UAE Corporate Tax Deductible Expenses — Entertainment at 50%, the Interest Cap, Owner Salaries and the Non-Deductible List (Articles 28

The one test: wholly and exclusively, and not capital

Article 28(1) is the rule everything else hangs off. Expenditure is deductible in the period it is incurred if it is "incurred wholly and exclusively for the purposes of the Taxable Person's Business" and "is not capital in nature". Article 28(2) then names what fails: expenditure not incurred for the business, expenditure incurred in earning Exempt Income, losses not connected with the business, and anything the Cabinet adds by decision. We found no such Cabinet Decision as of the verification date.

The FTA's guide fills in what the words mean in practice. Salaries and bonuses paid to shareholder-directors for the work they do as executives are deductible, provided the pay is at arm's length. Reimbursing home-working costs to staff who must work from home is deductible. Local taxes such as municipal and property charges on business premises are deductible, because they are not Corporate Tax. Buying items on behalf of a subsidiary and not recharging them is not deductible: it was not incurred for your business.

Mixed-purpose spending: apportion, don't lose it

Article 28(3) deals with expenditure that serves more than one purpose. You deduct any identifiable part that is wholly for earning Taxable Income, plus a fair and reasonable proportion of the rest. The FTA's two examples are worth knowing:

A shared employee. A manager on AED 2,000,000 a year spends 30% of her time working for a sister company. Only AED 1,400,000 is deductible by the employer; the AED 600,000 is added back unless it is recharged to the sister company at arm's length.
Staff travel that includes personal days. AED 70,000 of employee travel, AED 20,000 of it personal weekend travel. The FTA allows the whole amount, because the spend is a staff benefit incurred to reward and retain employees, "provided the aggregate amount is in line with the arm's length standard". The purpose test is applied to the company, not to how the employee spent the weekend.

Entertainment: half, all, or nothing

Article 32 allows a deduction of 50% of "entertainment, amusement, or recreation expenditure" incurred to receive and entertain "customers, shareholders, suppliers or other business partners". The article lists meals, accommodation, transportation, admission fees, and facilities and equipment used for such entertainment. The Minister may add categories; we found no decision doing so.

The FTA's case study splits one company's AED 1,600,000 of entertainment three ways, and the split is the practical rule:

Who was entertained	Treatment	Why
Employees (AED 900,000)	100% deductible	Staff entertainment is a business expense under Article 28, not customer entertainment under Article 32
Customers and business partners (AED 500,000)	50% deductible (AED 250,000 added back)	Article 32(1)
Shareholders' family members (AED 200,000)	0% deductible	Not incurred for the business at all, Article 28(2)(a)

Note that the 50% rule names shareholders among the people whose entertainment is half-deductible. Entertaining a shareholder as a business partner is half-allowed; entertaining the shareholder's family is not allowed. The line is purpose, not the guest list.

The nine items Article 33 refuses outright

Article 33 is a closed list. No deduction is allowed for:

Donations, grants or gifts to anyone who is not a Qualifying Public Benefit Entity. The list of such entities is the schedule annexed to Cabinet Decision 37 of 2023, which the Cabinet has extended several times since, most recently by Cabinet Decision 49 of 2025. If the charity is not on that schedule, the gift is added back. The FTA adds that Zakat is deductible only if paid to a listed entity.
Fines and penalties, "other than amounts awarded as compensation for damages or breach of contract". The FTA's example is speeding fines on company vehicles incurred during work: non-deductible, even though incurred in the course of business. Compensation paid to a customer for breach of contract, and legal fees to defend a customer's claim, are deductible.
Bribes or other illicit payments, whatever the accounts call them.
Dividends, profit distributions or similar benefits paid to an owner.
Amounts withdrawn from the business by a natural person who is a Taxable Person, or by a partner in an Unincorporated Partnership. A sole trader's drawings are not a salary.
Corporate Tax itself.
Recoverable input VAT. Irrecoverable input VAT is deductible, provided the underlying expense is deductible (FTA guide). VAT on a personal expense is not deductible because the expense is not.
Foreign income tax on the Taxable Person. The law sends you to the foreign tax credit in Article 47 instead.
Anything the Cabinet adds by decision. We found none.

Fines have a second trap the FTA points out. If you capitalise a fine into the cost of an asset, Article 7 of Ministerial Decision 134 of 2023 blocks the depreciation on it too: a non-deductible expense does not become deductible by being spread over ten years.

