An expense is deductible for UAE corporate tax if it is not capital in nature and is incurred wholly and exclusively for your business. Some costs are only partly deductible (entertainment is limited to 50%), and some are never deductible, such as fines, bribes, dividends and donations to non-qualifying organisations.
Corporate tax is charged on your taxable income, not your cash in the bank. So every dirham you can legitimately deduct lowers the tax you pay above the AED 375,000 threshold, and every dirham you claim wrongly is a risk in an FTA review. This guide explains what you can deduct, what you cannot, and how to keep the records that back it up.
It is written for business owners and finance managers. If you would rather have someone check your numbers, our team handles corporate tax services from registration to filing.
Quick answer (reviewed October 2026)
- Deductible: business expenses that are not capital in nature and are incurred wholly and exclusively for the business.
- 50% deductible: entertainment for customers, suppliers, shareholders and other business partners.
- Not deductible: fines and penalties, bribes, dividends and profit distributions, recoverable VAT, and donations to non-qualifying organisations.
- Limited: net interest above 30% of tax-adjusted EBITDA, where net interest exceeds AED 12 million.
- Rate: 0% on taxable income up to AED 375,000 and 9% above that.
The General Rule: Wholly and Exclusively for Business
The starting point is simple. An expense is deductible when it meets two tests:
- It is not capital in nature. Buying a vehicle or equipment is capital spending. You do not deduct the full price in one go; you claim depreciation over time instead.
- It is incurred wholly and exclusively for the purposes of your business.
If a cost has a mixed purpose, the part that is clearly for the business is deductible. If you cannot identify the business part exactly, you can apportion it on a fair and reasonable basis. If you cannot apportion it at all, it is disallowed in full. A phone bill used for both work and personal calls is a typical example.
Expenses also need to be recorded in your financial statements. Tax follows the books, which is why accurate bookkeeping matters more than any tax trick.
Expenses You Can Usually Deduct
| Expense | Treatment |
|---|---|
| Rent and utilities | Deductible when used for the business |
| Staff salaries and benefits | Deductible if they are genuine business costs |
| Professional fees (accounting, audit, legal) | Deductible |
| Marketing and advertising | Deductible |
| Business travel | Deductible for business purposes |
| Software and subscriptions | Deductible |
| Depreciation and amortisation | Deductible, generally following your accounting standard (IFRS) |
| Provisions | Generally deductible if they meet the general conditions; reversals of deducted provisions are taxable |
| Pre-incorporation and pre-revenue costs | Deductible if recorded in the financial statements and they meet the general conditions |
| Interest on business loans | Deductible, subject to the interest limit explained below |
Employee end-of-service costs also affect your accounts. See our guide to gratuity accounting for how to record them.
Expenses That Are Not Deductible
- Fines and penalties. This includes late filing and late payment penalties charged by the FTA.
- Bribes and illicit payments.
- Dividends and profit distributions. Paying shareholders is not a business expense.
- Donations to organisations that are not Qualifying Public Benefit Entities.
- VAT you can recover from the FTA. It is not a cost to the business. See input tax credit.
- Foreign income tax and the UAE corporate tax itself.
- Costs of earning exempt income, such as expenses linked to income that is exempt from tax.
- Personal expenses of the owner or family that are not for the business.
- Related-party payments above market value. Only the arm’s length amount is allowed. See transfer pricing.
Entertainment: Only 50% Is Deductible
Entertainment is the area where businesses most often claim too much. Only 50% of the expense is deductible when you provide meals, accommodation, transport, admission fees or entertainment facilities to customers, shareholders, suppliers or other business partners.
A client dinner that costs AED 2,000 gives you a deduction of AED 1,000. Code these costs to a separate account in your books, so the 50% adjustment is easy to make at filing time. A good chart of accounts does this by default.
Interest: Deductible Up to a Limit
Interest on a business loan is normally deductible, but there are two rules to know.
The general limit
Net interest expense (interest paid minus interest received) is deductible up to 30% of tax-adjusted EBITDA. The limit does not apply when your net interest expense is AED 12 million or less, so most small and mid-sized businesses are not affected. Interest you cannot deduct can be carried forward for ten tax periods.
The related-party rule
Interest on a loan from a related party is not deductible if the loan is used to fund a dividend, a return of share capital, a capital contribution to a related party, or the purchase of an interest in a company that becomes a related party. There is an exception where the lender is taxed on that interest at a rate of at least 9%.
