Key takeaways
- A UAE business can deduct expenditure for corporate tax purposes only if it was incurred wholly and exclusively for the business and is not capital in nature (Article 28 of Federal Decree-Law No. 47 of 2022).
- Entertainment costs for customers, suppliers, shareholders and other business partners are only 50% deductible under Article 32; staff events are treated differently.
- Fines and penalties, bribes, dividends, donations to non-qualifying bodies, recoverable input VAT and corporate tax itself are never deductible under Article 33.
- UAE corporate tax lets a company deduct net interest expenditure up to 30% of EBITDA, but the cap doesn't apply where net interest is AED 12,000,000 or less in a tax period (as of October 2026).
- Payments to directors, owners and other connected persons are deductible only up to the Market Value of what they receive, and anything with a personal element must be apportioned.
What makes an expense deductible for UAE corporate tax?
An expense is deductible if it was incurred wholly and exclusively for the purposes of your business and isn't capital in nature. That is the test in Article 28(1) of Federal Decree-Law No. 47 of 2022, and it applies in the tax period the cost is incurred.
Article 28(2) lists what falls outside it: spending not incurred for the business, spending incurred in earning exempt income, losses not connected with the business, and anything a Cabinet decision names. Where a cost mixes business and private purposes, Article 28(3) allows the identifiable business part plus a fair share of the part you can't separate. The FTA's guide adds that if no fair and reasonable split is possible, none of the cost is deductible.
Capital spending is handled differently: the FTA treats equipment, vehicles and similar assets as costs recovered over time through depreciation or amortisation, not as an immediate deduction.
Which expenses can you never deduct?
Article 33 of the Decree-Law names the costs that are never deductible, whatever their business purpose. Several catch ordinary SMEs by surprise because they sit comfortably in the books as normal expenses.
| Non-deductible item | What it covers | Legal basis |
|---|---|---|
| Donations, grants and gifts | Anything given to an entity that isn't a Qualifying Public Benefit Entity | Article 33(1) |
| Fines and penalties | Excludes amounts awarded as compensation for damages or breach of contract | Article 33(2) |
| Bribes and illicit payments | All of them | Article 33(3) |
| Dividends and profit distributions | Paid to an owner of the taxable person | Article 33(4) |
| Owner withdrawals | Amounts withdrawn by a natural person taxable person or a partner in an unincorporated partnership | Article 33(5) |
| Corporate tax | Tax imposed under the Decree-Law itself | Article 33(6) |
| Recoverable input VAT | Input VAT you can recover under the VAT law | Article 33(7) |
| Foreign income tax | Tax on income imposed outside the UAE | Article 33(8) |
The list also allows Cabinet decisions to add further items, so check the current legislation before relying on this table for an unusual cost. Law as consolidated by the Ministry of Finance, January 2026.
How much of client entertainment can you deduct?
You can deduct 50% of entertainment, amusement and recreation costs for customers, shareholders, suppliers and other business partners. Article 32 covers meals, accommodation, transport and admission fees for those guests, and the other half is added back to your taxable income.
Say a SHAMS trading company spends AED 20,000 a year on client dinners and corporate-box tickets: AED 10,000 is deductible and AED 10,000 isn't. The FTA's guide draws the line between guests and staff. A restaurant meal for business partners or a corporate box at a sporting event is 50% deductible, while staff parties, team-building events and incidental refreshments at business meetings are treated as ordinary staff costs. Trade show booths, demonstrations and free trials given to generate publicity are also not entertainment under the guide. Private events for family members, including a staff member's family wedding, aren't deductible at all.
50%: share of entertainment costs for customers, suppliers and other business partners that is deductible for UAE corporate tax. Source: Federal Decree-Law No. 47 of 2022, Article 32, checked 30 October 2026.
Is interest expense fully deductible under UAE corporate tax?
No. Interest is deductible in the period it is incurred under Article 29, but two limits can reduce it: a general cap under Article 30 and a ban on certain related-party loans under Article 31.
| Rule | What it does | Source |
|---|---|---|
| General interest limitation | Net interest expenditure is deductible up to 30% of EBITDA | Article 30(1) |
| De minimis threshold | The cap doesn't apply if net interest is AED 12,000,000 or less in the tax period | Ministerial Decision No. 126 of 2023, Article 8 |
| Carry forward | Disallowed net interest can be carried forward for 10 tax periods | Article 30(4) |
| Excluded persons | Banks, insurance providers and natural persons conducting a business are outside the general cap | Article 30(6) |
| Related-party loans | No deduction for interest on a loan used to fund a dividend, share redemption, capital contribution or acquisition of a related interest, unless the main purpose wasn't a corporate tax advantage | Article 31 |
Figures as of October 2026. For most established SMEs the AED 12,000,000 threshold means the general cap never bites; the related-party rule is the one to watch if shareholders have funded the company.
