Corporate Tax has been in force long enough that the first returns are filed and the first questions are being asked. Deductions are where those questions concentrate, and for a predictable reason: the rules are principle-based, the limits are specific, and the evidence expected in support is more structured than most companies maintained before 2023.
This article sets out the framework, the categories where deductions are most often overstated, and the documentation that determines whether a deduction survives examination.
Under Article 28 of Federal Decree-Law No. 47 of 2022, expenditure incurred wholly and exclusively for the purposes of the business, and not capital in nature, is deductible in the period in which it is incurred. Three tests are embedded in that sentence, and each is applied independently:
Where expenditure serves both business and private purposes, only the business portion is deductible, and the basis of apportionment must be capable of explanation. An unapportioned dual-purpose expense is a common and easily identified adjustment.
Article 32 restricts the deduction for entertainment of customers, shareholders, suppliers and other business contacts to 50% of the amount incurred. This covers meals, accommodation, transport, admission fees and related facilities. Entertainment provided to staff is not subject to the restriction and remains fully deductible where it meets the general test.
The practical consequence is that client dinners and staff functions must be distinguishable in the records. Where they are recorded in a single account with no indication of who attended and in what capacity, the safe assumption on examination is that the entire balance is restricted.
Net interest expenditure is deductible up to the greater of 30% of tax-adjusted EBITDA or a de minimis threshold of AED 12,000,000. Where net interest expenditure does not exceed the de minimis amount, the restriction does not apply. Disallowed net interest expenditure may be carried forward for up to ten subsequent tax periods.
Three points are frequently missed. The calculation is of net interest, so interest income reduces the exposure. Disallowed net interest expenditure arising in a period for which Small Business Relief is elected cannot be carried forward, although amounts brought forward from earlier periods are preserved for a later period in which the relief is not elected. And the rule does not apply universally: banks, insurance providers, natural persons and qualifying infrastructure projects are outside its scope, and transitional treatment applies to certain pre-existing debt arrangements.
Payments to owners, directors and their relatives, and to entities they control, are deductible only to the extent they correspond to the market value of the service provided and are incurred wholly and exclusively for the business. This is the provision under which owner-related costs are most often adjusted: above-market management fees, remuneration disproportionate to the role, and personal costs settled by the company.
Article 33 disallows specified items regardless of business purpose. The most commonly encountered are:
Separately, and under the general provision in Article 28 rather than the list above, expenditure incurred in deriving exempt income is not deductible except where the law expressly provides otherwise. This deserves attention in groups holding participations: where income is exempt, the costs of earning it follow the income and are not deductible against taxable profits.
| Category | Position | What supports it |
|---|---|---|
| Employee medical insurance | Deductible as a staff cost where provided under the employment arrangement | Policy schedule and employment contract or policy document showing the entitlement |
| Family members' insurance | Generally supportable where it forms part of documented remuneration or a genuine, consistently applied staff-benefit policy; deductible as a matter of course where dependent cover is mandated by the applicable emirate's health regulations | Contractual or policy entitlement, applied consistently; or the regulatory requirement |
| Business travel | Deductible where the purpose is business and the itinerary supports it | Purpose recorded, agenda or meeting evidence, boarding passes, approval |
| Travel with a private element | Apportioned; the private portion is not deductible | Documented basis of apportionment |
| Client meals and hospitality | 50% deductible | Attendee names and their capacity, business purpose, receipt |
| Staff functions and welfare | Fully deductible where genuinely for employees | Attendee list, purpose, receipt |
| Gifts to clients | Classified on the facts: hospitality and personal-benefit items fall under the entertainment restriction, while low-value promotional or advertising material may be deductible in full | Recipient, occasion, value, commercial purpose, receipt |
| Owner's personal costs settled by the company | Not deductible | N/A — should be posted to the owner's account, not to expenses |
| Vehicles used privately | Business proportion only | Usage basis, log or reasoned estimate applied consistently |
| Home office and personal phone | Business proportion only | Documented apportionment method |
| Fines and traffic penalties | Not deductible | N/A |
| Professional and consultancy fees | Deductible where for the business | Engagement letter, invoice describing the work |
A deduction is sustained by three things: an invoice, a business purpose that can be articulated, and a policy that shows the treatment is applied consistently rather than case by case. Companies generally have the first, sometimes the second, and rarely the third.
A written expense policy is not a statutory requirement. It is, however, the most efficient way to demonstrate that entertainment has been identified and restricted, that travel is approved on a business basis, that benefits form part of remuneration arrangements, and that dual-purpose costs are apportioned on a stated method. In its absence, each item is assessed on its own, and the burden falls on recollection.
Records and supporting documents must be retained for at least seven years following the end of the relevant tax period under Article 56 of the Corporate Tax Law, and should be retrievable by transaction rather than only in aggregate. The Authority may request records at short notice, which is a practical argument for maintaining them in a form that can be produced quickly.
Where this page and a source disagree, the source is right. Tell us: hello@involane.com
Regulatory statements on this page come from the sources above. Anything about how long work takes, what it costs, or what companies typically do is our own estimate — it is not in any of them, and it carries no more weight than an estimate.
This material is provided for general information only and does not constitute tax, legal or accounting advice. Requirements and thresholds change; positions depend on individual circumstances. Consult a qualified adviser before acting. Position as at July 2026.