Deductible Expenses Under Corporate Tax

The UAE Corporate Tax regime, introduced through Federal Decree-Law No. 47 of 2022, allows businesses to deduct legitimate business expenses from their taxable income. Understanding what expenses are deductible and under what conditions is critical for businesses to optimize their tax liability and ensure compliance.

 Sheikh Anwar Accounting & Auditing LLC provides a comprehensive guide to deductible expenses, limitations, and exclusions as per the UAE Corporate Tax framework.

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📜 Legal Foundation

The main provisions related to deductible expenses are found in:

• Article 28 – General deduction rule

• Articles 29–34 – Specific limitations and exclusions

• Ministerial Decision No. 114 of 2023 – Supporting guidance

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✅ What Are Deductible Expenses?

A deductible expense is any cost that is incurred wholly and exclusively for the purpose of the business and is not capital in nature.

These expenses are subtracted from the business’s total income to arrive at the taxable income on which corporate tax (typically 9%) is levied.

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🧾 Common Deductible Expenses

Here are some examples of expenses generally deductible under UAE Corporate Tax Law:

1. Employee Costs

• Salaries and wages

• Bonuses and incentives

• End-of-service benefits

• Employee medical insurance

• Visa and recruitment expenses

2. Rent and Utilities

• Office rent (including DEWA and service charges)

• Warehouse and factory rent

• Electricity, water, and internet expenses

3. Professional and Consultancy Fees

• Legal fees

• Audit and accounting services

• Tax advisory and compliance consultancy

4. Marketing and Advertising

• Advertising and promotion campaigns

• Social media marketing

• Event sponsorships

5. Travel and Accommodation

• Business travel (airfare, hotels)

• Per diem allowances (within reasonable limits)

• Transportation costs

6. Repairs and Maintenance

• Office equipment maintenance

• Machinery servicing

• IT system upgrades and maintenance

7. Software and Subscriptions

• ERP/accounting software fees

• Annual IT licenses

• Industry-specific software

8. Depreciation and Amortization

• Depreciation of fixed assets (as per UAE CT Law)

• Amortization of intangible assets

9. Bank and Finance Charges

• Loan interest (within the limit)

• Bank transfer fees and LC charges

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📉 Limitations on Certain Expenses

Not all business expenses are fully deductible. Some are subject to specific limits under UAE Corporate Tax rules.

Expense Type Limitation

Entertainment Expenses Only 50% of eligible entertainment expenses are deductible (e.g., meals, hospitality, tickets)

Interest Expense Limited to 30% of EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization), subject to exceptions

Fines & Penalties Not deductible (includes traffic fines, VAT penalties, etc.)

Donations & Gifts Deductible only if made to approved charities or public benefit entities

Related Party Payments Must satisfy arm’s length principle and documentation under transfer pricing rules

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🚫 Non-Deductible Expenses

The following expenses are explicitly disallowed for deduction under UAE Corporate Tax Law:

• Dividends paid to shareholders

• Personal or private expenses

• Capital expenditure (unless depreciated)

• Income tax or foreign tax paid

• Bribes or illegal payments

• Fines and penalties (except compensatory damages)

• Payments without proper documentation

• Provisions (unless specifically allowed)

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🧠 Tips for Ensuring Deductibility

1. Keep Proper Documentation: Maintain all receipts, invoices, and contracts for each expense.

2. Allocate Appropriately: Segregate personal and business expenses clearly.

3. Review Related Party Transactions: Ensure that payments to related parties comply with transfer pricing rules.

4. Get Audited: Proper financial statements support the legitimacy of your claims.

5. Use Accounting Software: Use ERP or accounting software to record expenses with appropriate tags.

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🧾 Example – Deduction Calculation

ABC LLC has the following income and expenses for the tax year:

• Revenue: AED 2,000,000

• Total Expenses: AED 1,200,000

• Disallowed Entertainment (AED 50,000) → 50% allowed = AED 25,000

• Fine for late license renewal: AED 10,000 (disallowed)

Taxable Income =

2,000,000 – (1,200,000 – 25,000 + 10,000) = AED 835,000

Corporate Tax at 9% = AED 75,150

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📌 Summary Table

Expense Type Deductibility

Salaries, Rent, Marketing ✅ Fully deductible

Entertainment ⚠️ 50% deductible

Interest ⚠️ Subject to 30% EBITDA rule

Fines, Penalties ❌ Not deductible

Related Party Payments ✅ With documentation

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🏢 About Sheikh Anwar Accounting & Auditing LLC

At Sheikh Anwar Accounting & Auditing LLC, we help businesses across UAE:

✅ Maximize their allowable deductions

✅ Identify disallowed and risky expenses

✅ Maintain compliant accounting systems

✅ Prepare and audit financial statements

✅ File accurate Corporate Tax returns

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📞 Contact Us Today

Need help in classifying and optimizing your business expenses under UAE Corporate Tax Law?

📍 Sheikh Anwar Accounting & Auditing LLC

🌐 www.sa-auditors.com

📧 info@sa-auditors.com

📞 +971-XX-XXX-XXXX