UAE Corporate Tax on Inventory and Stock 2026: Valuation, Write-Downs, Obsolete Stock and What the FTA Allows You to Deduct

Woman with a clipboard taking inventory in a warehouse, illustrating stock valuation and write-downs under UAE Corporate Tax

19 min read

A trading company counts its warehouse on 31 December and finds goods worth AED 400,000 that nobody will buy at full price. Some boxes are damaged, some products are out of fashion, and some have passed their best-before date. The finance team writes the stock down in the accounts. The owner then asks the question that matters for tax: does that write-down reduce taxable income, or does the Federal Tax Authority (FTA) ignore it until the goods are actually sold?

The answer depends on three things: how the stock is valued in the accounts, whether the company elected the realisation basis for unrealised losses, and whether the paperwork can prove the loss was real. This guide is for UAE business owners, finance managers and accountants in trading, retail, food and beverage, e-commerce and manufacturing businesses. It follows Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses (Articles 20, 28, 33, 34 and 56), the FTA Corporate Tax Guide on Accounting Standards (CTGACS1) and the FTA Corporate Tax Guide on the Determination of Taxable Income (CTGDTI1). Every article number and example below was checked against those published texts. Where the official sources are silent, we say so.

Published: 25 October 2026

Quick Answer

UAE Corporate Tax starts from the accounting profit in your financial statements, so closing stock is normally valued under IAS 2 at the lower of cost and net realisable value, and a write-down reduces accounting profit in the year it is recorded. That write-down stays deductible unless the company has elected to take unrealised gains and losses into account on a realisation basis for assets subject to impairment accounting under Article 20(3)(a). With that election, an unrealised inventory write-down is added back until the goods are sold, scrapped or otherwise disposed of. If the company elected the realisation basis only for assets held on capital account under Article 20(3)(b), stock is a revenue-account asset and no adjustment is needed. Either way, the business must keep stock records for 7 years under Article 56.

Why Stock Is Different From Other Assets

Most Corporate Tax questions about assets are about equipment, buildings and intangibles. These are fixed assets: the business keeps them for years and spreads the cost through depreciation. Stock is different. A business buys or makes it to sell, so its cost becomes the cost of goods sold when the sale happens. Until then it sits on the balance sheet as a current asset.

This difference matters because the Decree-Law treats assets “held on capital account” and assets “held on revenue account” differently. Article 20(4) defines capital-account assets as assets the person does not trade, assets eligible for depreciation, and assets treated under accounting standards as property, plant and equipment, investment property, intangible assets or other non-current assets. Assets and liabilities held on revenue account are everything else. Stock that a company trades falls on the revenue side of that line.

So the FTA’s own guides treat inventory as a revenue-account asset. That one classification decides how a write-down is treated when the realisation-basis election is made, as the sections below explain.

The Starting Point: Accounting Income

Article 20(1) of the Decree-Law says taxable income is determined on the basis of adequate, standalone financial statements prepared in accordance with accounting standards accepted in the State. Article 20(2) says taxable income for a period is the accounting income for that period, adjusted for items such as unrealised gains and losses, exempt income, reliefs, deductions, related party transactions and tax loss relief.

In practice this means the tax computation does not value stock separately. It uses the closing stock figure that is already in the audited or management financial statements. The cost of goods sold in the income statement, which depends on opening stock, purchases and closing stock, flows straight into taxable income. If closing stock is overstated by AED 100,000, profit is overstated by AED 100,000 and so is taxable income. If it is understated, the company pays less tax now and may pay more when the stock is sold, but an understatement still creates a risk if the FTA decides the accounts are not reliable.