Can you deduct director salaries and expenses you paid personally?
Director and owner pay is deductible if it is a real business cost, but only up to what an arm's length party would pay. Article 36 makes payments and benefits to connected persons deductible only to the extent they correspond with Market Value, and the FTA's guide applies that to salaries and bonuses for directors, officers and owners.
Dividends are a different matter: Article 33(4) bars any deduction for profit distributions to owners, so drawing profit as a "salary" above market rate doesn't work as a way to shrink taxable income. For expenses you paid from your own pocket, the Article 28 test still asks whether the cost was for the business, not whose card was used. The FTA guide doesn't address personal payments specifically, so this is reasoned from the rules: keep the supplier invoice in the company's name, book the amount as owed to you, and apportion anything with a private element.
What most guides don't tell you
- Capitalised fines still cost you. The FTA's guide gives the example of a AED 50,000 fine capitalised over 10 years: the AED 5,000 of annual depreciation is disallowed too, because depreciation can't create a deduction for something that wasn't deductible.
- The 50% rule follows the guest, not the invoice. A meal for a client and a meal for your team can come from the same restaurant and land in different tax treatments, so split them in your ledger when you book them, not at year end.
- Records have to support the return. Article 56 requires taxable persons to keep records for seven years after the end of the tax period, and those records must support the figures in the return and let the FTA ascertain your taxable income. A deduction you can't evidence is a deduction at risk. If you'd rather not track these dates by hand, the free UAE compliance calendar lists them for your company: a free calendar of your company's UAE tax and compliance deadlines, personalised from a few questions, as a PDF and calendar file.
- Mixed-use costs need a method you can defend. The FTA's guide favours consistent allocation keys, and revenue-based splits are often reasonable but not automatically accepted. Pick one basis and apply it every year.
Which deadlines apply to your company?
Deductions only help if the return behind them is filed on time and supported by records. The free UAE compliance calendar shows the tax and compliance deadlines that apply to your company, personalised from a few questions.
Frequently asked questions
Are entertainment expenses deductible for corporate tax?
Only 50% of entertainment, amusement and recreation costs for customers, shareholders, suppliers and other business partners is deductible under Article 32 of Federal Decree-Law No. 47 of 2022. Staff parties and team-building events are treated differently and are generally fully deductible under the FTA's guide.
Is interest expense fully deductible under UAE corporate tax?
Not always. Net interest expenditure is deductible up to 30% of EBITDA under Article 30, but the cap doesn't apply where net interest is AED 12,000,000 or less in a tax period (Ministerial Decision No. 126 of 2023). Interest on certain related-party loans is blocked entirely under Article 31.
Is depreciation deductible for UAE corporate tax?
Yes, for capital assets used in the business: the cost is deducted gradually through depreciation or amortisation, not all at once. Depreciation on something that would not have been deductible if expensed, such as a capitalised fine, is also disallowed.
Is director salary deductible for corporate tax in a UAE company?
Yes, if it is incurred wholly and exclusively for the business, but payments to directors and other connected persons are deductible only up to the Market Value of the work or benefit (Article 36). Dividends and profit distributions to owners are never deductible.
Can I claim expenses I paid personally for the business?
Generally yes, if the cost was actually incurred for the business and you can document it, because the Article 28 test looks at purpose, not at whose card paid. Record the reimbursement or the amount owed to you properly, and apportion anything with a personal element.
About Qawi · Qawi is a corporate services firm licensed in the Sharjah Media City (SHAMS) free zone, handling company formation, visas and PRO, bookkeeping, VAT and corporate tax for UAE businesses. Guides are researched from FTA, Ministry of Finance and free zone sources. Qawi on LinkedIn
Sources
- Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses, consolidated with amendments (Ministry of Finance, January 2026)
- Ministerial Decision No. 126 of 2023 on the General Interest Deduction Limitation Rule (Ministry of Finance)
- FTA Corporate Tax Guide: Determination of Taxable Income, CTGDTI1, July 2024
- FTA Determination of Taxable Income guide page
Last checked: 30 October 2026
This is general information, not tax or legal advice for your specific situation.