Key takeaways
- Interest expenditure is deductible for UAE corporate tax in the tax period in which it is incurred, but only if it passes the business-purpose test in Article 28 and the limits in Articles 30 and 31 of Federal Decree-Law No. 47 of 2022.
- A UAE company can deduct net interest expenditure up to the greater of AED 12,000,000 or 30% of its tax EBITDA in a tax period, as of 30 October 2026.
- Net interest expenditure of AED 12,000,000 or less in a tax period falls outside the 30% cap altogether, which covers most UAE SMEs.
- Interest that the 30% cap disallows is not lost: a taxable person can carry it forward and deduct it over the next 10 tax periods, in the order it was incurred.
- Banks, insurance providers and natural persons doing business in their own name are outside the 30% cap, but a company owned by an individual is a separate taxable person and stays inside it.
- Interest on a related-party loan used to pay a dividend, return share capital, make a capital contribution or buy a stake in a related party is denied under Article 31 unless the main purpose was not a corporate tax advantage.
Is interest expense deductible for UAE corporate tax?
Yes. Interest expenditure is deductible in the tax period in which it is incurred (Article 29 of Federal Decree-Law No. 47 of 2022), but that deduction is subject to the general expense test in Article 28 and to the interest-specific limits in Articles 30 and 31. Four tests apply, in this order:
- Business purpose. The interest must be incurred wholly and exclusively for the taxable person's business and be revenue rather than capital in nature (Article 28(1)). Where a loan funds both business and private use, only the business portion qualifies (Article 28(3)).
- Arm's length. Interest between related parties must meet the arm's length standard (Article 34), and payments to connected persons are deductible only up to market value (Article 36).
- Specific rule for related-party loans. Article 31 can deny interest outright on certain related-party borrowing.
- General cap. Article 30 limits net interest expenditure to the greater of AED 12,000,000 or 30% of tax EBITDA.
| Item | Rule | Source |
|---|---|---|
| Timing | Interest is deductible in the tax period it is incurred | Decree-Law 47/2022, Article 29 |
| General cap | Greater of AED 12,000,000 or 30% of tax EBITDA | Article 30(1); Ministerial Decision 126/2023, Article 8 |
| Carry-forward | 10 subsequent tax periods, in the order incurred | Article 30(4) |
| Outside the cap | Banks, insurance providers, natural persons doing business in the State | Article 30(6) |
| Debt agreed before 9 December 2022 | Outside the cap for the interest it attributes | Ministerial Decision 126/2023, Article 11 |
| Small Business Relief | Revenue of AED 3,000,000 or less, for tax periods ending on or before 31 December 2026 | Ministerial Decision 73/2023, Article 2 |
How does the 30% EBITDA interest cap work?
The cap lets a taxable person deduct net interest expenditure up to the greater of AED 12,000,000 and 30% of its tax EBITDA for the tax period (Article 30(1) of the Decree-Law; Article 8 of Ministerial Decision No. 126 of 2023). Below AED 12,000,000 of net interest expenditure the rule does not apply at all, and for a tax period longer or shorter than 12 months the AED 12,000,000 figure is pro-rated (Article 8(3)).
Because the test is "greater of", a company with weak earnings still keeps the AED 12,000,000 allowance. Here are three hypothetical companies (the figures are invented to show the mechanics, not benchmarks):
| Hypothetical company | Tax EBITDA | Net interest expenditure | 30% of tax EBITDA | Deduction limit | Disallowed this period |
|---|---|---|---|---|---|
| A: trading company | AED 30,000,000 | AED 8,000,000 | AED 9,000,000 | No cap applies | AED 0 |
| B: logistics group | AED 60,000,000 | AED 25,000,000 | AED 18,000,000 | AED 18,000,000 | AED 7,000,000 |
| C: high-debt retailer | AED 20,000,000 | AED 15,000,000 | AED 6,000,000 | AED 12,000,000 | AED 3,000,000 |
Company B has AED 7,000,000 of interest it cannot deduct this year; at a 9% rate that is AED 630,000 of extra tax in the period, which is a timing cost if the amount is later used under the carry-forward.
What is tax EBITDA, and what counts as interest?
Tax EBITDA starts from taxable income under Article 20 of the Decree-Law, adds back net interest expenditure and the depreciation and amortisation deducted in arriving at taxable income, and is floored at zero (Article 9(1) of Ministerial Decision No. 126 of 2023). The Decision also defines interest widely, so the figure you test is often larger than the interest line on a bank statement:
| Item | Treated as interest? | Source (Ministerial Decision 126/2023) |
|---|---|---|
| Guarantee, arrangement and commitment fees for raising finance | Yes | Article 3 |
| Return element of Islamic financial instruments equivalent to interest | Yes | Article 4 |
| Finance element of finance and non-finance leases | Yes | Article 5 |
| Foreign exchange gains and losses on interest | Yes | Article 6 |
| Capitalised interest | Yes, recognised as the asset is amortised | Articles 7 and 9(3) |
Interest income you earn reduces the figure, because the cap works on net interest expenditure.
