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UAE Corporate Tax Deductible Expenses 2026: Complete Guide (Article 28)

Business accountant reviewing UAE corporate tax deductible expenses documents 2026

12 min read

Quick Answer: What Are UAE Corporate Tax Deductible Expenses?

Under Article 28 of the UAE Corporate Tax Law (Federal Decree-Law No. 47 of 2022), a business expense is deductible if it is wholly and exclusively incurred for business purposes and is not capital in nature. Key deductible expenses include staff salaries, rent, depreciation, and business-related entertainment (50%). Fines, personal expenses, dividends, and bribes are never deductible. The 9% corporate tax rate applies to taxable income after these deductions.

UAE corporate tax deductible expenses 2026 are governed by Article 28 of Federal Decree-Law No. 47 of 2022, which sets the legal framework for what the Federal Tax Authority will and will not accept as a deductible expense. The UAE corporate tax regime, effective for financial years starting on or after 1 June 2023, introduced a critical concept that every business must understand: not all expenses reduce your taxable income equally.

Getting this wrong costs money. Overclaiming deductions invites an FTA audit. Underclaiming means you pay more tax than required. This guide gives you the full picture for 2026.

UAE Corporate Tax Deductible Expenses 2026: The Article 28 Test

Before any specific expense is considered, it must pass the three-part test under Article 28:

Business purpose – the expense must be wholly and exclusively incurred for the purpose of the business’s taxable activity
Revenue in nature – capital expenditure (buying assets, improvements) is not immediately deductible; it is recovered through depreciation over time
Not specifically excluded – certain categories are explicitly blocked by the law regardless of business purpose

If an expense fails any one of these tests, it is non-deductible for UAE corporate tax purposes.

Fully Deductible Expenses: What You Can Claim

Employee Costs

Salaries, wages, bonuses, end-of-service gratuity, and health insurance for employees are fully deductible, provided they are at arm’s length market rates. This matters especially for owner-managed businesses: if a shareholder-director pays themselves an inflated salary, the excess above market rate will be disallowed by the FTA.

For businesses with employees on the UAE’s Wages Protection System (WPS), this documentation also serves as payroll evidence in an audit.

Rent and Office Costs

Commercial rent, utilities, office supplies, and facility maintenance are fully deductible when used for business purposes. If you use a portion of a property for personal use (common in home-office or villa-office setups), only the business-use portion qualifies.

Professional Fees

Fees paid to accountants, auditors, legal advisors, and tax consultants are deductible as ordinary business expenses. This includes annual audit fees required for your company type.

Depreciation and Amortisation

Capital assets, vehicles, machinery, computers, leasehold improvements, cannot be expensed immediately. Instead, they are depreciated over their useful life according to IFRS or UAE GAAP standards. The annual depreciation charge is fully deductible.

Insurance Premiums

Business insurance (professional indemnity, property, vehicle) is deductible. Personal life insurance that is not employment-related is not.

Marketing and Advertising

Digital advertising, trade show costs, agency retainers, and marketing materials are deductible. There is no cap on marketing expenses under the UAE Corporate Tax Law, provided they serve a genuine business purpose.

Partially Deductible Expenses: The 50% Entertainment Rule

Article 32: Entertainment, Amusement, and Recreation
Only 50% of entertainment expenses incurred for clients, customers, suppliers, and shareholders is deductible. Entertainment for employees (team events, staff parties) is 100% deductible.

This is one of the most commonly misapplied rules. Here is how it works in practice:

Expense Type	Recipient	Deductibility
Client dinner at a restaurant	Clients / customers	50%
Supplier meeting with meals	Suppliers	50%
Golf outing with prospective client	Prospect	50%
Annual staff party / team building	Employees only	100%
Hotel accommodation for client visit	Clients	50%
Company trip for top employees	Employees only	100%

Practical tip: If a dinner includes both employees and clients, you must apportion the cost. Keep your receipts and document who attended each event, as this is the first thing an FTA auditor will request.