Paying yourself: Article 36 and market value

For an owner-managed company this is the article that gets tested. Under Article 36(1) a payment or benefit to a Connected Person is deductible "only if and to the extent" it "corresponds with the Market Value" of what the Connected Person provided, and is wholly and exclusively for the business. A Connected Person is an owner (any natural person who directly or indirectly holds an ownership interest or controls the company), a director or officer, or a Related Party of either. In a partnership, every other partner counts.

So an owner-director's salary is deductible: the FTA's example assumes arm's-length pay for executive work and makes no adjustment. The deduction stops at market value. Pay yourself AED 600,000 for a job the market pays AED 400,000, and AED 200,000 is added back (our own numbers). The same rule covers rent paid to a shareholder for office space (deductible at market rent in the FTA's example), management fees to a related company, and benefits in kind. Article 36(5) borrows the transfer pricing methods of Article 34 to decide what market value is. Listed companies and businesses under the oversight of a UAE regulator are outside the rule (Article 36(6)).

Interest: deductible, with a cap you will probably never hit

Article 29 makes interest deductible when incurred, subject to two limitation rules. "Interest" is wide: Ministerial Decision 126 of 2023 pulls in the finance element of leases, arrangement, guarantee and commitment fees, the profit on Islamic financial instruments, foreign-exchange movements on interest, and interest capitalised into an asset (which then enters the calculation as it is amortised).

The general rule (Article 30). Net Interest Expenditure, meaning interest expense less taxable interest income, is deductible up to 30% of EBITDA, with EBITDA computed from Taxable Income (not accounting profit) plus net interest, depreciation and amortisation, and floored at zero. Disallowed interest carries forward for ten Tax Periods. Three things take most small businesses out of it:

De minimis. Article 8 of MD 126 switches the cap off entirely where net interest for the period does not exceed AED 12,000,000. Above that, you deduct the higher of AED 12,000,000 or 30% of EBITDA. The threshold is pro-rated for periods longer or shorter than twelve months.
Natural persons are excluded. Article 30(6) switches the rule off for banks, insurers and "a natural person undertaking a Business or Business Activity in the State". A sole trader's loan interest is tested only against Article 28.
Old debt is grandfathered. Article 11 of MD 126 exempts interest on debt whose terms were agreed before 9 December 2022, limited to the interest that would have arisen on those original terms.

The specific rule (Article 31). No deduction at all for interest on a loan from a Related Party used to pay that party a dividend, return its capital, make a capital contribution to it, or buy an interest in a person that is or becomes a Related Party. The exception is where you can show the main purpose was not a Corporate Tax advantage, and the law deems there is no advantage if the lender is taxed on the interest at 9% or more (Article 31(2)–(3)). Borrowing from your own holding company to pay it a dividend is the transaction this article is written for.

Capital items, start-up costs and provisions

Capital expenditure is not deductible; depreciation is. What counts as capital follows your accounting standard. If your policy expenses low-value items rather than capitalising them, the FTA accepts that: the full cost is deductible in the year. A one-year software licence is revenue expenditure.
Pre-incorporation and pre-trading costs (feasibility, registration, legal fees, early marketing, hiring before launch) are deductible in the period they are recorded in the accounts, which for pre-incorporation costs reimbursed to founders is the company's first financial year. The FTA's conditions: wholly and exclusively for the business, not capital, and not already claimed by another Taxable Person.
Provisions recognised under IFRS or IFRS for SMEs, including bad-debt and warranty provisions, are deductible when made and taxable when released, with no special adjustment. A provision for a non-deductible expense (the FTA's example is an expected regulatory fine) is added back. Bad debts written off are deductible; later recoveries are taxable.
Private pension contributions for employees are deductible when paid, up to 15% of the employee's total remuneration for the period (Ministerial Decision 115 of 2023, as applied in the FTA guide). Unpaid accruals and the excess over 15% are added back.