How Closing Stock Is Valued Under IAS 2

IAS 2 is the IFRS standard on inventories. Companies that follow full IFRS use it, and so do most companies that follow IFRS for SMEs, which has a very similar rule. The main points are:

Item	IAS 2 rule
Measurement	Lower of cost and net realisable value (NRV)
Cost	Purchase price, import duties and non-recoverable taxes, transport and handling, less trade discounts; for manufacturers, direct labour and a share of production overheads
Net realisable value	Estimated selling price in the ordinary course of business, less estimated costs of completion and costs necessary to make the sale
Cost formulas	First-in first-out (FIFO) or weighted average; LIFO is not allowed
Write-down	Recorded as an expense in the period it happens
Reversal	If NRV later recovers, the write-down is reversed, but never above the original cost

Two practical points follow from this table. First, cost is not just the supplier invoice. Freight, customs duty and clearing charges that are needed to bring the goods to their current location are part of cost. Many UAE importers book these as expenses, which understates closing stock and overstates the cost of goods sold. The mistake reverses over time, but it distorts each year’s taxable income. Second, the write-down must be calculated item by item or by group of similar items. A general provision of “10% of stock” with no analysis behind it is the type of figure that attracts questions in an FTA review.

When a Write-Down Reduces Taxable Income

A write-down is recorded as an expense in the income statement. Under Article 20(2), taxable income starts from accounting income, so the write-down is already inside the starting number. The next question is whether Article 20(2)(a) requires it to be taken out.

Article 20(2)(a) refers to unrealised gains and losses. A write-down of stock that the company still owns is an unrealised loss, because no sale has happened. By default, with no election, the accounting treatment is followed and the write-down reduces taxable income in the year it is booked. The adjustment only arises if the company has made an election under Article 20(3).

The Realisation-Basis Election

Article 20(3) lets a company that prepares accrual-basis financial statements elect to take gains and losses into account on a realisation basis, that is, only when the asset is sold or otherwise disposed of. There are two versions:

Election	Scope	Effect on an inventory write-down
Article 20(3)(a)	All assets and liabilities subject to fair value or impairment accounting under the accounting standards	The write-down is an unrealised loss and is added back until the stock is disposed of
Article 20(3)(b)	All assets and liabilities held on capital account at the end of the period, while still taking into account unrealised gains and losses on revenue-account items	Stock is a revenue-account asset, so no adjustment is made and the write-down is deductible when booked

Both versions are shown in the FTA’s worked examples.

FTA example, election limited to capital account. In the Accounting Standards guide (CTGACS1, Example 8), Company X sells home appliances. It expects to discount some products, so it records a write-down of AED 100,000 at the end of its tax period. It still owns the stock, so the loss is unrealised. Company X elected the realisation basis for assets and liabilities held on capital account only. The guide concludes that the stock is held on revenue account, is not covered by the election, and Company X should not adjust its accounting income. The AED 100,000 unrealised loss stays in taxable income as a deduction. The guide cites Article 2(4) of Ministerial Decision No. 134 of 2023 for this result.

FTA example, election covering impairment accounting. In the Determination of Taxable Income guide (CTGDTI1, Chapter 11), Company A has an unrealised loss on inventory of AED 1,200,000 in its accounting income. Company A elected the realisation basis for all assets and liabilities subject to fair value or impairment accounting. The guide says the AED 1,200,000 must be added back when determining taxable income. In a variation where Company A elected only for capital-account assets under Article 20(3)(b), the guide says no adjustment is needed for the inventory loss, because it is not held on capital account.

The two examples show the same stock write-down producing opposite tax results, purely because of which election was made. The decision belongs in the Corporate Tax return, so it should be taken on purpose, with the finance team and the tax adviser, not left to default.

Which Election Suits a Stock-Heavy Business?

There is no single right answer, because it depends on the pattern of gains and losses across all assets. Some points to weigh:

A trading company with large, volatile stock and few fair-value assets often prefers Article 20(3)(b), because stock write-downs are deducted when booked.
A company with fair-valued investment property or financial assets may prefer Article 20(3)(a), which defers both unrealised gains and unrealised losses until disposal, including stock write-downs.
Under the realisation basis, an added-back write-down is not lost. When the stock is later sold at the lower value, or scrapped, the loss is realised and becomes part of taxable income in that period.
The election is a formal choice that has conditions set by the Minister. Check the current Ministerial Decision text and the FTA guide before filing, since a late or wrong election is hard to correct.

