- An accounting expense and a tax deduction are different questions.
- Document purpose, evidence and any specific restriction.
- Use an adjustment schedule that reconciles back to the accounts.
Begin with the accounts, then document adjustments
The FTA guide to determining taxable income explains how accounting income forms the starting point for the tax calculation, subject to adjustments. The general deduction principle concerns expenditure incurred wholly and exclusively for the business that is not capital in nature, with specific rules and exclusions also applying.
Keep a tax-adjustment schedule alongside the final accounts. Each row should show the ledger account, transaction reference, accounting amount, proposed adjustment, reason and supporting evidence. This makes the calculation reviewable. It also helps next year’s preparer distinguish a recurring issue from a one-off adjustment instead of blindly copying the prior-year file.
Test business purpose before looking for a category
An invoice description alone may be too vague to establish why money was spent. Record the project, customer, employee or operational need behind a material payment. Where an item serves both business and personal purposes, identify the split and the basis used. Keep owner withdrawals, private purchases and business expenses distinguishable in the ledger.
For example, a general description such as travel gives a reviewer little to work with. An itinerary, meeting purpose, approval and allocation of any private element create a more useful record. This does not guarantee deductibility; it gives the reviewer facts on which to apply the rules. The same approach helps with subscriptions, vehicles, accommodation and payments involving owners or connected persons.
Treat client entertainment as a specific review area
Article 32 of the UAE corporate tax law generally limits the deduction for qualifying entertainment of customers, shareholders, suppliers or other business partners to 50%, subject to the general conditions. Do not automatically apply that percentage to every meal or every employee-related cost; identify the purpose and attendees first.
Create a separate entertainment account or reporting tag, and retain a short note of who attended and why. A receipt establishes the amount but may not establish the nature of the event. Ask the reviewer to examine mixed events, personal celebrations and staff activities separately. Good coding at the time of purchase is much easier than reconstructing a year of restaurant transactions when the return is due.
Identify costs that need separate treatment
Article 33 of the corporate tax law lists non-deductible items, including government fines and penalties, with an exception for contractual damages, as well as corporate tax itself and recoverable input VAT. Other provisions address capital expenditure, exempt-income costs, financing and related-party arrangements. Use the relevant rule rather than a single generic disallowed-expenses account.
An equipment purchase, for example, should first be assessed for correct accounting treatment. Reclassifying it as an everyday expense solely to reduce profit is not a sound approach. Similarly, recording a payment to an owner as consultancy fees does not establish its commercial basis. Retain the agreement, evidence of services and pricing rationale so the accounting and tax questions can be evaluated separately.
Use a simple bridge to explain the effect
Consider an illustrative business with accounting profit of AED 250,000. Assume the accounts include AED 10,000 of customer entertainment subject to the 50% deduction rule and an AED 3,000 government fine that is wholly disallowed. Adding back AED 5,000 and AED 3,000 gives AED 258,000 before any other tax adjustments. This is not a tax-payable calculation and excludes reliefs, exemptions and other rules.
The bridge explains why two figures can differ without either being an accounting error. Keep the underlying expense in the accounts if it is correctly recorded, and show the tax adjustment transparently. Have a reviewer check the assumption behind each line, not just the arithmetic. A mathematically correct schedule can still apply the wrong treatment.
- Separate accounting corrections from tax-only adjustments.
- Retain the business purpose and documents for material or unusual costs.
- Review owner, connected-person and related-party payments explicitly.
- Resolve classification questions before the return is approved.
Questions about this guide
Are all business meals only partly deductible?
No single label answers the question. Identify who attended and the purpose of the expenditure, then consider the applicable rule. Client entertainment, employee welfare, subsistence and a private event should not automatically be treated alike merely because food was purchased.
Can I remove disallowed costs from the accounts?
Do not remove a genuine, correctly recorded transaction simply because it is not deductible for tax. Keep the financial records accurate and show the tax adjustment separately. If the accounting treatment itself is wrong, correct it with a documented journal and approval.
Does paying from a company bank account make a cost deductible?
No. The payment route does not establish business purpose or satisfy a specific deduction rule. Keep invoices and explanatory evidence, and identify private or owner-related spending clearly. The reviewer needs the substance of the transaction, not only the bank entry.
Can software calculate all adjustments automatically?
Software can organise transactions and support the calculation, but it cannot reliably infer the purpose of every payment or resolve every exception. Use consistent coding, maintain an exceptions list and review the resulting computation against the supporting evidence.
Sources and further reading
Research checked on 5 October 2026. Requirements can change; check the linked authority guidance for the latest position.
How we use sourcesFirswood Tax Advisory LLC
Firswood provides accounting, VAT and corporate tax services through its own qualified team in the UAE. The team includes ACCA-qualified professionals and an FTA-registered tax agent.
This guide explains the records and questions involved in the work. The official sources are listed above, with a research date. Advice on your business requires a review of its circumstances and records.