What the add-backs cost: a worked example

The table is our own arithmetic, not an official example. A mainland LLC has accounting profit of AED 1,200,000 and does not elect Small Business Relief. Its books include four items the law treats differently from the accountant:

Item in the accounts	Booked	Added back	Rule
Client dinners and hospitality	120,000	60,000	Art. 32: 50%
Traffic and labour-ministry fines	18,000	18,000	Art. 33(2)
Donation to an unlisted charity	25,000	25,000	Art. 33(1)
Owner-director salary (market value 400,000)	600,000	200,000	Art. 36: excess over market value
Taxable Income	1,200,000	+303,000	1,503,000

Tax on AED 1,503,000 is 9% of the amount above AED 375,000: AED 101,520. Had every booked expense been allowed, tax on AED 1,200,000 would have been AED 74,250. The four add-backs cost AED 27,270, and the owner salary alone accounts for two-thirds of it. Run your own figures in the corporate tax calculator.

Where Small Business Relief changes the answer

A resident business with Revenue of AED 3,000,000 or less can elect Small Business Relief for periods ending on or before 31 December 2029. In an electing period it is treated as having no Taxable Income, so none of the add-backs above are computed. Two cautions. Revenue is tested, not profit, so the add-backs cannot push you over the line, but a growing turnover can. And the records still have to exist: the election does not remove the obligation to keep accounts, and the first non-electing year starts from them.

Checklist before the return

Split entertainment into three ledgers: staff, customers and partners, and anything personal. Only the middle one is halved; the last is zero.
Pull every fine and penalty out of operating costs, including traffic fines on company cars. Keep compensation and legal fees in.
Check each donation against the Cabinet Decision 37 schedule before claiming it.
Document market value for owner and director pay, rent paid to shareholders, and management fees to related companies. Article 36 asks for it.
Net interest under AED 12,000,000? Then Article 30 does not apply, but Article 31 still does: check whether any related-party loan funded a dividend or a capital return.
Apportion shared staff and mixed-use costs on a recorded, reasonable basis.
Recoverable VAT booked as an expense? Add it back.
File on time. See the deadline and penalties.

Frequently asked questions

Is client entertainment tax deductible in the UAE?

Half of it. Article 32 of Federal Decree-Law No. 47 of 2022 allows 50% of entertainment, amusement or recreation expenditure incurred to receive and entertain customers, shareholders, suppliers or other business partners, including meals, accommodation, transport, admission fees and facilities used for the purpose. The other 50% is added back when computing Taxable Income.

Are staff parties and team events fully deductible?

Yes, according to the FTA's Determination of Taxable Income guide. In its case study, entertainment of the company's own employees is 100% deductible as a business expense, while entertainment of business partners is 50% deductible and entertainment of shareholders' family members is not deductible at all because it is not incurred for the business.

Are fines and penalties deductible for UAE Corporate Tax?

No. Article 33(2) disallows fines and penalties other than amounts awarded as compensation for damages or breach of contract. The FTA's example is speeding fines on company employees during work, which are non-deductible even though incurred in the course of business. Compensation paid to a customer for breach of contract, and professional fees to defend a customer's lawsuit, are deductible.

Can I deduct my own salary as the owner of a UAE company?

Yes, to the extent it is at market value and for work actually done for the business. Article 36 limits deductions for payments to Connected Persons, which include owners, directors and their Related Parties, to the Market Value of the service provided. The FTA's guide treats arm's-length salaries paid to shareholder-directors for executive work as deductible. Dividends and profit distributions to owners are never deductible (Article 33(4)), and a sole trader's drawings are not deductible either (Article 33(5)).

Are donations to charity deductible in the UAE?

Only donations, grants or gifts to a Qualifying Public Benefit Entity, which means an entity listed in the schedule annexed to Cabinet Decision No. 37 of 2023 as amended. Gifts to anyone else are non-deductible under Article 33(1). The FTA adds that Zakat is deductible only if paid to a listed entity.

Is interest on a business loan deductible in the UAE?

Yes, under Article 29. The 30%-of-EBITDA cap in Article 30 applies only where net interest expenditure for the period exceeds AED 12,000,000 (Article 8 of Ministerial Decision No. 126 of 2023), and it does not apply at all to natural persons carrying on a business. Interest on debt agreed before 9 December 2022 is grandfathered. Separately, Article 31 disallows interest on a loan from a Related Party used to pay that party a dividend, return capital, contribute capital or buy a related company, unless there is no Corporate Tax advantage.

Is VAT a deductible expense for Corporate Tax?

