The difference between your accounting profit and your taxable income comes down to one thing: which expenses the law lets you deduct. Get the deductions right and your Corporate Tax is correct; get them wrong and you either overpay or invite an adjustment later. As returns are prepared for the 30 September deadline, this is where much of the real work sits. Here is how deductible and non-deductible expenses work under the Corporate Tax Law, in plain terms.
The general rule, and the exceptions
The starting point, in Article 28 of Federal Decree-Law No. 47 of 2022, is that expenditure incurred wholly and exclusively for the business, and not capital in nature, is deductible. Most ordinary running costs pass this test. The complications come from the specific rules that override it: certain costs are only partly deductible, and others are blocked entirely. The return is where these adjustments to accounting profit are made.
| Cost | Treatment | Source |
|---|---|---|
| Ordinary business expenses | Deductible if wholly and exclusively for the business | Art 28 |
| Entertainment of customers and others | Only 50% deductible | Art 32 |
| Interest | Deductible, subject to the interest limitation rules | Art 29 to 31 |
| Fines and penalties, bribes | Not deductible | Art 33 |
| Dividends paid, and Corporate Tax itself | Not deductible | Art 33 |
The add-backs that catch people out
A business that files its accounting profit as if it were taxable income, without adjusting for these rules, has almost certainly got the number wrong. The common add-backs are the non-deductible items in Article 33: fines and penalties, the Corporate Tax charge in the accounts, dividends paid, and similar items. Miss these and taxable income is understated, which surfaces later as an assessment with a penalty. Adding them back is not optional; it is how the return is meant to be prepared.
Accounting profit is not taxable income. The gap is the deductions the law limits or blocks, and forgetting the add-backs understates the tax now and invites an adjustment later.
Entertainment and interest need care
Two categories deserve particular attention. Entertainment expenditure on customers, shareholders, suppliers, and others outside the business is only half deductible under Article 32, so the other half is added back. Interest is deductible in principle but subject to a general limitation rule under Articles 29 to 31 that can cap the net interest a business deducts in a period. Both are areas where a rough approach overstates the deduction and understates the tax.
What to do about it
Start the return from accounting profit, then work through the adjustments deliberately: add back the non-deductible items, restrict entertainment to 50%, and apply the interest limitation where it bites. Keep the workings, because the adjustments are exactly what a review would examine. Getting the deductions right is the substance of a correct Corporate Tax return, and it is worth more care than the form-filling that follows.
This article is general information and is not tax advice. Deductibility depends on your specific facts and the current rules in Federal Decree-Law No. 47 of 2022. We would be glad to review your adjustments before you file.