Deductible vs Non-Deductible Expenses (UAE Corporate Tax Law)

A practical guide for founders on what you can and can’t deduct under UAE Corporate Tax. Learn how the “wholly and exclusively” rule works, what counts as business use, how to handle mixed expenses, and how to avoid common mistakes that raise your tax bill.

Abdul R. ElShaweesh

11/22/20253 min read

What does this really mean?

Deductible expenses = costs that are wholly and exclusively for the business (Art. 28).
Non-deductible expenses = private costs, inflated payments to owners, capital expenditures disguised as expenses, or anything without business purpose.
Mixed-use expenses (cars, home office, phones) must be apportioned, and only the business slice is allowed.

Golden rule

Deduct only what directly serves the business and keep evidence. Split private vs business use.

What to actually do

Identify the category: salaries, rent, software, travel, depreciation.
Check purpose: was this truly for business? If partly private, apportion.
Keep support: invoices, contracts, calculations, usage logs.
Review connected-person payments: salaries, rent, or fees paid to founders/directors must be at market value (Art. 36).

Common real-world examples

Staff salaries → deductible, if for business work.
Home office rent → only the business-use percentage is deductible; must be at market value if paid to owner.
Client entertainment → deductible only when business-related and documented.
Cars & fuel → apportion private use; full deduction is rarely allowed.
Owner compensation & bonuses → must reflect real work at market value.

Red flags that invite questions

No invoices.
Private spending mixed with business spending.
Large “management fees” with no scope.
Founder payments not benchmarked to market value.

Bottom line: Deductible expenses reduce your tax, but only when they pass business purpose, market value, and documentation tests. Clean records = lower CT and smoother audits.

Business owners need to understand Deductible vs. Non-Deductible expenses because it directly protects their money.

Most founders assume deductions are whatever the accountant decides at year-end. Not exactly. Under UAE Corporate Tax, the rules are clear, and getting them wrong can increase your taxable profit, even if your business didn’t earn more.

Knowing these rules keeps your expenses deductible, your tax bill accurate, and your business clean in an audit. It also shows investors and partners that your numbers are trustworthy and not inflated by internal deals.

Let's jump right into it

A Case Study

Background:

Mariam runs a small specialty coffee brand in Dubai. She has a physical kiosk, a delivery channel, and does pop-up events. Her business is profitable and now falls squarely under UAE Corporate Tax.

When preparing for her first CT return, she assumed most of her spending, especially anything paid through her business bank account, would be deductible.

Once her books were reviewed, here’s what was found:

1) The Car That Wasn’t Fully Deductible

Mariam uses her personal car for:

Deliveries (30% of the time)
Supplier pickups (10%)
Personal commuting + family use (60%)

She recorded 100% of fuel, servicing, and insurance as business expenses.

UAE CT Treatment:

Only business use is deductible.
She could only claim 40% of her car expenses.

Why: Art. 28 requires costs to be “wholly and exclusively” for business. Mixed-use must be apportioned.
Impact: Her deductible expenses dropped by AED 8,400.

2) The Home Office That Was Over-claimed

She works from home after kiosk hours. She tried deducting the entire rent of her apartment.

What we asked:

Is there a dedicated workspace?
What % of the apartment does it occupy?
Is it used privately outside work hours?

We measured:

Apartment: 90 m²
Workspace: 9 m² → 10% of total area
Private use: occasional → Business use 80%

Deductible Portion:

10% × 80% = 8% of rent is deductible.

Why: Home office rent must be apportioned and, if paid to an owner, must be at market value.
Impact: Instead of AED 72,000 annual rent, only AED 5,760 was deductible.

3) The “Business Lunches” That Weren’t Actually Business

Mariam recorded weekly meals in cafés under “client entertainment.”
But there were no clients at most of these lunches, just her business partner or friends.

UAE CT Treatment:

Only entertainment with genuine business purpose is deductible.
Meals with no business context = non-deductible.

Impact: AED 14,000 of costs reclassified as non-deductible.
What saved her: She had WhatsApp conversations and meeting notes for some vendor lunches, those stayed deductible.

4) The Professional Fees That Were Fully Deductible

Good news for her: external services, accounting, legal, graphic design, web development, are fully deductible because:

They’re directly related to business
They have valid tax invoices
They’re not connected-person payments

Result: AED 28,000 fully deductible.

5) The “Founder Salary” That Needed Market Value Verification

Mariam had paid herself a monthly “founder wage” that was double the market salary for a café operator.

UAE CT Treatment:
Payments to owners/directors (Connected Persons) must meet market value and actual work performed tests.

After benchmarking similar roles in Dubai:
Her salary was reduced to the market-aligned amount for deduction purposes.
Impact: AED 36,000 of her overpayment became non-deductible.

Final Result of the Review

Total non-deductible reclassified: AED 125,340
Tax impact: At 9% CT → AED 11,280 extra tax avoided by cleaning the file before filing.

The Lesson for Business Owners

Deductible expenses aren’t about “what you paid.”
They’re about purpose, market value, and documentation.

When in doubt, ask: Would I still make this payment if the FTA looked at it tomorrow?

The Coffee Founder Who Thought Everything Was Deductible

Deductible vs Non-Deductible Expenses (UAE Corporate Tax Law)

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