​Understanding Deductible Expenses Under the UAE Federal Corporate Tax Law​

May 3, 2025
Latest Blog

The UAE’s Federal Decree Law No. 47 of 2022 introduces a comprehensive framework for corporate taxation, emphasizing the importance of understanding deductible expenses. Article 28 of this law specifies that any expense wholly and exclusively incurred for business purposes is allowed as a deductible expense.

Objective of Deductible Expenses

The primary objectives of delineating deductible expenses are:

  • To ensure that expenses are incurred in a reasonable and justifiable manner, avoiding personal or extravagant expenditures.​
  • To prevent potential abuse and fraudulent claims.

Understanding Tax-Deductible Expenses in the UAE

In the context of the UAE’s corporate tax regime, tax-deductible expenses are costs that businesses can subtract from their total income to reduce the amount of taxable income and tax as a result. These deductions not only ease the tax burden but also reflect the actual cost of running a business, offering a more accurate view of net profits.

As per Article 28 of the UAE Corporate Tax Law, expenditure incurred wholly and exclusively for the purposes of the taxable person’s business (this means only expenses directly linked to company operations—excluding any personal or unrelated costs—qualify for deduction) that is not capital in nature shall be deductible in the tax period in which it is incurred.

Categories of Tax-Deductible Business Expenses in the UAE

Under the UAE Corporate Tax Law, several types of business expenses qualify as tax-deductible, helping companies reduce their taxable income. These must be directly connected to the business’s core operations and aimed at generating revenue. Common deductible expense categories include:

    • Employee Compensation: This includes salaries, bonuses, allowances, and other benefits provided to staff provided that they are not excessive.

    • Commercial Rent: Lease payments for business properties such as offices, shops, or storage facilities.

    • Utilities: Charges for electricity, water, internet, and telecommunications services used in business activities.

    • Office Essentials: Costs for stationery, printing, and other day-to-day operational supplies.

    • Marketing and Promotions: Spending on branding efforts like social media ads, flyers, sponsorships, and event participation. However, (typically discretionary) costs of providing hospitality at the event, such as meals, a musical performance, or accommodation, will be subject to the 50% restriction for entertainment expenditure.

    • Professional Services: Fees paid to external consultants, lawyers, accountants, or tax advisors.

    • Asset Upkeep: Costs related to repairing or maintaining office equipment and other business assets, provided they are not capital in nature.
  • Depreciation and Amortization: Depreciation and amortization (calculated in accordance with IFRS) except those that relate to such non-deductible expenditure will also not be allowed as a deduction for the purpose of determining taxable income.

  • Employee Training: Investments in programs and courses to improve employee skills and productivity.

  • Creation & reversal of provisions (bad debts, write-off and recovery):  A provision in its financial statements in accordance with the relevant accounting standards (i.e., IFRS or IFRS for SMEs) will be allowed as a deduction as long as it satisfies the requirements for deductibility of expenditure under the Corporate Tax Law (so, for instance, it is not in respect of an illegal payment).

Partially Disallowed Expenses

Certain expenses are only partially deductible under the UAE Corporate Tax Law:

  • Entertainment Expenditure: Expenses related to entertainment, amusement, or recreation incurred for customers, shareholders, suppliers, or other business partners are 50% deductible.​
  • Interest Expenditure: Net Interest Expenditure (NIE) is deductible up to 30% of EBITDA. Any disallowed NIE can be carried forward and deducted in the subsequent 10 tax periods.​

Key Takeaways for Businesses

To ensure compliance and optimize tax positions, businesses should:

  • Maintain adequate documentation to demonstrate that expenses are related to business activities.​

  • Properly bifurcate expenses between business and non-business activities.
  • Accurately recognize expenses to avoid adjustments to taxable income during assessments. Note that entertainment expenses incurred on behalf of employees are 100% deductible if provided to enable them to perform their duties. However, if an expense is incurred for an event that is private in nature, such as a wedding for family members who happen to also be staff, it will not be deductible for corporate tax purposes.

Conclusion

MBB Auditing acts as a strategic partner, not only ensuring that your business complies with deductible expense provisions under the UAE Corporate Tax Law but also optimizing your financial and tax outcomes. By trusting MBB, businesses gain clarity, reduce tax risks, and improve financial governance.