UAE CT taxable income = accounting profit + non-deductible add-backs − exempt income deductions. Non-deductible items include: fines and penalties, personal/non-business expenses, entertainment expenses (subject to 50% rule), interest expense above the 30% EBITDA cap, and payments to related parties that fail the arm’s-length test. General business expenses that are wholly and exclusively for business are deductible.
The general deductibility rule
Under UAE CT, an expense is deductible if it is incurred wholly and exclusively for the purposes of the business and is not specifically disallowed by the CT Law. The starting point is the expense as recorded in the IFRS-compliant financial statements. CT adjustments are then applied to arrive at taxable income.
The burden of proof is on the taxpayer. If FTA queries an expense, the business must demonstrate that it was incurred for business purposes, properly documented (invoice, contract, payment record), and correctly classified in the accounts.
Expenses that are never deductible
- Fines and penalties — any penalty imposed by a regulatory authority, government body, or court. This includes FTA penalties, traffic fines paid on behalf of employees, late payment surcharges. Even if they appear in the P&L, they must be added back.
- Personal and non-business expenses — owner withdrawals classified as expenses, personal car running costs, personal travel, family expenses paid through the business. Common in owner-managed UAE SMEs.
- Bribes and illicit payments — any payment that violates UAE law, regardless of accounting treatment.
- Donations to non-qualifying public benefit entities — donations to entities not on the FTA-approved public benefit list are non-deductible. Only approved charities and qualifying public benefit organisations qualify.
- CT itself — UAE CT payable is not a deductible expense for CT computation purposes.
Entertainment expenses — the 50% rule
Entertainment expenses incurred for business purposes are 50% deductible under UAE CT. Entertainment includes business meals, client hospitality events, food and beverages at conferences, staff parties, and similar costs.
The 50% cap applies regardless of how the expense is classified in the accounts. A 100% entertainment expense in the P&L requires a 50% add-back in the CT computation. Note: entertainment that is exclusively for employees (e.g., team lunch) with no client element may qualify for full deduction — document the attendees.
For every material business meal, log who attended (names, company, relationship to your business) and the business purpose. This converts a 50% deductible item to potentially 100% deductible and protects you in an FTA audit.
Interest deduction cap — the 30% EBITDA rule
Net interest expense (interest payable minus interest receivable) is deductible up to the greater of: (a) 30% of EBITDA (earnings before interest, tax, depreciation, and amortisation for CT purposes); or (b) AED 12 million per year. The higher of the two limits applies.
Interest expense above the cap is carried forward for up to 10 years — it is not permanently lost. In subsequent years, if the business has capacity within the 30% EBITDA limit, it can deduct the carried-forward interest.
Most UAE SMEs have net interest expense well below AED 12 million per year. The AED 12M floor means the 30% EBITDA cap only bites for highly leveraged businesses. If your annual net interest is AED 500,000 and your EBITDA is AED 800,000 (30% = AED 240,000), the AED 12M floor saves you — all AED 500,000 is deductible.
Related-party payments — the arm's-length test
Payments to related parties (management fees, intercompany loans, shared services, royalties) are deductible only to the extent they are at arm’s length. If a parent charges its UAE subsidiary a management fee above what an independent party would charge for the same services, the excess is not deductible and must be added back in the CT computation.
This makes transfer pricing documentation important not just for TP penalty avoidance but also for protecting the deductibility of related-party expenses in the CT 300.
Need your CT computation reviewed before filing?
We review your P&L for all non-deductible add-backs, apply the correct adjustments, and prepare the final CT 300 computation. Fixed scope.
Frequently asked questions
What expenses are not deductible for UAE Corporate Tax?+
Non-deductible items include fines and penalties, personal/non-business expenses, donations to non-qualifying entities, UAE CT itself, and entertainment above the 50% cap. Interest expense above 30% of EBITDA (or AED 12M) is also non-deductible (but carries forward).
Are entertainment expenses deductible for UAE CT?+
50% deductible. Business meals, client hospitality, staff events — all subject to a 50% cap. To maximise the deduction, keep attendee logs to distinguish client entertainment (50%) from employee-only events (potentially 100%).
What is the interest deduction cap for UAE Corporate Tax?+
Net interest expense is deductible up to the greater of 30% of EBITDA or AED 12 million per year. Excess interest is carried forward for up to 10 years, not permanently disallowed.
Are salaries deductible for UAE CT?+
Yes. Employee salaries, wages, and benefits are generally fully deductible if they are incurred for business purposes, at arm’s length (especially for owner-employees), and properly documented.
Are fines and penalties deductible for UAE CT?+
No. Fines and penalties imposed by any government authority or court are specifically blocked from deduction under UAE CT, regardless of how they are classified in the accounts.
Are charitable donations deductible under UAE CT?+
Only donations to entities on the FTA-approved list of qualifying public benefit organisations. Donations to other charities, religious institutions, or NGOs not on the list are non-deductible.