Obsolete, Damaged and Expired Stock

Obsolete stock is stock that has no realistic market. Damaged stock may be sold at a discount or scrapped. Expired stock, common in food, cosmetics and pharmacy businesses, usually has no sales value at all. The tax result follows the same steps as above:

The accounting step. The loss must be recorded in the financial statements. Under IAS 2, the write-down is made in the period the loss is recognised. A write-down that is never recorded in the accounts cannot be deducted later in the tax computation, because the computation starts from the accounts.
The deduction rule. Article 28(1) allows expenditure incurred wholly and exclusively for the purposes of the business that is not capital in nature. Article 28(2)(c) denies deductions for losses not connected with or arising out of the business. Stock that a trading business bought to sell, and that lost value, is plainly a business loss. The evidence has to show that the loss is real and linked to the business.
The realisation step. If the company elected under Article 20(3)(a), the write-down is added back at that point, and deducted when the goods are scrapped, sold below cost or destroyed.

The FTA guides contain no special category for “obsolete stock” with its own tax test. The treatment comes from the general rules in Articles 20 and 28 together with the accounting standard.

Evidence That Supports a Write-Down

A tax review will not question whether stock can lose value. It will question whether the amount is supported. Keep these for each write-down:

The stock count sheet or system report showing the quantity and location at year end.
The costing record showing the original cost per unit.
The reason for the write-down, such as damage, expiry, a design change or a supplier recall, with dates and photographs where possible.
Proof of the net realisable value: recent selling prices, a clearance price list, a quote from a liquidator or sales after the year end.
For destroyed stock, a disposal or destruction record, and a municipality or authorised contractor document where required for food or chemicals.
Management approval for the write-down, signed and dated.

Stock Given Away, Donated or Used by the Owner

Stock does not always leave the business through a sale. Three common cases deserve attention.

Donated stock. Article 33(1) disallows donations, grants or gifts made to an entity that is not a Qualifying Public Benefit Entity. If a company gives goods to a charity or school that is not on the Qualifying Public Benefit Entity list, the cost of those goods should be expected to be non-deductible. Our guide on UAE Corporate Tax donations and charitable contributions explains the recipient check, and the page on the Qualifying Public Benefit Entity exemption explains who qualifies.

Stock taken by the owner. Article 33(4) disallows dividends, profit distributions and benefits of a similar nature paid to an owner, and Article 33(5) disallows amounts withdrawn from the business by an individual taxable person or a partner in an unincorporated partnership. Goods taken home by a shareholder or partner are not a business expense. Record them as drawings or a distribution, not as a stock loss. If weak stock sales also force you to let staff go, Yalah Dubai explains what counts as arbitrary dismissal in the UAE.

Stock transferred to related parties. Article 34 requires transactions between related parties to meet the arm’s length standard. If a company moves stock to a sister company at cost or below cost without a commercial reason, the tax result can be tested against what independent parties would have agreed. Keep the transfer documents and the pricing basis. Our guide on related parties and government entities covers the wider rules.

Free Zone Companies and Stock

A free zone company that is a Qualifying Free Zone Person still starts from accounting income, and the realisation-basis rules above apply to its financial statements in the same way. What changes is the classification of income. Sales of goods can fall inside or outside qualifying income depending on the buyer, the type of goods and the activity, and the cost of stock must be allocated to the income it relates to. Article 28(3) applies where expenditure is incurred for more than one purpose: a deduction is allowed for any identifiable part, and for a fair and reasonable proportion of any part that cannot be identified.

