Classify the expenditure before calculating a deduction
A receipt described as marketing, travel or client relations is not automatically deductible in full. Establish who benefited, why the cost was incurred and what the business actually received. The facts determine whether the entertainment restriction applies.
Under the Corporate Tax entertainment rules, qualifying expenditure for entertaining customers, shareholders, suppliers or other business partners is generally subject to a 50% deduction restriction. The business-purpose requirement must still be met; purely personal consumption does not become partly deductible merely because it was paid by the company.
Separate different elements of an event
A commercial event can contain several types of cost. Product demonstration, advertising, employee costs and hospitality should be considered on their own facts. Do not apply a single account label to every component without reviewing the supporting details.
Where an invoice combines activities, retain a reasonable allocation and its basis. The assessment should be reproducible from the event programme, attendee information, supplier invoice and approval records.
A clear accounting adjustment example
Suppose accounting profit already includes an expense of AED 12,000 for qualifying client entertainment. If the 50% restriction applies to that entire expense, AED 6,000 is non-deductible and is added back in the tax reconciliation. Do not deduct the allowable portion a second time from profit that has already absorbed the full expense.
This is an illustrative adjustment, not a complete tax calculation. Other facts and adjustments may affect the final taxable income and liability.
Records to retain
- The invoice, payment evidence and ledger entry.
- Business purpose and relevant recipients or attendees.
- Approval and any event or contract documentation.
- The classification and allocation analysis.
- The adjustment schedule and reviewer sign-off.
Common questions
Are staff events automatically treated like client hospitality?
Do not assume identical treatment. Review the nature of the cost, recipient and applicable guidance, including mixed events.
Does a partial deduction mean the tax bill falls by the same percentage?
No. A deduction affects taxable income. It is not a matching percentage discount on the final tax bill.
Can changing the ledger description change the tax result?
No. The transaction's substance and evidence matter more than the name of the expense account.
Sources and further reading
Official references checked during the 24 October 2026 refresh. Application details and requirements can change; use the current source for the relevant entity and period.
