Rules as of 29 October 2026. Checked against Federal Decree-Law No. 47 of 2022 on corporate tax (Articles 28 to 38) and the Federal Tax Authority's Interest Deduction Limitation guide.
The short answer: under UAE corporate tax, an expense is deductible if it is incurred wholly and exclusively for your business and is not capital in nature. Entertainment for clients and partners is only 50% deductible. Fines, bribes, dividends, corporate tax itself, recoverable VAT, foreign income tax and gifts to non-qualifying charities are not deductible. Net interest above AED 12 million is limited to 30% of EBITDA, and losses can reduce later taxable income by up to 75%.
The basic rule
Article 28 of the corporate tax law allows a deduction for expenditure incurred wholly and exclusively for the purposes of your business that is not capital in nature, in the tax period in which it is incurred. No deduction is allowed for expenses that are not for the business, expenses of earning exempt income, or losses not connected with the business.
If an expense has more than one purpose (for example a car used for business and private trips), you can deduct the identifiable business part, or a fair and reasonable proportion.
Capital expenses, such as equipment or a vehicle bought for the business, are not deducted at once; their cost reaches your taxable income through depreciation in your accounts.
Usually deductible
- Salaries, bonuses and end-of-service gratuity provisions for staff
- Office or flexi-desk rent, utilities, internet and phone
- Licence renewals, establishment card and visa costs for staff
- Accounting, audit, legal and consultancy fees
- Software subscriptions, marketing and advertising
- Business travel
- Bank charges, and interest within the limits below
- Depreciation of business assets, as recorded in your accounts
Entertainment: only 50%
Under Article 32, only 50% of entertainment, amusement or recreation costs for customers, shareholders, suppliers or other business partners is deductible. That includes meals, accommodation, transport, admission fees and related facilities.
Never deductible
| Expense | Article 33 |
|---|---|
| Donations, grants or gifts to an entity that is not a Qualifying Public Benefit Entity | Not deductible |
| Fines and penalties (except compensation for damages or breach of contract) | Not deductible |
| Bribes or other illicit payments | Not deductible |
| Dividends and profit distributions to owners | Not deductible |
| Drawings by a sole trader or partner | Not deductible |
| Corporate tax itself | Not deductible |
| Input VAT that you can recover | Not deductible |
| Income tax paid outside the UAE | Not deductible (a foreign tax credit may apply instead) |
Interest: the 30% EBITDA limit
Under Article 30, net interest expenditure (interest paid minus taxable interest received) is deductible up to 30% of EBITDA. The limit doesn't apply when net interest expenditure is AED 12 million or less in the period (the de minimis threshold, adjusted for periods longer or shorter than 12 months). Interest that is disallowed can be carried forward for up to 10 tax periods. For most small businesses, the AED 12 million threshold means all net interest stays deductible.
Losses: carry forward up to 75%
- A tax loss can be carried forward and used against later taxable income, but it can reduce each later year's taxable income by no more than 75% (Article 37).
- Losses from before corporate tax started, or before you became a taxable person, can't be used.
- Within a group with 75% common ownership, losses can be transferred between UAE resident companies that meet the conditions (Article 38). Qualifying Free Zone Persons and exempt persons can't use this.
- If you elect Small Business Relief, losses from that year can't be carried forward. See our Small Business Relief guide.
Example
A company has a tax loss of AED 500,000 in 2025 and taxable income of AED 1,500,000 in 2026 before loss relief. It can use up to 75% of AED 1,500,000 (AED 1,125,000), so the full AED 500,000 loss is used. Taxable income becomes AED 1,000,000: the first AED 375,000 is taxed at 0% and AED 625,000 at 9%, so the tax is AED 56,250.
Legal ways to keep corporate tax low
- Record every business expense with an invoice or receipt, and keep records for 7 years.
- Separate private and business costs clearly, especially cars and phones.
- Check Small Business Relief if revenue is AED 3 million or less.
- For Free Zone companies, check whether you can be a Qualifying Free Zone Person (0% on qualifying income).
- Use losses and group rules where they apply.
Avoid "tax secrets" that rely on splitting a business or moving profits artificially: the law has anti-abuse rules. See corporate tax in the UAE and our accounting services.
Questions
What expenses are tax deductible under UAE corporate tax?
Expenses incurred wholly and exclusively for the business that are not capital in nature, such as salaries, rent, licence costs, professional fees, marketing and business travel. Entertainment is 50% deductible.
Is client entertainment deductible in the UAE?
Only 50% of entertainment, amusement or recreation costs for customers, shareholders, suppliers or business partners is deductible.
Are fines deductible for corporate tax?
No. Fines and penalties are not deductible, except amounts awarded as compensation for damages or breach of contract.
How much interest can I deduct?
Net interest expenditure up to AED 12 million in a period is fully deductible. Above that, the deduction is limited to 30% of EBITDA, with the excess carried forward for up to 10 periods.
Can I carry forward tax losses in the UAE?
Yes, indefinitely, but each later year's taxable income can only be reduced by up to 75%.
Sources
- Federal Decree-Law No. 47 of 2022 on corporate tax (Ministry of Finance)
- Federal Tax Authority: Interest Deduction Limitation Rules guide
- Ministerial Decision No. 73 of 2023 on Small Business Relief
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