What is a non-deductible expense under UAE corporate tax?

Non-deductible expenses are costs you can't subtract from your income for corporate tax, like bribes, fines, and most donations.

Can I deduct client entertainment costs?

You can deduct only 50% of eligible client entertainment expenses.

Is interest on business loans fully deductible?

No, only up to 30% of EBITDA is deductible for interest, except for banks or insurance.

Are donations to charities deductible?

Donations to non-qualifying charities are not deductible.

Why do I need to know about non-deductible expenses?

It helps you stay compliant and avoid tax penalties.

Non-Deductible Corporate Tax Expenses UAE Guide

What Are the Expenses That Cannot Be Deducted While Calculating the Corporate Tax?

Businesses in the UAE must pay corporate tax on their profits. The country wants to attract foreign investment, so the government has made the tax rules simple and fair. But not every expense can be deducted when companies calculate their corporate tax. Every business owner in the UAE needs to know which expenses are not deductible so that they stay compliant and avoid mistakes.

Let’s look at what non-deductible expenses mean in the UAE, which costs get blocked, and why knowing these rules is important for every company.

Types of Expenditures With No Deduction

Some costs cannot be deducted from your taxable income, no matter how necessary they may seem. These expenses don’t help lower your tax bill. Here are some main types:

Bribes: Businesses cannot deduct any money paid as bribes.
Fines and Penalties: Fines and penalties are not deductible, except when courts award damages for breach of contract or as compensation.
Donations and Gifts: If you give donations, grants, or gifts to a public benefit entity that is not “qualifying,” you cannot claim them as deductions.
Dividends and Distributions: Dividends or similar earnings paid to shareholders do not qualify for deductions.
Personal Expenses: Expenses not fully or solely related to business, or those paid for personal benefit, are not deductible.
Costs Generating Exempt Income: Any money spent to earn income that is exempt from corporate tax can’t be deducted.
Payments to Related Free Zone Entities: When a business pays a related party in a free zone, it cannot deduct those costs.

Remember: The UAE government wants to make sure that only genuine business expenses help reduce the tax bill.

Client Entertainment Expenditure

Businesses in the UAE often spend money on entertaining clients. This includes:

Food and drinks with clients
Hosting clients at hotels
Buying tickets for sports or entertainment events

The UAE tax law allows you to deduct only 50% of these entertainment expenses. This rule helps stop companies from abusing the deduction by claiming too many “fun” costs.

There are two main types of client entertainment:

Business Entertainment: For discussing business, making deals, or building relationships. Some deductions are allowed.
Non-Business Entertainment: For social purposes only, with less or no deduction.

What you can deduct depends on who attends, who arranges the event, and what kind of event it is.

Interest Expenditure

Businesses sometimes borrow money and pay interest. The UAE has special rules about deducting interest costs:

The company can deduct only up to 30% of its EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization).
The Cabinet may allow a specific amount as a safe limit for net interest costs.
This restriction doesn’t apply to banks, insurance firms, or businesses run by individuals.

Tip: Keep all interest calculations clear and separate for compliance.

Non-Deductible Expenses While Calculating Corporate Tax

Many accounting rules control what you can or can’t deduct. UAE tax law aims to block fake or excessive deductions so only genuine business expenses count.

List of Non-Deductible Expenses

Expenses that aren’t paid for the company’s business.
Costs spent just to get exempt income.
Losses not connected to business operations.
Any spending blocked by a Cabinet decision.

Extra examples:

Recoverable VAT amounts
Administrative fines
Extra spending allowed only by a special minister’s order

Bullet Points: Key Non-Deductible Expenses

Bribes, fines, and most penalties
Gifts or donations to non-qualifying charities
Dividends and profit distributions
Entertainment expenses (only 50% allowed)
Interest costs above the set percentage of EBITDA
Personal and unrelated expenses
Payments to related parties in free zones

Why Non-Deductible Expenses Matter

Companies must follow these rules to:

Stay compliant with UAE tax law
Avoid penalties and fines
Report profits correctly to the Federal Tax Authority (FTA)

Mistakes in deducting the wrong expenses could cost your business extra money in fines and tax adjustments.

How Mubarak Al Ketbi (MAK) Auditing Can Help

Mubarak Al Ketbi (MAK) Auditing always stands by businesses when it comes to handling tax rules. Our experts guide you with every detail about which expenses you can deduct and which you can’t. We help you:

Review your business expenses for compliance
Prepare and file correct tax returns
Avoid tax penalties and disputes
Get reliable advice on every tax concern

When tax laws change, don’t let them throw a spanner in the works—call Mubarak Al Ketbi (MAK) Auditing and let us keep your business running smoothly!