The practical consequence is that a free zone trading company needs stock records that can be split between qualifying and non-qualifying sales. Read our guides on the Qualifying Free Zone Person regime and qualifying income before deciding how to allocate stock costs, and confirm the treatment of any specific goods against the current Ministerial Decision on qualifying activities.

Opening Stock and the First Tax Period

A company that was already trading before it became subject to Corporate Tax carries stock into its first tax period. The FTA Accounting Standards guide (CTGACS1, section 7.6) gives a short rule for provisions: the tax treatment of movements in other opening balance sheet items follows the accounting treatment. Its example is a provision against stock recorded before the company was subject to Corporate Tax and then reversed after it was subject. That reversal would normally be taxable when the credit is recorded in the accounts, because stock is not immovable property, an intangible asset or a financial asset that is eligible for the transitional relief.

The takeaway for old stock is simple. A company that wrote stock down before its first tax period cannot count on a tax deduction for that earlier write-down, and a reversal after the start date may increase taxable income. Check the opening balance sheet carefully. See first tax period under UAE Corporate Tax for how the start date is determined.

Year-End Cut-Off and Stock Counts

Many stock errors are not valuation errors at all. They are cut-off errors, where goods are counted in the wrong period. The common ones are:

Goods received before year end but not yet recorded as a purchase, so they are in the warehouse but not in the accounts.
Goods invoiced to customers before year end but still in the warehouse, or goods dispatched after year end but booked as a sale in the old year.
Goods in transit that the company owns under the shipping terms but that were not counted.
Consignment stock held for other businesses that was counted as the company’s own stock.
Goods held by third parties, such as a fulfilment centre or a marketplace warehouse, that were not included.

Each error moves profit between years. For a company near the AED 375,000 threshold above which the 9% rate applies, moving AED 100,000 of profit from one year to the next can change the tax payable. The FTA guide examples apply 0% up to AED 375,000 of taxable income and 9% above it. A count on the last day of the year, signed by two people and reconciled to the stock ledger, is the simplest control.

Worked Example: Trading Company With Slow-Moving Stock

Al Noor Trading LLC sells household goods in Dubai. It is not a free zone company. For the year ended 31 December 2026 it records:

Item	AED
Accounting income before the stock write-down	1,500,000
Stock write-down to net realisable value, supported by a clearance price list	200,000
Accounting income after the write-down	1,300,000

Scenario 1: no realisation-basis election. Taxable income is the accounting income of AED 1,300,000, with no adjustment. Corporate Tax is 9% on the amount above AED 375,000: (1,300,000 minus 375,000) x 9% = 925,000 x 9% = AED 83,250.

Scenario 2: election under Article 20(3)(a). The AED 200,000 write-down is an unrealised loss and is added back. Taxable income is 1,500,000. Corporate Tax is (1,500,000 minus 375,000) x 9% = 1,125,000 x 9% = AED 101,250 for the year.

Scenario 3: election under Article 20(3)(b). The stock is a revenue-account asset, so no adjustment is made. Taxable income is AED 1,300,000 and tax is AED 83,250, as in Scenario 1.

In Scenario 2 the extra AED 18,000 of tax is a timing difference. In the next year, if Al Noor sells the stock at the written-down price or scraps it, the AED 200,000 loss is realised and reduces that year’s taxable income. The company should keep a schedule of every item that has been added back, so that the deduction is claimed when it becomes available. The example assumes no other adjustments, no tax losses and no other items in the computation.

Common Mistakes

Writing down in the tax computation but not in the accounts. The tax return starts from the accounts. A deduction that is not in the financial statements has no starting point.
A flat percentage provision with no analysis. A round figure is hard to defend. Work out NRV by item or product group.
Treating import costs as expenses. Freight and duty that belong in the cost of stock inflate the cost of goods sold and distort closing stock.
Forgetting the election. The company chooses between Article 20(3)(a) and 20(3)(b) or neither. Not knowing which one applies is a reliable way to get the computation wrong.
Losing track of added-back write-downs. With a realisation-basis election, an added-back write-down needs to be tracked until disposal. Without a schedule, the deduction is often never claimed.
Booking owner withdrawals as stock losses. Goods taken by a shareholder are a distribution under Article 33, not a business expense.
Destroying stock with no record. A write-off without a destruction record or a count sheet is weak evidence.
Ignoring the 7-year retention period. Article 56 requires records to be kept for 7 years after the end of the tax period they relate to, and they must support the tax return and allow taxable income to be readily ascertained.

