Salaries, mandatory health insurance, training and end-of-service benefits paid to UAE staff normally reduce the base for 9% Corporate Tax. Entertainment of customers is capped at half. And a number of payments covering employees’ family members are not deductible at all. Here is what counts when preparing the Q4 2026 return.
Finance teams across the UAE are revisiting the expense ledger in Q4 before filing the corporate tax return. The UAE Corporate Tax (Federal Decree-Law No. 47 of 2022) applies to financial years starting on or after 1 June 2023 at 0% up to AED 375,000 of taxable income and 9% above the threshold. The rate and the threshold are covered in detail in our guide to the 9% UAE Corporate Tax and the AED 375,000 threshold. A separate question is which costs the Federal Tax Authority (FTA) is willing to accept as deductions.
The general test: wholly and exclusively
Article 28 of the Corporate Tax Law sets the baseline: an expense is deductible when incurred wholly and exclusively for the business and not capital in nature. In the Corporate Tax Guide on Deductible Expenditure the FTA notes that this test is applied flexibly to staff costs — reasonable payments to employees are presumed to be part of the business. What matters is proper documentation and alignment with market practice.
Fully deductible items
The FTA treats the standard pay package as 100% deductible: salaries and wages, performance bonuses and incentives, employer contributions to pension or savings schemes, premiums paid for mandatory employee health insurance, costs of residence visas, Emirates ID and work permits, and investment in training and continuing professional development. Transportation and housing allowances written into the employment contract are also deductible in full.
End-of-service benefits — accrue, don’t wait
End-of-service benefits (gratuity, EoSB) — mandatory under UAE Labour Law — are deductible on an accrual basis. The company recognises the obligation in the current period in proportion to the service already rendered, rather than as a single hit at termination. The FTA expects the accrual to match the Labour Law formula and to be backed by an actuarial or spreadsheet calculation as of the reporting date, filed with the return.
Entertainment: the 50% rule
Article 32 of the Corporate Tax Law caps entertainment expenditure incurred to entertain customers, shareholders, suppliers or business partners — food, beverages, hospitality and events — at 50% deductibility. Entertainment of staff follows a different logic: team dinners, team-building and sports events are a general staff benefit, and a company may deduct 100% provided the policy covers the workforce as a whole and not specific individuals. The FTA guide calls this distinction out explicitly.
What the FTA will not accept
Non-deductible items include administrative fines and penalties (other than compensatory ones under commercial contracts), bribes and similar informal payments, donations to entities not on the Cabinet-approved list, dividends and profit distributions, the Corporate Tax itself and recoverable VAT. Personal expenses of an employee unrelated to the role are also non-deductible, even if settled by the company.
Costs for employees’ family members
The default position: costs for an employee’s relatives are not deductible. The exception is when a benefit is spelled out in the employment contract as part of a relocation package — health insurance for spouse and children, an annual home-country flight, an education allowance. These items are deductible when the HR policy attaches to the role rather than to a named person.
Payments to connected persons: the arm’s length test
A dedicated area of scrutiny is payments to founders, shareholders, their relatives and other connected persons (Article 36). The FTA requires such payments to be at arm’s length. If an owner’s "salary" exceeds the market rate for a comparable role, the Authority can disallow the excess. For holding structures and family businesses, this test is a critical step in preparing the return.
A short Q4 2026 checklist
Three practical moves before the year-end close: separate general staff costs (100%) from customer entertainment (50%); verify that end-of-service benefits are accrued in line with Labour Law; confirm that any family-member benefits and connected-party payments are grounded in the contract and the market. For a full view of who must file and by when, see who pays the 9% Corporate Tax in the UAE.
Based on Federal Tax Authority materials (tax.gov.ae) and reporting by The National (17 October 2026), the Authority’s approach to routine employee costs has remained stable since Corporate Tax went live — companies can plan the Q4 close without waiting for new clarifications.