Recoverable input VAT is not deductible (Article 33(7)); if it was booked as an expense it must be added back. Irrecoverable input VAT is deductible as a permanent cost, provided the underlying expenditure is itself deductible. VAT on a personal, non-business expense is not deductible because the expense is not.

Can I deduct the cost of equipment or a vehicle?

Not as a lump sum. Capital expenditure is not deductible under Article 28(1), but the depreciation or amortisation of the asset is. Where your accounting policy expenses low-value items rather than capitalising them, the FTA accepts the full deduction in the year. Depreciation on a capitalised amount that would not have been deductible as an expense, such as a fine, is blocked by Article 7 of Ministerial Decision No. 134 of 2023.

Are company set-up and pre-incorporation costs deductible?

Yes, according to the FTA's guide. Pre-incorporation costs such as registration and legal fees, and pre-trading costs incurred before revenue starts, are deductible in the Tax Period in which they are recorded in the financial statements, provided they are wholly and exclusively for the business, not capital in nature, and not already claimed by another Taxable Person.

What if an expense is partly business and partly personal?

Article 28(3) allows a deduction for any identifiable part incurred wholly and exclusively for earning Taxable Income, plus a fair and reasonable proportion of any part that cannot be separated. The FTA's example is a manager who spends 30% of her time working for a sister company: 30% of her cost is disallowed unless recharged at arm's length.

Are bad-debt provisions deductible?

Yes, if recognised in accordance with IFRS or IFRS for SMEs and relating to an expense that would itself be deductible. The release or reversal of the provision is then taxable income. A provision for a non-deductible item, such as an expected fine, is added back. Bad debts written off are deductible, and later recoveries are taxable.

Are employer pension contributions deductible?

Contributions to a private pension fund for employees are deductible in the period they are actually paid, up to 15% of the employee's total remuneration for that period, under Ministerial Decision No. 115 of 2023 as applied in the FTA's guide. Unpaid accruals and any excess over 15% are added back.

Sources

General deduction test, interest rules, entertainment, the non-deductible list, Connected Persons — Federal Decree-Law No. 47 of 2022 (PDF), Arts. 1, 3, 28–33, 34, 36, 47, Ministry of Finance
Definition of Interest, AED 12,000,000 de minimis, EBITDA, grandfathering of pre-9 December 2022 debt — Ministerial Decision No. 126 of 2023 (PDF), Arts. 2–11, Ministry of Finance
Worked examples: shareholder-directors, home working, local taxes, shared staff, entertainment split, fines, VAT, pensions, pre-incorporation costs, provisions, capitalised non-deductibles — Corporate Tax Guide: Determination of Taxable Income, CTGDTI1 (PDF, July 2024), sections 4.5–5.3, Federal Tax Authority
Schedule of Qualifying Public Benefit Entities — Cabinet Decision No. 37 of 2023, consolidated (PDF), Ministry of Finance
Legislation library and guides — Ministry of Finance · FTA Corporate Tax guides and references

Verified 9 October 2026. On that date we downloaded the Corporate Tax Law from the Ministry of Finance and read Articles 28 to 33 and 36 in the published English translation, downloaded and read Ministerial Decision No. 126 of 2023 in full, read sections 4.5 and 5.3 of the FTA's 107-page Determination of Taxable Income guide (CTGDTI1, July 2024, the latest version we could find), and downloaded the consolidated Cabinet Decision No. 37 of 2023, whose schedule carries additions through Cabinet Decision No. 49 of 2025. We found no Cabinet Decision adding items under Articles 28(2)(d) or 33(9), and no Ministerial Decision adding entertainment categories under Article 32(2)(f). Ministerial Decisions 115 and 134 of 2023 are cited as the FTA's guide applies them; we did not read them in full. The worked example and the owner-salary figures are our own arithmetic and are marked as such. This is an explanation of the published texts, not tax advice; a Taxable Person's position depends on its facts.

Corporate tax calculator: the 0% and 9% bands applied to Taxable Income after these add-backs.
Corporate Tax losses: what happens when the adjusted figure is negative.
Corporate Tax for individuals and freelancers: sole traders are outside the interest cap but inside the drawings rule.
Small Business Relief, extended to 2029: the election under which none of this is computed.
Non-recoverable input VAT: the VAT-side rules on entertainment and staff benefits that decide whether VAT becomes a deductible cost here.

The law lists nine things it will not deduct, one it only half-allows, and one test that decides everything else.