UAE Corporate Tax-Deductible Expenses Guide 🥇

UAE Corporate Tax-Deductible Expenses: A Practical Guide

The UAE moves into a new tax era. The federal corporate tax regime starts for financial years beginning on or after 1 June 2023. Your company now files returns, keeps records, and claims deductions under clear rules. Your finance team wants to know which expenses reduce taxable profit and which do not. This guide explains allowable deductions, disallowances, conditions, documentation, and special limits. Each section uses plain subject-verb-object sentences. Each paragraph links to daily business work. Your team can use this as a checklist during month-end and year-end close.

Why deductions matter for your business

Your company earns income and incurs costs. The law taxes net profit after permitted deductions. Good deduction control lowers tax, protects cash, and improves ratios. Weak control risks adjustments, penalties, and interest. A clear policy tells staff what to book, how to book it, and what proof to keep. You should align the policy with audit procedures and the EmaraTax return format.

General rule for deductibility

The rule is simple. Your company may deduct expenses incurred wholly and exclusively for business purposes. Your company should record each expense properly. Your company should exclude capital items and items that the law disallows. Your ledger should tag borderline items with notes. Your files should store invoices, contracts, and approvals.

Key tests your accountant should apply:

• Purpose test: The expense supports income-generating activities.
• Measurement test: The amount is reasonable and supported by documents.
• Timing test: The expense belongs in the correct period.
• Compliance test: The expense is not on the disallowance list.

Direct costs your company may deduct

Direct costs link to production or service delivery. You should post them to cost of sales with clear sub-ledgers.

• Raw materials and components: Your team books material purchases with matching goods receipts.
• Inventory purchases for resale: Your team records landed cost, including eligible freight and insurance.
• Direct labor: Your company pays wages to production staff and service staff who deliver billable work.
• Subcontracting and job-work fees: Your company hires specialists to finish a stage of production or service.

You should keep purchase orders, GRNs, delivery notes, and time sheets. You should reconcile stock movements to your ERP.

Indirect costs your company may deduct

Indirect costs support operations but do not attach to one product. You should keep allocation logic and cost centers.

• Administrative salaries and benefits: HR pays staff who manage finance, HR, IT, and compliance.
• Office running costs: Your team pays rent, utilities, security, cleaning, and small tools.
• Repairs and maintenance: You maintain plant, equipment, and office assets for business use.
• Depreciation and amortization: You recognize tax-compliant charges over useful life (see special rules below).
• Professional fees: You pay accountants, auditors, lawyers, engineers, and licensed consultants for business work.
• Insurance premiums: You protect property, liability, cargo, and employees.

You should avoid booking personal items to overheads. You should document allocation bases for shared services.

Marketing and selling costs your company may deduct

You build market share with controlled spend. The law allows business-purpose marketing.

• Advertising: Your team runs digital ads, trade press, outdoor, and industry sponsorships.
• Promotions: Your team pays for trade shows, product launches, and sampling that target customers.
• Agency retainers: You hire agencies for media buying and content with deliverables.
• Sales travel: Your staff travels to meet customers; you keep purpose notes and itineraries.

Your policy should block private benefit. Your reports should separate marketing for exempt income from marketing for taxable income.

Travel, staff, and training expenses

Your company may deduct business travel. You should apply per-diem caps and evidence.

• Transport and lodging: You keep tickets, hotel invoices, and meeting agendas.
• Meals on business trips: You record business purpose and attendees when the policy requires.
• Work permits and visas: You book costs for staff you employ.
• Training: You expense upskilling tied to current roles and approved learning plans.
• Recruitment: You deduct job ads and agency fees for filling real vacancies.

You should split mixed trips into business and personal parts. You should disallow the private portion in your tax computation.

Financing costs and the interest limitation rule

Your company may deduct business interest. The law caps net interest expense up to a threshold (for example, a fixed AED cap or a percentage of tax-adjusted EBITDA). Where the general cap applies, net interest above the cap carries forward for a set number of years. You should:

• Keep loan agreements with arm’s-length terms.
• Document purpose and cash flow use.
• Separate shareholder loans from third-party loans.
• Apply transfer pricing to related-party funding.

You should align treasury policy with transfer pricing files and covenant tests.

Charitable payments and sponsorships

Your company may deduct donations paid to approved public benefit entities under the UAE list. You should store approval evidence. You should disallow non-approved donations. You should treat CSR spend as deductible only when it serves business and meets policy rules. You should document marketing intent for sponsorships that promote the brand.

Provisions, write-offs, and allowances

The tax treatment follows prudence and proof.

• Bad debts: You may deduct amounts you write off when recovery fails and procedures are complete.
• Inventory provisions: You may deduct where you show evidence of obsolescence and policy discipline.
• Warranties: You may deduct provisions that follow historic rates and contractual terms.
• General provisions: You should avoid blanket accruals without support.

You should maintain working papers, approvals, and evidence of attempts to recover.

