UAE Corporate Tax interest deduction is limited to the higher of AED 12 million or 30% of adjusted EBITDA under the General Interest Deduction Limitation Rule in Article 30 of Federal Decree-Law No. 47 of 2022. Net Interest Expenditure exceeding this threshold is non-deductible in the current Tax Period but may be carried forward for up to 10 Tax Periods. Abdelhamid & Co. (FTA TAAN 20033908, MOE LC0106-01) advises businesses across Dubai, Sharjah, and the UAE on interest deduction structuring and Corporate Tax compliance.
What Is the General Interest Deduction Limitation Rule?
The General Interest Deduction Limitation Rule (IDLR) under Article 30 of the Corporate Tax Law restricts the amount of Net Interest Expenditure that a business can deduct in any given Tax Period. The rule applies when Net Interest Expenditure exceeds AED 12 million per Tax Period — an important threshold for businesses in Dubai, Abu Dhabi, and Sharjah with significant leverage or intercompany financing.
For businesses below the AED 12 million threshold, the rule does not apply and interest is deductible in full (subject to the arm's length standard).
Our Corporate Tax Compliance Review service includes a dedicated analysis of interest deductibility for all clients with significant financing arrangements.
Definition of "Interest" Under UAE Corporate Tax Law
The Corporate Tax Law broadly defines "Interest" to include: bank interest, discount, premium, profit on Islamic finance instruments (economically equivalent to interest), guarantee fees, and arrangement fees. This broad definition ensures that structures which replace conventional interest with economically equivalent instruments are captured by the limitation rules.
How to Calculate Net Interest Expenditure
| Step | Item |
|---|---|
| 1 | Total Interest Expenditure (all interest-bearing obligations) |
| 2 | Minus: Total Interest Income received |
| 3 | = Net Interest Expenditure |
| 4 | If ≤ AED 12M → fully deductible (no IDLR applies) |
| 5 | If > AED 12M → apply 30% of adjusted EBITDA test |
How to Calculate Adjusted EBITDA
Adjusted EBITDA for the IDLR is not the same as accounting EBITDA. The adjustment starts from Taxable Income (before applying the IDLR itself) and adds back: Net Interest Expenditure subject to the IDLR, depreciation of tangible assets, and amortisation of intangible assets recognised under the applicable Accounting Standards.
Worked Example (Dubai property developer):
| Item | AED (millions) |
|---|---|
| Accounting EBITDA (pre-interest) | 80 |
| Net Interest Expenditure | 30 |
| Adjusted EBITDA for IDLR | 80 |
| 30% of Adjusted EBITDA | 24 |
| Deductible Net Interest (higher of AED 12M or 30% = AED 24M) | 24 |
| Non-deductible Interest (AED 30M – AED 24M) | 6 |
| Carried forward to next Tax Period | 6 |
The AED 6 million of disallowed interest can be carried forward for up to 10 Tax Periods and deducted when the business has sufficient adjusted EBITDA capacity.
Exceptions to the General Interest Deduction Limitation Rule
Several categories of interest are excluded from the IDLR calculation entirely:
- Interest on loans used to finance government infrastructure projects in the UAE
- Interest on third-party loans used to acquire shares in related parties (subject to conditions)
- Islamic finance instruments where income/expense is not characterised as interest for local accounting purposes
Specific Interest Deduction Limitation Rule
In addition to the General IDLR, a Specific Interest Deduction Limitation Rule under Article 31 denies deductions on interest paid to Related Parties where the arrangement lacks commercial substance — commonly called "earnings stripping" in international tax. This rule targets artificially inflated intercompany interest payments within multinational groups operating in the UAE.
Frequently Asked Questions — UAE Interest Deduction
What is the UAE Corporate Tax interest deduction limit for 2024?
Net Interest Expenditure is deductible up to the higher of AED 12 million or 30% of adjusted EBITDA. For most businesses with Net Interest Expenditure below AED 12 million, interest is fully deductible.
Can disallowed interest be carried forward under UAE Corporate Tax?
Yes. Net Interest Expenditure that is disallowed in a Tax Period can be carried forward and deducted in the subsequent 10 Tax Periods, subject to the 30% EBITDA limit in those future periods.
Does the interest limitation apply to all UAE businesses in Dubai and Sharjah?
The General IDLR only applies when Net Interest Expenditure exceeds AED 12 million per Tax Period. Businesses below this threshold are not subject to the rule and can deduct interest in full.
Is Islamic finance profit subject to the UAE interest deduction limitation?
Yes. Profits on Islamic finance instruments that are economically equivalent to interest are captured within the broad definition of "Interest" under the Corporate Tax Law.
How does the UAE interest deduction rule compare to the OECD BEPS Action 4 recommendation?
The UAE rule broadly follows the OECD BEPS Action 4 30% EBITDA recommendation, with a de minimis threshold of AED 12 million replacing the EUR 3 million threshold used in some jurisdictions.
Related Services
Our Corporate Tax services include CT Return Filing, Compliance Review, and Transfer Pricing support. See also our Insights page and the official Federal Tax Authority guidance.
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