Frequently Asked Questions

Can a UAE company deduct a stock write-down for Corporate Tax?

Yes, in most cases. Taxable income starts from accounting income, so an IAS 2 write-down that reduces profit also reduces taxable income. The exception is a company that has elected the realisation basis under Article 20(3)(a), which adds back the unrealised write-down until the stock is disposed of.

How should closing stock be valued for Corporate Tax?

The tax computation uses the closing stock in the financial statements. Under IAS 2 that is the lower of cost and net realisable value, with cost measured using FIFO or weighted average. LIFO is not allowed under IAS 2.

Is stock a capital-account or revenue-account asset?

Stock that a business trades is held on revenue account. Article 20(4) defines capital-account assets as assets the person does not trade, depreciable assets, property, plant and equipment, investment property, intangibles and other non-current assets. The FTA examples treat inventory as revenue-account.

What happens if I elected the realisation basis only for capital-account assets?

Under Article 20(3)(b) the election covers capital-account assets only. The FTA Accounting Standards guide, Example 8, says that a stock write-down in that case needs no adjustment to accounting income, so the loss stays in taxable income.

What happens if my election covers all assets subject to impairment accounting?

Under Article 20(3)(a) the unrealised loss on stock is added back when taxable income is determined. The FTA Determination of Taxable Income guide shows an AED 1,200,000 unrealised inventory loss added back in that case.

When do I get the deduction back after an add-back?

When the loss is realised, for example when the stock is sold below cost, scrapped or otherwise disposed of. Keep a schedule of each item so the deduction is claimed in the right year.

Is obsolete stock deductible?

It follows the same rules. The loss must be recorded in the accounts, must be incurred wholly and exclusively for the business under Article 28(1), and is subject to the election described above. The FTA guides do not give obsolete stock a separate test.

Can I deduct the cost of stock I donate?

Only if the recipient is a Qualifying Public Benefit Entity. Article 33(1) disallows donations, grants or gifts to any other entity.

Is stock taken by the owner deductible?

No. Article 33(4) and 33(5) disallow distributions to owners and amounts withdrawn from the business by individual taxable persons and partners. Record it as drawings or a distribution.

How long must stock records be kept?

Seven years after the end of the tax period they relate to, under Article 56 of the Decree-Law.

Do free zone companies follow the same inventory rules?

They start from accounting income in the same way. What differs is the classification of income as qualifying or non-qualifying, so stock costs may need to be allocated under Article 28(3).

Does a pre-Corporate Tax stock provision affect my first year?

It can. The FTA Accounting Standards guide says a provision against stock made before Corporate Tax and reversed afterwards would normally be taxable when the credit is recorded, because stock is not covered by the transitional relief.

Need Help With Your Stock Records and Corporate Tax Return?

If you want a second opinion on your stock valuation, your realisation-basis election or your year-end computation, message Qaspro Global on WhatsApp: https://wa.me/971551539679.

Sources: Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses (Articles 20, 28, 33, 34 and 56), UAE Ministry of Finance; FTA Corporate Tax Guide, Accounting Standards and Interaction with Corporate Tax (CTGACS1), Example 8 and section 7.6; FTA Corporate Tax Guide, Determination of Taxable Income (CTGDTI1), Chapter 11. This guide is general information, not tax advice for your specific facts.

Written by Muhammad Qasim FCCA
Founder & CEO, Qaspro Global — UAE tax expert with 16+ years of experience in VAT, corporate tax and FTA audit support.