Your accounting profit is not your taxable profit. Under UAE corporate tax you start from your accounts, then add back the costs the law does not let you deduct. Owners who skip this step understate their tax, and understating tax is where penalties begin. This guide lists the items that get added back, shows a full worked example, and explains the loss rule that limits how much of your past losses you can use.
- Expenses must be wholly and exclusively for the business and not specifically disallowed.
- Client, supplier and shareholder entertainment: only 50% deductible. Staff-only events: 100%.
- Fines and penalties, personal expenses, dividends and bribes are never deductible.
- Tax losses can offset only 75% of taxable income in a period.
What you can and cannot deduct
| Expense | Treatment |
|---|---|
| Salaries, rent, utilities, marketing, depreciation | Deductible if business-related and documented |
| Client, supplier and shareholder entertainment | 50% deductible |
| Staff parties and team events | 100% deductible |
| Fines and penalties, including tax authority penalties | Not deductible |
| Personal or owner expenses paid by the company | Not deductible |
| Dividends, profit distributions, corporate tax itself, bribes | Not deductible |
| Payments to owners or related parties | Only at arm’s length or market value |
| Net interest above AED 12 million a year | Capped at the higher of AED 12M or 30% of tax-adjusted EBITDA |
For most small companies the interest cap never applies, because it only bites when net interest exceeds AED 12 million. Disallowed interest can generally be carried forward, though sources differ on the time limit, so confirm with your adviser.
Worked example: the add-backs in numbers
A company reports accounting profit of AED 800,000. Inside its costs are AED 60,000 of client entertainment, a AED 5,000 traffic fine and AED 30,000 of personal expenses paid for the owner.
| Step | Amount (AED) |
|---|---|
| Accounting profit | 800,000 |
| Add back 50% of entertainment (60,000 x 50%) | + 30,000 |
| Add back the fine | + 5,000 |
| Add back personal expenses | + 30,000 |
| Taxable income | 865,000 |
| Tax: 0% on first 375,000, 9% on 490,000 | 44,100 |
If the owner had skipped the add-backs and filed on AED 800,000, tax would be AED 38,250, understated by AED 5,850. That is 9% of the AED 65,000 of add-backs. It is a small number, but an understatement is exactly what an FTA review looks for, and it compounds across years.
The 75% loss rule
Tax losses carry forward, but you cannot wipe out a whole year’s income with them. Suppose you have AED 3,000,000 of losses and AED 2,000,000 of taxable income this year. You can offset only 75%, or AED 1,500,000, leaving AED 500,000 taxable. Tax is then 9% on AED 125,000 (the part above AED 375,000), which is AED 11,250. Plan cash for tax even in a year you still hold losses.
Records that protect your deductions
- Tax invoices and contracts for each major cost.
- A split in your books between client entertainment and staff events from day one.
- A separate owner account so personal spending never sits in expenses.
- Market-value support for any owner salary or related-party payment, see our guide to transfer pricing for small companies.
Clean books make all of this easier, see UAE bookkeeping and e-invoicing. If your revenue is under AED 3 million you may not need these computations at all, read about Small Business Relief. Free zone companies should also check their qualifying income position, and everyone should know the filing deadline.
FAQ
Is my own salary deductible? A salary to an owner-director is generally deductible if it is reasonable for the role and properly documented. Drawings that are not salary are not.
Are VAT amounts deductible? Recoverable input VAT is generally not an expense, treat it through your VAT return.
Read the law and guides on the Federal Tax Authority website. Want a quick review of your add-backs before you file? Ask BizDaddy.