Owner Pay, Family Members and Related Parties
Payments to owners, directors and their relatives get extra attention, because the FTA checks whether you would have paid the same amount to an independent person. A reasonable salary for real work is normally fine. An inflated salary, or “consulting fees” for work that never happens, is not.
Profit taken out as dividends is a different matter entirely, because dividends are never deductible. Our guide on owner salary vs dividend compares the two routes.
Tax Losses Are Not an Expense, but They Matter
If your deductions exceed your income, the result is a tax loss. You can use it against taxable income in later periods, but only up to 75% of taxable income in each period. Unused losses carry forward without a time limit. There are conditions on ownership changes and on losses from before corporate tax began. Read our guide to corporate tax loss relief.
Special Cases: Small Business Relief and Free Zones
- Small Business Relief. If you elect it, you are treated as having no taxable income for the period, so deductions do not reduce any tax. See Small Business Relief.
- Free zone companies. A Qualifying Free Zone Person pays 0% only on qualifying income, so expenses must be allocated between qualifying and non-qualifying activities. See Qualifying Free Zone Person.
How to Keep Your Deductions Safe in a Review
- Keep the paper trail for every material expense: the invoice, the contract or order, and proof of payment. Corporate tax records must be kept for 7 years.
- Record the business reason for anything unusual, such as a large travel or consulting cost.
- Split mixed-use costs in the books, rather than guessing at the end of the year.
- Use separate accounts for entertainment, donations, fines and related-party payments, so the add-backs are visible.
- Reconcile monthly. Errors found in March are easier to fix than errors found nine months after year-end. See our online accounting services.
- Check the dates. Your return and payment are due 9 months after your period ends. The UAE tax calendar shows the key dates.
Get Your Deductions Checked
We review your books before filing, separate allowed from disallowed costs, and prepare the computation for your approval. Learn more about corporate tax return filing and our corporate tax advisory, or request a quote. For the full picture of the tax, read our UAE corporate tax guide.
Frequently Asked Questions
Which expenses are deductible for UAE corporate tax?
Expenses that are not capital in nature and are incurred wholly and exclusively for your business are generally deductible. Typical examples are rent, salaries, utilities, professional fees, marketing and business travel, as long as they are recorded in your financial statements. See our corporate tax return filing guide for how they flow into the return.
Is entertainment expense deductible under UAE corporate tax?
Partly. Only 50% of entertainment expenses are deductible. This covers meals, accommodation, transport, admission fees and entertainment facilities provided to customers, shareholders, suppliers and other business partners.
Are fines and penalties deductible?
No. Fines and penalties, bribes and illicit payments are not deductible. That includes late-filing and late-payment penalties charged by the FTA. Our guides on VAT penalties and the corporate tax filing deadline show what they cost.
Can I deduct donations?
Only if they are made to a Qualifying Public Benefit Entity. Donations to other organisations are not deductible.
Can I deduct the salary I pay myself as the owner?
A salary can be deductible if it is a genuine business cost and is at a fair market level, because payments to owners and other related parties are tested against what an independent party would be paid. Dividends and profit distributions are never deductible. See owner salary vs dividend and our note on transfer pricing.
Is interest on a business loan deductible?
Usually yes, but there is a limit. Net interest expense is deductible up to 30% of tax-adjusted EBITDA. The limit does not apply if your net interest expense is AED 12 million or less. Amounts that are disallowed can be carried forward for ten tax periods.
Is input VAT deductible for corporate tax?
VAT you can recover from the FTA is not a corporate tax expense, so it is not deductible. If you cannot recover the VAT, for example on a blocked category of spending, it can form part of the cost. See our guide to input tax credit.
Do I need to worry about deductions if I use Small Business Relief?
If you elect Small Business Relief, you are treated as having no taxable income for the period, so deductions do not reduce a tax bill. You still need proper books.
What happens if I claim an expense that is not allowed?
The FTA can disallow it, which raises your taxable income and can lead to extra tax and penalties. If you find an error after filing, correct it promptly. Our voluntary disclosure guide explains how.
Last reviewed 30 October 2026. This page is general information, not tax advice for your specific situation. Rules and thresholds can change, so check the current position with the Federal Tax Authority (tax.gov.ae) or a qualified adviser. JASM Accounting & Bookkeeping LLC is a private firm and is not affiliated with any government authority.
