Which Business Expenses Can You Deduct Under UAE Corporate Tax?
When running a business in the UAE, managing expenses goes far beyond keeping your operations running smoothly. It directly impacts how much corporate tax you end up paying. Not every payment leaving your account will reduce your tax bill, and this is where the UAE Corporate Tax Law provides clarity. By understanding what qualifies as a deductible business expense, you can avoid mistakes, stay compliant with the Federal Tax Authority (FTA), and keep your financial reporting accurate.
This expanded guide covers the golden rule for deductions, common deductible expenses, restricted and disallowed expenses, and the best practices to make sure you are prepared when filing your first corporate tax return.
The Golden Rule for Business Expenses
The FTA has one clear standard: expenses are deductible only if they are incurred wholly and exclusively for the purpose of the business. This means the cost must have no personal element. If there is a mix of business and personal benefit, you can only deduct the business portion, and even then, you must be able to prove it.
Example of Mixed Use
- If you host a dinner with a client to discuss a business project, the dinner falls under entertainment rules, where only 50% of the expense is deductible.
- If your family joins the dinner, only the portion related to the client is considered, and even then, only half of that is deductible.
This principle applies across categories and requires clear documentation.
Common Deductible Business Expenses
The UAE Corporate Tax framework allows businesses to claim a wide range of everyday operational costs, as long as they meet the wholly and exclusively rule.
Salaries and Wages
Salaries, wages, and benefits paid to staff are deductible. This includes allowances, bonuses, and incentives provided to employees.
Office Rent and Utilities
Rent for office premises, electricity, water, and internet services are allowable deductions. These are necessary to maintain business operations.
Marketing and Advertising
Expenses related to advertising campaigns, digital marketing, promotional materials, and sponsorships that are clearly tied to business objectives are deductible.
Staff Training and Development
Investments made in staff skills, training programmes, and workshops can be claimed. Since these improve business performance, they are allowable.
Loan Interest
Interest paid on loans taken for genuine business purposes is deductible, but it is subject to certain restrictions and limits under the Corporate Tax Law. Businesses must ensure the loan is commercially justifiable.
Expenses That Cannot Be Deducted
Not every payment your company makes will qualify as deductible. The FTA clearly disallows certain categories of expenses regardless of the circumstances.
Bribes and Illegal Payments
Any illegal payment or bribe is strictly non-deductible.
Fines and Penalties
Administrative fines or penalties, such as those imposed for non-compliance or late filing, cannot be deducted.
Personal Expenses
Payments for personal items, family costs, or unrelated lifestyle expenses are excluded from business deductions.
Special Categories and Key Considerations
Some expenses require additional care and are subject to specific limits under the UAE Corporate Tax Law.
Capital Expenditure
When a company buys long-term assets such as property, equipment, or vehicles, the entire cost cannot be deducted at once. Instead, the value is claimed over time through depreciation. Depreciation methods must align with accepted accounting standards.
Entertainment Costs
Only 50% of client-related entertainment expenses can be deducted. These include meals, events, and hospitality provided for business purposes. Staff parties or purely internal events do not fall under this allowance.
Expenses Related to Exempt Income
If the cost is linked to income that is exempt from tax, it is not deductible. For example, if the company earns certain foreign branch profits that are exempt, the related costs cannot be claimed as deductions.
Best Practices for Managing Deductible Expenses
Correct handling of business expenses can prevent unnecessary issues with the FTA and improve financial clarity.
Keep Clear Documentation
Maintain invoices, receipts, contracts, and proof for all claimed expenses. These should be stored securely and be easy to retrieve in case of audit or inquiry. The FTA requires records to be kept for at least seven years.
Categorise Expenses Properly
Avoid misclassification by ensuring expenses are clearly labelled under categories like salaries, rent, utilities, marketing, or training. Proper categorisation helps reduce errors in financial reporting.
Use Accrual Accounting
The UAE requires expenses to be recognised when incurred, not when paid. Unless special approval is obtained, businesses should follow accrual accounting standards.
Separate Personal and Business Use
If an item is used for both personal and business reasons, calculate and claim only the business-related portion. A common example is a mobile phone or internet service shared between personal and business use.
Consider Professional Support
Working with accountants or advisors ensures expenses are classified correctly and deductions are maximised while staying within legal boundaries.
Why Work With Alpha Pro Partners
Understanding deductible expenses under the UAE Corporate Tax regime can be challenging, especially for SMEs and fast-growing businesses. At Alpha Pro Partners, we help companies structure their expenses correctly, maintain clean accounting records, and stay fully compliant with FTA requirements. Our team ensures you avoid unnecessary penalties and make the most of available deductions.
Contact Alpha Pro Partners today for a free consultation and let our experts guide you through UAE Corporate Tax compliance with confidence.
FAQs on Deductible Expenses
What is the golden rule for deductible expenses?
Expenses must be wholly and exclusively for business purposes to qualify for deduction.
Can I deduct my own salary as a business owner?
Owner withdrawals or dividends are not deductible. Only salaries paid to employees count.
Are bank fees deductible?
Most business-related bank charges are deductible, except those linked to non-business transactions.
How much of entertainment costs can I deduct?
Only 50% of client-related entertainment costs are deductible. Internal staff entertainment is generally not allowed.
What if I use a mobile phone for both business and personal use?
You can deduct the business-use portion, but clear records are required.
What happens if I claim an ineligible expense?
The FTA can disallow it, and penalties may apply for incorrect filings.
Do I need receipts for every expense?
Yes, supporting documents must be kept for at least seven years to support deductions.
How does depreciation work on capital assets?
Capital asset costs are deducted over time through depreciation rather than fully in the year of purchase.
Can I claim home office expenses?
A portion of rent and utilities may be deductible if directly linked to business use, provided you keep clear documentation.
Should I use accounting software or professional help?
Yes, using software or consulting experts ensures accuracy and helps businesses maximise allowable deductions while staying compliant.
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