What Business Expenses Can You Claim? Deductibility Rules for UAE Corporate Tax
Can You Deduct That Expense? Let’s Make It Simple
When you’re running a business in the UAE, understanding which expenses you can claim is just as important as tracking your sales. Not every payment that leaves your account will lower your tax bill and that’s where the UAE Corporate Tax rules step in.
Let’s walk through what counts as a deductible business expense, what doesn’t, and how you can keep things clean and easy at tax time.
The Golden Rule: “Wholly and Exclusively for Business”
The Federal Tax Authority has a clear standard. You can claim an expense only if it’s wholly and exclusively for your business. In other words, if you spend money for a mix of business and personal reasons, you can only deduct the part that’s 100% for business and you need to be able to prove it.
Example:
You take a client to dinner and discuss business plans. If the dinner is just for work, 50% of the cost can be claimed (since entertainment expenses are capped).
But if you add your family’s meals to the bill, only the part that’s directly about business is allowed and, even then, only half counts.
Everyday Business Expenses: What’s Usually Deductible?
Here’s how some of the most common expenses are treated:
- Salaries and Wages: Paying your staff? Those costs are deductible.
- Office Rent and Utilities: Keeping the lights on and the AC running for your workspace? That’s a business expense.
- Marketing: Ad campaigns, social media spend, and promotional materials are all allowed if they’re aimed at bringing in business.
- Staff Training: Investing in your team’s skills helps your business—and those training costs can usually be claimed.
- Loan Interest: If you’ve borrowed money for your business, you can generally claim the interest. But there are limits to how much can be deducted, so keep an eye on those details.
Expenses You Can’t Deduct
Some costs are never deductible no matter what.
- Bribes and Illegal Payments: Out of bounds, full stop.
- Fines and Penalties: If you get hit with a fine (for breaking a rule or missing a deadline), you can’t claim it as a business expense.
- Personal Spending: Buying something for yourself, your family, or anything unrelated to work? That’s not a business cost.
Special Considerations: The Finer Details
- Capital Expenses: Buying equipment, property, or vehicles for your business? You can’t deduct the whole cost at once. Instead, these are spread out (“depreciated”) over several years.
- Entertainment Costs: The law is clear only 50% of certain entertainment expenses (like taking a client out for dinner) are deductible. This doesn’t cover staff parties or internal events.
- Expenses Linked to Exempt Income: If an expense is connected to income that isn’t taxed (like certain dividends or foreign branch profits), you can’t claim it as a deduction.
How to Get This Right: Best Practices
Want to keep things smooth with the FTA? Try these habits:
- Keep Clear Records: Save your receipts, invoices, and proof for every expense. If you ever need to explain your deductions, you’ll have everything ready.
- Classify Expenses Properly: Don’t guess. Make sure each expense is put in the right category, marketing, salaries, training, etc., so your books stay clean.
- Use Accrual Accounting (Unless Approved Otherwise): The standard in the UAE is to recognize expenses when they’re incurred, not when you pay them. If you want to use cash accounting, you’ll need special approval.
Many business owners use software or tools like Tax Star to keep track of all these rules, scan receipts, and run checks before tax season.
FAQs
Can I claim my own salary as a business owner?
Usually, only salaries paid to staff are deductible. Owner withdrawals or dividends aren’t considered expenses.
Are bank charges deductible?
Most business-related bank fees are deductible, but check for exceptions.
Can I claim all staff entertainment costs?
No. Only 50% of client-related entertainment is allowed. Internal staff parties may not be deductible.
What if I mix business and personal use (like a mobile phone)?
You can claim the business portion, but you must have clear records showing how much use was for work.
How do I know if an expense is “wholly and exclusively” for business?
Ask yourself: “Would I spend this if I wasn’t running the business?” If the answer is no, you’re on the right track.
What happens if I claim something not allowed?
The FTA can disallow the deduction, and you might face penalties or an audit.
Do I need to keep receipts for every expense?
Yes, keep all documentation for at least seven years.
How does depreciation work for capital assets?
Instead of deducting the whole cost, you spread it out over the asset’s useful life. Your accountant or Tax Star can help with the math.
Can I claim home office expenses?
If you work from home, you may be able to claim a portion of your rent or utilities—but only the part used for business.
Is it worth using accounting software or Tax Star for this?
For most businesses, yes. Automated tools catch mistakes and make sure you’re not missing out on valid deductions.
Still have questions about what you can (and can’t) claim? Reach out to your advisor or check out Tax Star for more ways to keep your business tax-smart and compliant.
