Understanding Deductible vs Non-Deductible Expenses under UAE Corporate Tax (2025 Guide)

With the introduction of Corporate Tax (CT) in the UAE, business owners now face an important challenge — understanding which expenses are deductible and which are not.

Getting this wrong can lead to overstated deductions, underpaid tax, and FTA penalties.

This guide explains in simple terms the difference between deductible and non-deductible expenses under the UAE Corporate Tax Law, with 2025 updates and best practices for documentation

What Are Deductible Expenses?

A deductible expense is a business cost that can be subtracted from total income when calculating taxable profit.

To qualify, the expense must be:

• Wholly and exclusively incurred for business purposes, and
• Not capital in nature (unless depreciation applies).

Common Deductible Expenses in the UAE

✅ Salaries and wages

✅ Rent, utilities, and office supplies

✅ Professional and legal fees

✅ Marketing and advertising

✅ Depreciation of fixed assets (per IFRS)

✅ Bad debts written off

✅ Bank charges and interest (with limits for related-party loans)

👉 Tip: Always maintain invoices, contracts, and payment proofs to justify each deduction.

What Are Non-Deductible Expenses?

Non-deductible expenses cannot be claimed to reduce taxable income.

The FTA may disallow such items even if recorded in the books.

Common Non-Deductible Items

🚫 Fines and penalties (except contractual compensation)

🚫 Bribes and illegal payments

🚫 Personal or private expenses

🚫 Dividends and profit distributions

🚫 Corporate Tax itself

🚫 Donations not approved as charitable under FTA lis

Special Cases

• Interest expenses: Deductible only if incurred for business and within 30% EBITDA limit (thin capitalisation rule).
• Entertainment expenses: 50% deductible if related to clients or staff.
• Related-party transactions: Must follow arm’s length pricing and be properly documented

Documentation Required

1. Supplier invoices with TRN
2. Proof of business purpose (contracts, agreements)
3. Payment vouchers or bank transfer confirmations
4. IFRS-based accounting records

FTA Compliance Tip

During Corporate Tax audits, the FTA often tests expense legitimacy.

Keep a file of the top 10 expense categories with explanations — this saves time during inspection.

Conclusion

Correctly classifying deductible and non-deductible expenses is vital for accurate Corporate Tax computation.

Businesses that maintain clean records, follow IFRS, and understand FTA guidance can minimise risks and optimise tax efficiency.

Call to Action

At Advanced AnalytIQ, we help UAE companies identify allowable deductions, maintain tax-ready records, and prepare accurate Corporate Tax filings.

👉 Contact us today to review your expense classifications before your next CT return.