You have registered for corporate tax, figured out your filing deadline, and now you are staring at your profit and loss account wondering which deductions actually reduce your tax bill. The answer is buried across Federal Decree-Law No. 47, several Ministerial Decisions, and a growing stack of FTA guides - so here is a plain-language breakdown.
TL;DR: Most ordinary business expenses are deductible if they are wholly and exclusively for business purposes. Entertainment costs for non-employees are capped at 50%. Net interest above AED 12 million follows a 30% EBITDA limit. Capital spending is deducted through depreciation, not upfront. Fines, penalties, and personal costs are never deductible.
What Is the General Rule for Deductions?
The starting point is simple. Any expense incurred wholly and exclusively for your business is deductible unless the law specifically says otherwise (FTA Corporate Tax Guide, 2024). That covers rent, salaries, marketing, software subscriptions, professional fees, and the usual running costs of a UAE company.
The FTA uses your accounting profit as the starting figure and then applies adjustments. So if your books follow IFRS - which is the standard for most UAE companies - your profit and loss account does most of the heavy lifting. Adjustments only come in where the tax law overrides accounting treatment.
Which Expenses Are Fully Deductible?
Employee costs are the biggest deduction for most businesses. Salaries, bonuses, overtime, end-of-service gratuity provisions, health insurance, training, and staff relocation allowances all qualify at 100% (PwC, 2025). With over 640,000 businesses now registered for UAE corporate tax (Gulf News, 2025), payroll is by far the largest single deduction category across the system.
Other fully deductible costs include office rent and utilities, marketing and advertising spend, travel for business purposes, customs duties on imported goods, and professional fees for legal, audit, and accounting services. In our experience, the deductions that get missed most often are smaller items - cloud software subscriptions, trade association memberships, and bank charges - that add up over a financial year.
How Does the 50% Entertainment Rule Work?
This is where businesses lose money by not paying attention. Entertainment expenses for non-employees - clients, suppliers, shareholders, and other business contacts - are only 50% deductible under Article 33 of the Corporate Tax Law (FTA, 2024). That covers meals, hotel stays, event tickets, venue hire, and hospitality.
The key distinction is who the spending is for. Staff entertainment - team dinners, company events, team-building activities - remains 100% deductible because it falls under employee-related costs. A client dinner is 50%. A staff Iftar is 100%. What we see most often is businesses recording everything under one "entertainment" code in their accounting software, making it impossible to separate the two at filing time. Split the accounts early.
What Are the Interest Deduction Limits?
The General Interest Deduction Limitation Rule (GIDLR) caps your net interest expense - that is, interest paid minus interest earned - at 30% of your tax-adjusted EBITDA (FTA Interest Deduction Guide, 2025). But there is a safe harbour: if your net interest expense stays below AED 12 million for the tax period, the cap does not apply at all.
For most SMEs, the AED 12 million threshold means the GIDLR is irrelevant. But if your business carries significant debt - property developers, logistics companies, large trading operations - this rule bites hard. Any interest disallowed under the GIDLR can be carried forward for up to ten years, so the deduction is deferred rather than lost permanently.
A separate rule under Article 31 blocks interest deductions on related-party loans used to pay dividends or shift profits to low-tax jurisdictions. Unlike the GIDLR, interest blocked under this rule cannot be carried forward at all unless the lender is taxed at 9% or more in their home jurisdiction.
How Is Capital Expenditure Treated?
You cannot deduct the full cost of a new vehicle, fit-out, or piece of machinery in the year you buy it. Capital expenditure is recovered through depreciation or amortisation over the asset's useful life, following IFRS standards (PwC, 2025). Your accounting depreciation generally carries through to your tax return without adjustment.
One question clients always ask is whether the transition to corporate tax changed the base cost of existing assets. The answer is that for assets held before your first tax period, the starting value is the net book value at transition - not the original purchase price. This matters for businesses that bought property or equipment years ago. Ministerial Decision No. 173 of 2025 also introduced an election for investment property held at fair value to claim deemed depreciation, but the election is irrevocable once made.
Which Expenses Are Never Deductible?
Article 33 of Federal Decree-Law No. 47 lists costs that cannot reduce your taxable income under any circumstances (Ministry of Finance, 2022):
- Fines and penalties imposed by UAE authorities (except contractual compensation between businesses)
- Bribes and unlawful payments
- Dividends and profit distributions to shareholders
- Donations to entities that are not Qualifying Public Benefit Entities
- Corporate tax paid under the CT law itself
- Recoverable input VAT
- Foreign income taxes paid outside the UAE
- Personal expenses of owners or partners
The fines rule is worth highlighting. A late filing penalty from the FTA is non-deductible, but a contractual penalty paid to a supplier for late delivery is deductible - the law distinguishes between regulatory fines and commercial damages.
Can Small Businesses Skip All This?
If your revenue is under AED 3 million per tax period, you can elect Small Business Relief and be treated as having zero taxable income (FTA, 2023). That means 0% tax, simplified filing, and no need to calculate individual deductions.
The catch: this relief only applies to tax periods ending on or before 31 December 2026, free zone persons and members of multinational enterprise groups cannot use it, and if your revenue hits AED 3,000,001 in any single period you lose the relief permanently - not just for that year. Around 95% of businesses registered for UAE corporate tax are SMEs (Ministry of Economy, 2025), so this relief covers a large share of the market, but it will expire.
Frequently Asked Questions
Are car expenses deductible under UAE corporate tax?
Yes, but only the business-use portion. A company vehicle used partly for personal travel requires a reasonable split. The depreciation and running costs attributable to business use are deductible. The personal portion is not.
Can I deduct donations under UAE corporate tax?
Only donations to entities approved by the Cabinet as Qualifying Public Benefit Entities (QPBEs). Donations to any other charity or organisation are non-deductible. The FTA maintains a list of approved QPBEs on its website.
Do I need receipts for every deduction?
The FTA requires businesses to keep books and records for at least five years after the end of the relevant tax period - and seven years if a tax refund application is pending (FTA, 2024). Every deduction you claim should be backed by invoices, contracts, or payment records. If the FTA audits your return and you cannot support a deduction, it will be disallowed.
Is rent for my home office deductible?
If you run a licensed business from home, the portion of rent attributable to the dedicated workspace can be deductible. You need a reasonable basis for the split - typically square footage - and documentation to support it. The personal portion of your rent is never deductible.
What happens to disallowed interest expenses?
Interest disallowed under the 30% EBITDA rule (GIDLR) can be carried forward for up to ten years and used when you have enough EBITDA headroom. Interest disallowed under the related-party rule (SIDLR) cannot be carried forward at all.
Getting your deductions right in the first filing year sets the pattern for every year after. If you are unsure which expenses qualify - or how to separate entertainment, capital, and operating costs in your accounts - talk to our team. We work with UAE businesses across mainland and free zones, and we are happy to review your setup before your return is due.