Under the UAE Corporate Tax Law (Federal Decree-Law No. 47 of 2022), certain business expenses cannot be deducted when calculating taxable income. These are known as disallowed expenses and are typically those that are not incurred wholly and exclusively for business purposes, are capital in nature, or are specifically restricted under the law.

1. Personal Expenses

Disallowed: Any expense not related to business activity.

Examples:

• Personal travel or leisure expenses
• Meals for family members or friends not connected to business
• Private vehicle fuel costs (unless apportioned properly for business use)

2. Fines and Penalties

Disallowed: Penalties for violations of law (except compensatory damages).

Examples:

• Traffic fines
• Penalties imposed by regulatory authorities (e.g., late license renewal)
• Late VAT filing penalties

3. Bribes and Other Illegal Payments

Disallowed: Any payment that is illegal under UAE or foreign law.

Examples:

• Bribes to secure contracts
• Kickbacks or secret commissions

4. Dividends Paid

Disallowed: Dividends or profit distributions to shareholders.

Example:

• Dividend of AED 200,000 paid to shareholders—not deductible.

5. Corporate Tax Paid in UAE

Disallowed: Any UAE Corporate Tax paid is not deductible in computing taxable income.

Example:

• A business pays AED 10,000 in CT—cannot deduct this as an expense.

6. Non-Business Donations or Gifts

Disallowed: Donations not made to approved charities or outside the UAE.

Example:

• Gift to an unregistered NGO abroad
• Personal gift to a customer’s wedding

7. Capital Expenditures (unless depreciated/amortized)

Disallowed directly: Capital costs should be capitalized and depreciated/amortized over useful life.

Examples:

• Buying machinery (deductible through depreciation)
• Cost of acquiring trademarks or patents (deductible through amortization)

8. Entertainment Expenses (Restricted Deduction)

Under UAE Corporate Tax Law, entertainment expenses incurred exclusively for employees are considered fully deductible, provided they are wholly and exclusively for the business.

Examples of Fully Deductible Employee Entertainment Expenses:

• Staff meals during office hours or business travel.
• Year-end staff party or annual team-building events.
• Internal training programs with meals/snacks provided.
• Employee rewards or recognition events.
• Refreshments in the office.

🚫 What Is Only 50% Deductible? Expenses related to client entertainment, suppliers, or other non-employees (e.g., meals, hotel stays, event tickets, etc.) are only 50% deductible, as per Article 33 of the UAE Corporate Tax Law. Partially allowed: Expenses related to client entertainment, suppliers, or other non-employees (e.g., meals, hotel stays, event tickets, etc.) are only 50% deductible, as per Article 33 of the UAE Corporate Tax Law.

Examples:

• Client meals, event sponsorships – only 50% of cost is deductible

9. Related Party Payments Not at Arm’s Length

Disallowed (partially or fully): If not priced at fair market value.

Example:

• Paying excessive rent to a related party not justified by market rates.

10. Unrealized Losses (in some cases)

Disallowed unless specifically permitted

Example:

• Unrealized foreign exchange loss on long-term investments