The Interest Expense Cap (Thin Capitalisation Rule)

Businesses that borrow from related parties or carry significant debt need to understand Article 30 of the Corporate Tax Law. See our dedicated guide: Is Your UAE Business Loan Interest Tax-Deductible? The 30% EBITDA Rule Most CFOs Miss.

In summary, deductible interest is capped at:

AED 12 million per tax period, OR
30% of tax-adjusted EBITDA (earnings before interest, tax, depreciation, and amortisation)

Whichever is higher is the maximum deductible amount. Interest above this threshold is disallowed in the current period but may be carried forward and used in future tax periods under the UAE tax loss carry-forward rules (Article 37).

This rule primarily affects businesses with significant related-party loans, holding companies, or businesses that are heavily debt-financed. Banks and insurance companies have separate rules.

According to the Federal Tax Authority’s official guidance, the net interest expenditure cap applies to all UAE resident businesses (except banks, insurance companies, and government-controlled entities) and is calculated on a per-entity basis, not at a group level, unless group tax relief is elected.

Non-Deductible Expenses: What You Cannot Claim

The following are explicitly blocked under the UAE Corporate Tax Law regardless of business purpose:

Expense	Status	Reason
Administrative fines and penalties	0%	Article 33 – punitive in nature
UAE corporate tax itself	0%	Cannot deduct the tax against itself
Personal expenses of owners/shareholders	0%	Fails the business purpose test
Dividends paid to shareholders	0%	Distribution of profit, not an expense
Bribes and illicit payments	0%	Article 33 – explicitly excluded
Donations to non-approved charities	0%	Must be a Cabinet-approved public benefit entity
Capital expenditure (immediate write-off)	0%	Must be capitalised and depreciated
Withholding tax paid on behalf of others	0%	Not a business operating expense

A Note on Fines and Penalties

FTA penalties for late VAT filing, late corporate tax registration, or other compliance failures are never deductible. This is a common area of confusion, as businesses assume that because a fine relates to a tax matter, it reduces their tax bill. It does not.

This is one reason why many businesses invest in proper compliance systems and never miss a UAE tax deadline. The penalties are not only costly, they are an after-tax cost that cannot be recovered.

Transfer Pricing: The Most Overlooked Deductibility Risk in the UAE

Transfer pricing is where most medium-to-large UAE businesses get into trouble, not because they are dishonest, but because related-party transactions are rarely priced with the same rigour as third-party deals.

What Is Transfer Pricing?

Transfer pricing refers to the prices charged between related parties, a parent and subsidiary, two sister companies, or a business and its shareholders, for goods, services, financing, and intellectual property. Under Articles 34 to 36 of the UAE Corporate Tax Law and Ministerial Decision No. 97 of 2023, all such transactions must be priced as if they were between independent parties dealing at arm’s length.

If a related-party transaction is not at arm’s length, the FTA can adjust the taxable income of both parties, potentially increasing the tax liability of the entity that benefited from the below-market or above-market pricing.

Which Transactions Are in Scope?

Transaction Type	Common Example	Risk Level
Management fees	Parent charges subsidiary a monthly management fee	High
Royalties and licence fees	IP held in one entity, licensed to UAE OpCo	High
Intercompany loans	Parent lends funds to UAE subsidiary at above-market interest	High
Shareholder salary	Owner-director pays themselves AED 1.5M when market rate is AED 600K	High
Intragroup services	Shared services (HR, IT, legal) recharged across entities	Medium
Property rental	Shareholder rents office space to their own company above market rate	Medium
Stock transfers	Goods sold between group entities at below-market prices	Medium

UAE Transfer Pricing Documentation Requirements

Who must prepare transfer pricing documentation?
All UAE taxable persons with related party transactions must disclose these on the Related Party Transactions Disclosure Form, submitted with the annual corporate tax return. Formal Master File and Local File documentation is required for larger businesses.

