What is the interest deduction limit for Corporate Tax?
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Interest expenses used to reduce your taxable profit are capped at 30% of your adjusted earnings (EBITDA), but you can always deduct up to AED 12,000,000 of net interest even if that's more than 30%. Any disallowed amount can be carried forward and used in the next 10 tax periods.
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The detail
Under Article 30 of the Corporate Tax Law, a Taxable Person's Net Interest Expenditure (interest expense less interest income) is deductible up to 30% of Taxable Income-based EBITDA for the Tax Period. Article 8 of Ministerial Decision No. 126 of 2023 provides a de minimis exception: the 30% cap does not apply if Net Interest Expenditure is AED 12,000,000 or less, and where it exceeds that amount the Taxable Person may deduct the higher of AED 12,000,000 or the 30% EBITDA figure. Disallowed interest can be carried forward and deducted in the following 10 Tax Periods, in the order incurred.12
What the law says
- Net Interest Expenditure is deductible up to 30% of EBITDA (Taxable Income adjusted for interest, depreciation/amortisation, and certain pre-9 Dec 2022 financial asset interest) under Article 30(1)-(2) of the Corporate Tax Law and Article 9 of Ministerial Decision No. 126 of 2023.23
- Where Net Interest Expenditure does not exceed AED 12,000,000, the 30% cap does not apply at all, and above that threshold the deductible amount is the higher of AED 12,000,000 or the 30% EBITDA figure, per Article 8 of Ministerial Decision No. 126 of 2023.1
- Disallowed Net Interest Expenditure may be carried forward and deducted in the subsequent 10 Tax Periods, in the order incurred, under Article 30(4) of the Corporate Tax Law.2
What it depends on
- The AED 12,000,000 de minimis threshold is adjusted proportionally if the Tax Period is longer or shorter than 12 months.1
- The rule does not apply to Banks, Insurance Providers, natural persons conducting a Business in the UAE, or other persons specified by the Minister.2
- Interest capitalised under Accounting Standards is included in EBITDA only when amortised over the asset's useful life, not when incurred.3
Check before you rely on it
- Check whether your entity is a Bank, Insurance Provider or natural person business (exempt from the rule)
- Calculate your Net Interest Expenditure for the period and compare it to AED 12,000,000
- Confirm your Tax Period length to see if the de minimis threshold needs pro-rating
Sources (3) — read the official text
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Article 8 – De Minimis Net Interest Expenditure
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Article 8 – De Minimis Net Interest Expenditure 1. The limitation on the deductible Net Interest Expenditure provided under Clause (1) of Article (30) of the Corporate Tax Law shall not apply where the Net Interest Expenditure for the relevant Tax Period does not exceed AED 12,000,000 (twelve million dirhams). Ministerial Decision No. 126 of 2023 – As published by Ministry of Finance 4 2. Where the Net Interest Expenditure exceeds the amount referred to in Clause (1) of this Article, a Taxable Person may deduct the higher of AED 12,000,000 (twelve million dirhams) or the percentage provided for under Clause (1) of Article 30 of the Corporate Tax Law. 3. For purposes of this Article, where the relevant Tax Period is more than or less than (12) twelve months, the amount stated in Clause (1) of this Article shall be adjusted in proportion to the length of the Tax Period.
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Article 30 – General Interest Deduction Limitation Rule
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Article 30 – General Interest Deduction Limitation Rule 1. A Taxable Person’s Net Interest Expenditure shall be deductible up to 30% (thirty percent) of the Taxable Person’s accounting earnings before the deduction of interest, tax, depreciation and amortisation (EBITDA) for the relevant Tax Period, excluding any Exempt Income under Article 22 of this Decree-Law. 2. A Taxable Person’s Net Interest Expenditure for a Tax Period is the amount by which the Interest expenditure incurred during the Tax Period, including the amount of any Net Interest Expenditure carried forward under Clause 4 of this Article, exceeds the taxable Interest income derived during that same period. 3. The limitation under Clause 1 of this Article shall not apply where the Net Interest Expenditure of the Taxable Person for the relevant Tax Period does not exceed an amount specified by the Minister. 4. The amount of Net Interest Expenditure disallowed under Clause 1 of this Article may be carried forward and deducted in the subsequent (10) ten Tax Periods in the order in which the amount was incurred, subject to Clauses 1 and 2 of this Article. 5. Interest expenditure disallowed under any other provision of this Decree-Law shall be excluded from the calculation of Net Interest Expenditure under Clause 2 of this Article. 6. Clauses 1 to 5 of this Article shall not apply to the following Persons: a. A Bank. b. An Insurance Provider. Federal Decree-Law No. 47 of 2022 and its amendments – Unofficial translation (as published by the Ministry of Finance) 37 c. A natural person undertaking a Business or Business Activity in the State. d. Any other Person as may be determined by the Minister. 7. The Minister may issue a decision to specify the application of Clauses 1 and 2 of this Article to a Taxable Person that is related to one or more Persons through ownership or control and there is an obligation on them under applicable accounting standards for their financial statements to be consolidated.
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Article 9 – Accounting Earnings Before Interest, Taxes,
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Article 9 – Accounting Earnings Before Interest, Taxes, Depreciation, and Amortisation (EBITDA) 1. For the purposes of the General Interest Deduction Limitation Rule, accounting earnings before the deduction of interest, tax, depreciation and amortisation (EBITDA) for a Tax Period shall be the greater of AED 0 (zero dirham) or the amount calculated as the Taxable Income in accordance with Article (20) of the Corporate Tax Law and any implementing decision issued thereunder, with the addition of all of the following: a. Net Interest Expenditure for the relevant Tax Period. b. Depreciation and amortisation expenditure taken into account in determining the Taxable Income for the relevant Tax Period. c. Any Interest income or expenditure relating to historical financial assets or liabilities held prior to 9 December 2022. 2. Interest income and Interest expenditure in relation to Qualifying Infrastructure Projects exempted under Article (14) of this Decision should be excluded when calculating the Taxable Person’s EBITDA for the purposes of the General Interest Deduction Limitation Rule. 3. In calculating EBITDA for the purposes of the General Interest Deduction Limitation Rule, any amount of income and expenditures attributable to the Interest capitalised by the Taxable Person in accordance with the Accounting Standards shall be included when the capitalised Interest is amortised over the useful life of the related asset, and not when the Interest is incurred. Ministerial Decision No. 126 of 2023 – As published by Ministry of Finance 5
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Written by AI from the FTA sources above and checked before display. Not tax advice or official FTA information - confirm with a tax adviser before you act. Full disclaimer
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