Non-deductible |
| Bribes and illicit payments | Non-deductible |
| Dividends and profit distributions | Non-deductible |
| Recoverable input VAT | Non-deductible |
The 50% Entertainment Rule Explained
Entertainment of customers, shareholders, suppliers and other non-employees — meals, hotel stays, events — is only 50% deductible, because it is partly personal in nature. By contrast, staff entertainment such as team away-days or staff parties is fully deductible, provided it is not excessive. A simple business meeting where food and drink are provided is not treated as entertainment at all.
Worked example: a Sharjah company spends AED 80,000 entertaining clients and AED 20,000 on a staff event. It may deduct AED 40,000 (50% of client entertainment) plus the full AED 20,000 for staff — AED 60,000 in total.
Costs That Are Never Deductible
- Fines and penalties (other than ordinary contractual compensation).
- Bribes and other illicit payments.
- Donations to bodies that are not Qualifying Public Benefit Entities.
- Dividends or profit distributions to owners.
- Corporate Tax itself and recoverable input VAT.
- Pension contributions in excess of the limit set by the law, and amounts not actually paid in the period.
Connected Persons and Non-Arm's-Length Costs
Payments to Connected Persons — owners, directors and their relatives — are deductible only up to market value and only where incurred wholly for the business. Excess amounts are added back. This is a frequent FTA focus area, and we address it during a Corporate Tax compliance review.
Why Choose Abdelhamid & Co
As a Ministry of Economy licensed practice (LC0106-01) and FTA Tax Agent (TAAN 20033908), we classify expenditure in line with both IFRS and the Corporate Tax Law. We work in Arabic and English and serve clients across Dubai, Sharjah, Ajman and the UAE with fixed, transparent fees.
Are entertainment expenses deductible for UAE Corporate Tax?
Client entertainment is only 50% deductible because it is partly non-business in nature. Staff entertainment, such as team events and parties, is fully deductible provided it is not excessive. Ordinary food and drink at a business meeting is not treated as entertainment.
What expenses are non-deductible under UAE Corporate Tax?
Fines and penalties, bribes, dividends and profit distributions, Corporate Tax itself, recoverable input VAT, and donations to non-qualifying bodies are all non-deductible under Federal Decree-Law No. 47 of 2022 and must be added back when calculating taxable income.
Can I deduct capital expenditure in the UAE?
No, capital expenditure is not deducted in full in the year it is incurred. Instead it is recognised over time through depreciation or amortisation, consistent with the accounting treatment in the financial statements.
How are payments to owners and relatives treated?
Payments to Connected Persons are deductible only up to market value and only if incurred wholly and exclusively for the business. Any excess over the arm's-length amount is non-deductible and added back to taxable income.
Are pre-incorporation expenses deductible in the UAE?
Certain expenses incurred before a business commences may be deductible, but some are spread over time. For example, qualifying pre-incorporation costs of AED 50,000 may be deducted over ten years at AED 5,000 per period.
Related Services
- Corporate Tax Return Filing — accurate expense classification at filing
- Corporate Tax Compliance Review — pre-filing add-back review
- Small Business Relief — relief for revenue under AED 3 million
See the Federal Tax Authority for official rules, or our Insights page for more guidance.
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