The UAE Corporate Tax Law includes provisions aimed at regulating the deductibility of interest expenditure, primarily to discourage excessive reliance on debt financing and ensure that debt obtained through certain intra-group transactions is only deductible when there’s a legitimate commercial rationale for securing the loan.

GENERAL INTEREST DEDUCTION LIMITATION RULE:

Businesses with a Net Interest Expenditure exceeding AED 12 million can deduct Net Interest Expenditure up to the higher of 30% of their adjusted earnings before interest, tax, depreciation, and amortization (EBITDA) or AED 12 million. Any interest expenditure beyond this threshold can be carried forward and applied over the subsequent 10 Tax Periods. Entities with Net Interest Expenditure below AED 12 million are exempt from the General Interest Deduction Limitation Rule. This rule does not apply to Banks, other financial institutions, Insurance Providers, or natural persons.

SPECIFIC INTEREST DEDUCTION LIMITATION RULE:

When a loan is acquired from a Related Party and is utilized to finance income that is exempt from Corporate Tax, the interest on this Related Party loan will not be deductible unless the Taxable Person can demonstrate that the primary purpose of obtaining the loan and conducting the transaction is not solely for the purpose of gaining a Corporate Tax advantage.