Ministerial Decision No. 97 of 2023 sets the documentation thresholds:

Local File – required when the total value of related party transactions in a tax period exceeds AED 40 million, OR when any single category of transactions (financing, services, goods, intangibles) exceeds AED 4 million
Master File – required when the business is part of a Multinational Enterprise (MNE) group whose total consolidated group revenue exceeds AED 3.15 billion
Country-by-Country Report (CbCR) – required for UAE-headquartered MNE groups with consolidated revenues above AED 3.15 billion
Related Party Transactions Disclosure Form – required for all taxable persons that have any related party transactions, regardless of size

Donations and Charitable Contributions

Donations are deductible only if made to entities on the Cabinet-approved list of Qualifying Public Benefit Entities. Contributions to unregistered charities, informal fundraising campaigns, or overseas organisations that are not on this list receive zero deduction.

Freelancers and Small Businesses: What Changes in 2026

Freelancers and sole establishments with taxable income below AED 375,000 pay zero corporate tax due to the Small Business Relief threshold. However, this does not mean deductions are irrelevant.

Businesses that grow past AED 375,000 need clean books from day one. Mixing personal and business expenses, a very common practice in the UAE’s small business community, becomes a significant problem the moment your business becomes taxable. The FTA will scrutinise expenses if personal spending has been routed through the company.

The clean solution: a dedicated business bank account, proper accounting software, separate credit cards, and a monthly bookkeeping routine. See our guide to UAE corporate tax exemptions to understand which businesses are outside the scope entirely.

Frequently Asked Questions

Can I deduct my car expenses for corporate tax in the UAE?

If a vehicle is used exclusively for business, the full depreciation, running costs, and insurance are deductible. If the vehicle is used for both personal and business purposes, only the business-use portion is deductible. A mileage log or usage policy helps substantiate the split if audited.

Is VAT paid on expenses deductible for corporate tax?

If you are VAT-registered and recover input VAT on an expense, the VAT element is not part of your cost and therefore not deductible for corporate tax. If input VAT is blocked (e.g., on entertainment), the irrecoverable VAT can be included in the deductible expense amount.

Can I deduct expenses incurred before the business started generating revenue?

Pre-trading expenses (setup costs, feasibility studies, initial legal fees) incurred within a reasonable period before the business commenced taxable activity can generally be deducted in the first tax period, provided they were wholly and exclusively for the business.

Are employee end-of-service gratuity provisions deductible?

The actual gratuity paid to departing employees is deductible. An accounting provision (accrual) for future gratuity obligations is only deductible when the payment is actually made, not when the provision is created.

What records must I keep to support deductions?

The UAE Corporate Tax Law requires businesses to retain financial records for at least 7 years. For expenses, you need: original invoices or receipts, bank statements confirming payment, contracts for recurring costs, and business purpose documentation for entertainment expenses. For related-party transactions, you need pricing evidence and, where applicable, a formal Local File.

Do I need a transfer pricing study if my business is small?

If your total related-party transactions are below AED 40 million and no single category exceeds AED 4 million, a formal Local File is not required. However, you must still complete the Related Party Transactions Disclosure Form with your tax return, and the arm’s length principle still applies. A brief pricing rationale in your records is still advisable.

How Qaspro Helps UAE Businesses Maximise Legitimate Deductions

Most UAE businesses leave money on the table, not through tax evasion, but through poor record-keeping that makes legitimate deductions impossible to claim in an audit. Our tax team works with businesses to:

Conduct an annual deductibility review before the corporate tax filing deadline
Design chart-of-accounts structures that correctly separate personal and business spending
Prepare transfer pricing documentation and Local Files for related-party transactions
Review entertainment expense policies and booking procedures
Represent clients in FTA correspondence and audits

The 9% corporate tax rate is fixed. Your deductions are the only variable you can control. Getting them right with proper documentation is the single most impactful thing a UAE business can do to manage its corporate tax liability in 2026.

Contact our team for a complimentary deductibility review for your business.