With the UAE’s Corporate Tax regime now fully in play, CFOs and finance leaders need clarity on which expenses reduce tax liability, which don’t, and how to stay audit-proof. Getting this wrong can mean higher taxable income, penalties, and wasted hours untangling misclassified costs.

This guide breaks it down in plain language, with practical steps you can apply immediately.

Overview of UAE Corporate Tax Deductions

Corporate tax law allows deductions only for costs incurred “wholly and exclusively” for business. But not all expenses are treated equally: client entertainment is capped at 50%, interest has limits, and losses can offset only up to 75% of profits.

Allowable vs Non-Allowable Expenses

Allowable expenses include the essentials of running a business: salaries, rent, utilities, audit/legal fees, marketing campaigns, business travel, depreciation, and qualifying bad debts. Interest is deductible too, but only within the AED 12m/30% EBITDA thresholds.

On the other hand, fines, bribes, corporate tax, VAT, dividends, personal spend, and non-business donations are off the table. For entertainment, only half of client hospitality is deductible, while staff events like team-building may qualify in full.

The Interest Deduction Rules

Interest deductions are capped at the higher of AED 12m or 30% of EBITDA. Anything above that is carried forward for up to 10 years. Related-party loans also face restrictions if used for dividends, share capital, or non-business purposes.

Timing and Accrual

Expenses must be deducted in the period they are incurred, not when cash changes hands. That means accrual-based accounting is critical, especially when invoices and payments span across financial years.

Staff vs Client Entertainment

Hospitality for clients and partners is capped at 50%, but costs related to employee entertainment, like annual staff parties, can often be deducted in full. The key is clear categorisation.

Staying Audit-Ready

Auditors and the FTA don’t just look at totals; they review how expenses were classified, documented, and capped. Mixed-use expenses, donations, and entertainment are particular hot spots.

Common Mistakes and Their Consequences

The most frequent errors include expensing capex instead of depreciating, claiming 100% entertainment, deducting VAT or corporate tax, and overusing tax losses beyond the 75% cap. These mistakes don’t just reduce compliance — they invite penalties and reputational damage.

Step-by-Step to Classifying an Expense

Every cost should follow a clear process: confirm business purpose, decide revenue vs capital, apply special rules (entertainment, interest, donations), allocate mixed use fairly, and reconcile against caps.

Managing Tax Losses

Losses can offset future taxable profits, but only up to 75% in any one year. Continuity of ownership and business conditions must also be met to keep those losses valid.

Beyond Straight Deduction

Not all costs can be expensed directly — some must be capitalised and depreciated, while others may be blocked entirely. Structuring matters: for instance, owner payments are deductible as salary but not as dividends.

Staying Current

Corporate tax rules in the UAE are evolving. What qualifies as deductible today may not in future years, and updates from the FTA can shift interpretations.

FAQ

Q: What’s deductible?
Business salaries, rent, utilities, marketing, business travel, depreciation, bad debts, and interest (within limits).

Q: What’s non-deductible?
Fines, bribes, corporate tax, VAT, dividends, non-qualifying donations, excess entertainment, and personal expenses.

Q: How is interest capped?
Deduct up to AED 12m, or 30% of EBITDA if higher. Excess can be carried forward for 10 years.

Q: Are staff entertainment costs deductible?
Yes, staff-related events are generally deductible, while client hospitality is capped at 50%.

Conclusion: Controls Today, Savings Tomorrow

Accurate deductions mean lower taxable income and reduced audit risk. Misclassifications don’t just cost money — they bring penalties, compliance reviews, and reputational risk. Set clear policies, forecast deductions, and document every step.

How Qashio Helps CFOs Put Deduction Rules into Practice

Understanding UAE Corporate Tax rules is one thing. Making sure every employee, transaction, and report follows them is another. Here’s how Qashio hardwires compliance into daily finance operations — with examples.

1. Entertainment Split Done Automatically

Problem: Client entertainment is only 50% deductible, but teams often book the full amount. This inflates deductible expenses and creates a red flag during audits.
Example: Your sales team spends AED 18,000 hosting a client dinner. Without controls, finance books the full AED 18,000 as deductible.
How Qashio Helps: Every transaction tagged under “entertainment” is automatically split. Reports show only AED 9,000 as deductible, with the rest marked non-deductible. No manual adjustments needed at year-end.

2. Stopping Personal Spend Before It Hits the Ledger

Problem: Personal spend slips onto company cards, gets booked, and must later be reversed — wasting time and risking errors.
Example: An executive buys a personal laptop for AED 7,000 using the company card. It enters the books as business IT spend before finance catches it.
How Qashio Helps: Merchant Category Controls (MCCs) block restricted categories like electronics, jewellery, or leisure travel. The AED 7,000 transaction is declined at the point of sale - preventing misclassification entirely.

3. Tracking Interest Headroom in Real Time

Problem: CFOs often only realise at year-end that total interest expenses exceed the AED 12m or 30% EBITDA limit, forcing last-minute rework.
Example: Across subsidiaries, your group racks up AED 22m in interest, but only AED 15m is deductible. The excess AED 7m is discovered late during the return prep.
How Qashio Helps: Dashboards track Net Interest Expense monthly against both caps. By June, Qashio already shows you’re approaching AED 15m — giving you time to adjust financing or plan for carry-forward, instead of scrambling later.

4. Receipts Without the Chase

Problem: Missing receipts are one of the biggest audit headaches. Employees forget to submit them, leaving finance teams with gaps.
Example: A manager spends AED 2,500 on approved business travel but never forwards the hotel receipt. At audit, the expense is flagged as undocumented.
How Qashio Helps: Employees snap a photo or forward receipts via WhatsApp/email at the time of spend. OCR extracts the details and auto-attaches it to the transaction. When auditors ask, every AED 2,500 is backed by a timestamped, digital receipt.

5. Donations Tagged Correctly

Problem: Not all donations qualify as deductible — only those to approved public benefit entities. Without controls, non-qualifying donations can slip through as deductible.
Example: Your company donates AED 50,000 to a community event. It’s not an FTA-approved entity, but finance books it as deductible anyway.
How Qashio Helps: Qashio lets you whitelist approved charities. When the AED 50,000 donation is processed, the system automatically tags it “non-deductible.” You stay compliant without needing to double-check later.

6. Loss and Expense Planning Made Clear

Problem: Companies often misapply carried-forward losses, exceeding the 75% cap or failing continuity tests.
Example: You carry AED 12m in tax losses. In a year with AED 10m profit, finance mistakenly offsets the full AED 10m, when only AED 7.5m (75%) is allowed.
How Qashio Helps: The system models tax losses automatically. It shows the usable AED 7.5m and flags risks like ownership changes that could invalidate carry-forward claims. CFOs see the compliant figure before the return is filed.

Why It Matters

Qashio transforms the tax rulebook into automated processes:

• Entertainment capped at 50% by default.
  
  
• Personal spend blocked before it happens.
  
  
• Interest deductions tracked in real time.
  
  
• Receipts digitised instantly.
  
  
• Donations and losses tagged accurately.
  
  

Instead of correcting mistakes later, CFOs using Qashio know every expense is classified correctly at the moment of spend.

Book a demo with Qashio to see how compliance can be built into every transaction.

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