UAE Corporate Tax Deductible Expenses — What Can Your Business Claim?
UAE Corporate Tax taxable income is calculated starting from accounting profit and then adjusted for items the law requires to be added back or deducted. Identifying which expenses are fully deductible, partially deductible, or entirely disallowed is essential to accurate CT compliance and lawful minimisation of the tax base. Federal Decree-Law No. 47 of 2022, Articles 28–33, sets out the deductibility framework. Abdelhamid & Co. Certified Public Accountants & Auditors LLC SP — UAE Ministry of Economy Licence LC0106-01, FTA Tax Agent TAN: 30003958 — assists UAE businesses in correctly identifying deductible expenses and preparing CT-compliant financial statements.
Key Facts — Deductibility Under UAE Corporate Tax
- General rule: Expenses incurred wholly and exclusively for business purposes are deductible
- Entertainment cap: 50% of qualifying entertainment expenditure only
- Interest limitation: Net interest deduction capped at 30% of adjusted EBITDA
- Related-party payments: Deductible only at arm's length — excess disallowed
- Donations: Deductible only to approved public benefit organisations
- Fines & penalties: Never deductible
The General Deductibility Rule
Under Article 28 of the Corporate Tax Law, an expense is deductible if it is incurred wholly and exclusively for the purposes of the taxable person's business and is not capital in nature (capital expenditure is recovered through depreciation or amortisation). The expense must also not be specifically disallowed by the law. Dual-purpose expenses — partly business, partly personal — are only deductible to the extent attributable to the business purpose.
Fully Deductible Business Expenses
The following categories of business expense are generally fully deductible subject to the general rule:
- Employee salaries, wages, end-of-service gratuity, and social insurance contributions
- Rent and occupancy costs for business premises
- Utilities, communications, and IT costs
- Professional fees (audit, legal, accounting, tax advisory)
- Marketing, advertising, and promotional costs
- Depreciation and amortisation on business assets (under an acceptable accounting standard)
- Bank charges and financing costs (subject to the interest limitation rule)
- Insurance premiums for business risks
- Cost of goods sold and direct production costs
Partially Deductible — Entertainment Expenditure (50% Cap)
Under Article 32, entertainment, amusement, and recreation expenditure incurred for clients, customers, or suppliers is deductible at 50% only. This includes business meals, hospitality events, gifts, and recreational activities provided to external parties. Internal staff entertainment (for example, employee team-building events) is fully deductible as a staff welfare cost. Businesses should clearly segregate client entertainment from staff costs in their accounting records.
Interest Deductibility — The 30% EBITDA Rule
Under Article 30, the net interest expense deduction is capped at 30% of adjusted EBITDA (earnings before interest, tax, depreciation, and amortisation adjusted for CT purposes). Net interest expense exceeding this cap is disallowed in the current period but may be carried forward for up to ten subsequent periods. A de minimis threshold of AED 12,000,000 net interest applies — businesses below this threshold are not subject to the EBITDA cap. This rule targets highly leveraged structures and aligns with the OECD BEPS Action 4 recommendations.
Non-Deductible Expenses
The following expenses are never deductible under the UAE Corporate Tax Law, regardless of whether they appear as valid accounting charges:
- Bribes and illicit payments — disallowed under Article 33(a)
- Fines and administrative penalties — including FTA penalties and court-ordered fines
- Dividends and profit distributions — these are appropriations of profit, not expenses
- Personal expenditure — expenses that benefit the owner or related persons personally
- Donations to non-approved organisations — only donations to listed public benefit organisations qualify
- Income tax paid in other jurisdictions — foreign CT is not deductible (but a foreign tax credit may apply instead)
- Related-party payments above arm's length — the excess over arm's length price is disallowed
Related-Party Payments — Arm's Length Deductibility
Payments to related parties and connected persons — management fees, royalties, service fees, intercompany interest — are deductible only to the extent they are at arm's length. Any amount exceeding the arm's length price is a non-deductible expense and must be added back to taxable income. This requires businesses with significant intercompany charges to maintain transfer pricing documentation supporting the pricing of related-party payments.
How Abdelhamid & Co. Helps Businesses Maximise Deductions
- Expense classification review — distinguishing capital, revenue, and dual-purpose costs
- Entertainment expenditure segregation and 50% cap computation
- Interest limitation analysis and net interest carry-forward tracking
- Related-party payment arm's length review to support full deductibility
- Chart of accounts restructuring for CT-compliant expense tracking
- Annual CT return preparation reflecting all allowable deductions
Frequently Asked Questions
Are employee salaries and end-of-service gratuity deductible under UAE Corporate Tax?
Yes. Salaries, wages, allowances, and end-of-service gratuity payments to employees are fully deductible business expenses under UAE Corporate Tax, provided they are incurred wholly for business purposes and comply with UAE Labour Law. There is no cap on the deduction of genuine employee remuneration costs.
Can a UAE company deduct the full cost of a client dinner?
Only 50% of qualifying entertainment expenditure is deductible. A client dinner would be classified as entertainment expenditure under Article 32, so only half the cost reduces the CT tax base. The company should retain invoices and document the business purpose to support the 50% deduction claim.
Are management fees paid to a parent company deductible?
Yes, subject to the arm's length principle. Management fees paid to a related party are deductible only to the extent they reflect a genuine service and are priced at what an independent party would charge. Fees that are excessive relative to services actually provided will be partially or wholly disallowed. Transfer pricing documentation supporting the fee amount is strongly recommended.
Is depreciation on fixed assets deductible for UAE Corporate Tax?
Yes. Depreciation and amortisation charged in the financial statements under an acceptable accounting standard — such as IFRS — is deductible for Corporate Tax purposes. Capital expenditure itself is not deductible in the period incurred but is recovered through depreciation over the asset's useful life.
Are FTA penalties and administrative fines deductible?
No. Administrative penalties and fines — whether imposed by the FTA, courts, or other government authorities — are specifically disallowed under Article 33 of the Corporate Tax Law. They must be added back to accounting profit when computing taxable income.
What is the interest limitation rule and which businesses does it affect?
The interest limitation rule caps the net interest expense deduction at 30% of adjusted EBITDA in any tax period. It applies to businesses with net interest expense exceeding AED 12,000,000. Businesses below this de minimis threshold can deduct net interest in full. Disallowed interest is carried forward for up to ten periods and may be deducted when future EBITDA allows.
Can a UAE company deduct charitable donations?
Donations are deductible only if made to a UAE public benefit organisation that has been listed by Cabinet Decision and approved by the Ministry of Finance. Donations to unlisted charities, overseas organisations, or individuals are not deductible. Businesses should verify the approved status of the recipient before claiming a deduction.
Last reviewed: May 2026