Are fines and penalties deductible for UAE corporate tax?
No. Article 33 of Federal Decree-Law No. 47 of 2022 disallows fines and penalties, but excludes from that rule amounts awarded as compensation for damages or breach of contract. Government fines, such as late-registration penalties, are not deductible. Contractual compensation paid to a client is not caught by Article 33.
On this page
Liquidated damages
Liquidated damages for late completion are a contractual amount for breach of the completion obligation. They fall within the compensation exception, so Article 33 does not bar their deduction. The ordinary deduction rules still apply.
Other items Article 33 blocks
Donations to entities that are not qualifying public benefit entities, bribes and other illicit payments, dividends and profit distributions, and corporate tax itself, among others listed in the article.
How SupaJack Construct helps
The tax module calculates corporate tax on taxable income with the AED 375,000 zero band and 9% above it, and treats client entertainment as 50% non-deductible. Taxable income starts from the ledger the projects post to, so job costs, certificates and payroll already sit in the accounts.
Related tools and guides
See the answers on the corporate tax rate, small business relief, the corporate tax return deadline, carrying tax losses forward and whether fines are deductible, plus finance and VAT in SupaJack Construct, the VAT guide for contractors and the construction accounting software page.
Worked example
A contractor pays AED 250,000 of liquidated damages to a client for late handover and a AED 20,000 municipality fine for a site breach in the same year. The municipality fine is added back to taxable income. The liquidated damages are not caught by Article 33.
Questions people ask
Are traffic fines on company vehicles deductible?
No. Fines and penalties are disallowed.
Are liquidated damages deductible?
They fall within the exception for compensation for breach of contract.
Are donations deductible?
Only to qualifying public benefit entities.