The UAE Corporate Tax interest deduction limitation restricts a business's deductible Net Interest Expenditure to the greater of 30% of adjusted EBITDA or a de minimis of AED 12 million per Tax Period, under Federal Decree-Law No. 47 of 2022. Disallowed interest carries forward up to ten periods. Abdelhamid & Co (FTA TAN 30003958) advises leveraged businesses across Dubai, Sharjah and Ajman.
How the UAE Corporate Tax Interest Deduction Limitation Works
The General Interest Deduction Limitation Rule caps how much net interest a company can deduct. Net Interest Expenditure is the interest expense for the period (including amounts carried forward) less taxable interest income. The FTA guidance allows a deduction equal to the greater of 30% of adjusted EBITDA or AED 12 million. Our Corporate Tax services model this limit for UAE businesses before filing.
Key Figures for the Interest Limitation
| Item | Details |
|---|---|
| Standard cap | 30% of adjusted EBITDA |
| De minimis threshold | AED 12 million net interest |
| Deductible amount | The greater of the two above |
| Carry-forward of disallowed interest | Up to 10 Tax Periods |
| Short period | De minimis pro-rated |
The De Minimis Threshold
If a company's Net Interest Expenditure is AED 12 million or less in a Tax Period, the full amount is deductible and the 30% EBITDA test does not bite. The threshold is generous and means most small and medium UAE businesses are unaffected. Where the Tax Period is shorter than twelve months, the AED 12 million is reduced proportionately.
Worked example: a Dubai company has Net Interest Expenditure of AED 10 million. Because this is below AED 12 million, the entire amount is deductible regardless of EBITDA.
Applying the 30% EBITDA Test
When net interest exceeds AED 12 million, the business compares it to 30% of adjusted EBITDA and deducts the greater of that figure or AED 12 million. For example, a Sharjah group with AED 20 million net interest and AED 50 million adjusted EBITDA may deduct the greater of AED 15 million (30% of EBITDA) or AED 12 million — so AED 15 million is deductible and AED 5 million is carried forward.
The Specific Interest Deduction Limitation Rule
Separately, interest on loans obtained from a Related Party to fund certain transactions — dividends, capital contributions, or acquiring shares — is disallowed unless the business can show the arrangement was not mainly to obtain a Corporate Tax advantage, or the lender is taxed at 9% or more on the interest. We assess both rules during a Corporate Tax compliance review.
Why Choose Abdelhamid & Co
Our Ministry of Economy licensed team (LC0106-01) and FTA Tax Agent registration (TAAN 20033908) model interest limitation for leveraged UAE groups accurately. We work in Arabic and English across Dubai, Sharjah, Ajman and the UAE with transparent fees.
What is the UAE interest deduction limit?
Net Interest Expenditure is deductible up to the greater of 30% of adjusted EBITDA or a de minimis of AED 12 million per Tax Period under Federal Decree-Law No. 47 of 2022. Amounts above the cap are disallowed for the period.
What is the AED 12 million de minimis threshold?
If a UAE company's Net Interest Expenditure is AED 12 million or less, the full amount is deductible and the 30% EBITDA test does not apply. For a Tax Period shorter than twelve months, the threshold is reduced proportionately.
Can disallowed interest be carried forward in the UAE?
Yes. Net Interest Expenditure that is disallowed under the General Interest Deduction Limitation Rule can be carried forward and deducted in subsequent Tax Periods, subject to the same limitation, for up to ten Tax Periods.
What is the Specific Interest Deduction Limitation Rule?
It disallows interest on Related Party loans used to fund dividends, capital contributions or share acquisitions, unless the main purpose was not a tax advantage or the lender is subject to tax of at least 9% on the interest income.
How is Net Interest Expenditure calculated?
It is the interest expense incurred in the period, including carried-forward disallowed interest, less the interest income that is taxable in the same period. Only the net figure is tested against the 30% EBITDA cap and the de minimis threshold.
Related Services
- Corporate Tax Return Filing — interest limitation modelling at filing
- Corporate Tax Compliance Review — net interest and EBITDA review
- Corporate Tax Registration — registration support
See the Federal Tax Authority for the legislation, or read more on our Insights page.
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