Depreciation and amortization

Your company capitalizes assets that give enduring benefit. You cannot expense capital items as period costs. You may deduct tax-compliant depreciation and amortization over useful life. You should:

• Keep a fixed-asset register with location, tag, and cost.
• Use acceptable methods and rates.
• Exclude non-deductible capitalized items from the tax base.
• Track gains or losses on disposal.

For intangible assets (licenses, software, patents), you amortize over legal or useful terms with contracts on file.

Group relief, tax losses, and restructures

The regime allows loss carry-forward subject to conditions and caps. The regime may allow group relief or tax grouping where ownership and compliance tests are met. You should:

• Track tax-adjusted loss balances with evidence.
• Confirm continuity of ownership and business where rules require.
• Keep elections and joint applications inside your tax file.
• Assess transfer pricing on intra-group transfers.

You should model mergers and business transfers before execution to avoid accidental loss forfeiture.

Expenses your company must disallow

You should remove these items from your tax computation:

• Personal expenses and private use components.
• Fines and penalties that arise from breaches of law.
• Non-business interest and costs of private loans.
• Certain entertainment without a clear business link or that the law excludes.
• Expenses linked to exempt income where the regime requires allocation out.
• Expenses lacking documents or booked to the wrong entity.

Your ledger should flag disallowed codes so staff cannot claim them by mistake.

Transfer pricing touchpoints inside deductions

Related-party charges sit under the arm’s-length principle. You should:

• Keep intercompany agreements that match actual services and risks.
• Use rate cards and markups that fit comparables.
• Prepare Master File and Local File where thresholds apply.
• Test management fees, royalties, cost-sharing, and guarantees.

Clean transfer pricing helps secure deductions for cross-charges and avoids double tax.

Record-keeping: evidence that defends your return

Good records win audits. Your company should store:

• Invoices and receipts with tax numbers and descriptions.
• Contracts and SOWs that tie to invoices.
• Board minutes and approvals for major spend.
• Timesheets and deliverables for services.
• Bank statements and reconciliations.
• Fixed-asset register and depreciation schedules.
• Travel justifications and itineraries.

You should keep records for the statutory retention period, often seven years after the tax period end.

Practical month-end checklist for deductions

Your finance team can run this short list each month:

• Match PO–GRN–Invoice for all purchases.
• Review employee claims for policy and receipts.
• Split mixed expenses into business and private parts.
• Tag qualifying vs. non-deductible codes in ERP.
• Update fixed-asset additions and disposals.
• Reconcile intercompany balances and charge keys.
• File supporting documents to the tax drive.

Small habits reduce year-end stress and audit risk.

Filing workflow and control timeline

• Q1: Refresh the deductions policy; train staff; test evidence quality.
• Q2: Review interest cap, thin capitalization, and transfer pricing.
• Q3: Run a pre-close deduction audit; fix gaps.
• Q4: Lock true-ups; prepare the tax pack and computations.
• +9 months after year end: File the return and pay any tax due on EmaraTax.

You should assign owners for each task and record dates on a calendar.

Industry notes: what to watch

• Trading and distribution: Track freight and customs; watch inventory provisions and rebates.
• Services and consulting: Evidence time spent and outputs; control travel and client entertainment.
• Manufacturing: Track utility allocation, maintenance logs, and scrap policies.
• Technology and IP: Document development costs, licenses, and cloud fees; align capitalization policy with tax rules.
• Real estate and leasing: Separate capital improvements from repairs; treat financing and valuations with care.

Each sector needs a tailored matrix of deductible and disallowed items.

Common deduction mistakes and simple fixes

• Booking capex as opex. Fix by using approval gates for asset spend.
• Missing receipts. Fix by enforcing a digital receipt rule.
• Overstated travel. Fix by using pre-trip approvals and purpose notes.
• Weak intercompany proof. Fix by signing SLAs and storing deliverables.
• No link to exempt income. Fix by allocating and disallowing as required.

A short quarterly review saves cash and time at final audit.

Conclusion: get the policy right and keep the proof

Your business can reduce tax lawfully when you follow the rules, document each claim, and remove disallowed items. Your teams should align procurement, HR, treasury, and tax. Your ERP should mirror policy. Your files should be audit-ready. With clarity and discipline, your deductions will stand. In the end, a stitch in time saves nine.

What Can Help – Mubarak Al Ketbi (MAK) Auditing

Mubarak Al Ketbi (MAK) Auditing helps your team design a deductions policy, clean your ERP codes, and prepare audit-ready files. Our advisors test interest caps, review capital vs. revenue treatment, and align transfer pricing with your cross-charges. We set month-end checklists, create document libraries, and train staff, so your return is strong and your risk is low.

For more information:

• Visit our office: Saraya Avenue Building – Office M-06, Block/A, Al Garhoud – Dubai – United Arab Emirates
• Contact / WhatsApp: +971 50 276 2132