Which companies are outside the 30% cap?
Banks, insurance providers and natural persons carrying on a business or business activity in the UAE are excluded from the general cap (Article 30(6) of the Decree-Law). A company owned by an individual is a separate taxable person, so it stays inside the rule unless another exclusion applies.
Other carve-outs sit in Ministerial Decision No. 126 of 2023: net interest expenditure of AED 12,000,000 or less (Article 8), interest on debt agreed before 9 December 2022 (Article 11), and interest of a qualifying infrastructure project person on a qualifying project (Article 14).
Small Business Relief works differently. A resident taxable person with revenue of AED 3,000,000 or less can elect to be treated as having no taxable income for a tax period, and the FTA says other exemptions, reliefs and deductions are not available while the election is in place. The AED 3,000,000 threshold applies to tax periods ending on or before 31 December 2026 (Article 2 of Ministerial Decision No. 73 of 2023), so confirm what applies to your later periods before relying on it.
What extra rules apply to related-party loans and older debt?
Article 31 denies a deduction for interest on a loan obtained, directly or indirectly, from a related party where the money funds a dividend or profit distribution to a related party, a redemption or return of share capital to a related party, a capital contribution to a related party, or the purchase of an ownership interest in a person who becomes a related party. The restriction falls away if the taxable person shows the main purpose was not to obtain a corporate tax advantage, and none is deemed to arise where the related party is taxed on the interest at a rate of at least 9% (Article 31(2) and (3)).
Debt agreed before 9 December 2022 is outside the general cap, but only for the attributable interest: the deduction each period is the lower of the actual net interest expenditure and what would have arisen under the terms as they stood on 9 December 2022 (Article 11(4) of Ministerial Decision No. 126 of 2023).
What happens to interest the cap disallows?
Disallowed net interest expenditure can be carried forward and deducted in the next 10 tax periods, in the order incurred, subject to the same cap in each later period (Article 30(4) of the Decree-Law). A carried-forward amount competes for room under the cap with that later period's own interest, so a company that stays above the limit year after year may never use it up. Within a tax group, Article 12 of Ministerial Decision No. 126 of 2023 governs how carried-forward amounts are allocated when members join, leave or cease.
How do you check whether the cap affects your company?
Work through the test once per tax period, using your accounts and your draft corporate tax return:
- Add up every item that counts as interest: loan interest, finance fees, the finance element of leases, and foreign exchange differences on interest.
- Subtract the interest income you earned to reach net interest expenditure.
- If the result is AED 12,000,000 or less (pro-rated for a short or long period), stop: the cap does not apply.
- If it is higher, calculate tax EBITDA from taxable income, adding back net interest expenditure and depreciation and amortisation.
- Set your limit at the greater of AED 12,000,000 and 30% of tax EBITDA, and deduct the excess from your interest claim.
- Record the disallowed amount as a carry-forward, then file the corporate tax return on EmaraTax.
If you'd rather not track these dates by hand, the free UAE compliance calendar lists your company's tax and compliance deadlines.
AED 12,000,000: net interest expenditure a tax period can carry before the 30% EBITDA cap bites. Source: Ministerial Decision No. 126 of 2023, Article 8, checked 30 October 2026.
What most guides don't tell you
- The test is "greater of", not "either/or". Once net interest expenditure passes AED 12,000,000, you deduct the higher of AED 12,000,000 and 30% of tax EBITDA (Article 8(2) of Ministerial Decision No. 126 of 2023). A company with zero tax EBITDA and AED 15,000,000 of net interest still deducts AED 12,000,000.
- Fees and exchange differences can push you over. Because arrangement fees, guarantee fees and foreign exchange on interest all count as interest, a facility whose headline interest looks safe can still cross AED 12,000,000 once the fees are added.
- Refinancing old debt is a trap. Grandfathered debt is protected only up to the lower-of amount in Article 11(4), and the FTA's guidance on interest limitation, as summarised by Deloitte, says changing key terms after 9 December 2022 can take a loan outside the protection. Read the FTA guide before you amend an old facility.
- A shareholder loan can fail two tests at once. Interest to a related party must be at arm's length (Article 34) and, if the money funded a distribution or similar use, may also be denied under Article 31. Document the commercial purpose when the loan is drawn, not when the return is filed.
Which deadlines apply to your company?
Interest limits are one item among the corporate tax, VAT, licence and audit dates a UAE company has to meet each year. The free UAE compliance calendar is a free calendar of your company's UAE tax and compliance deadlines, personalised from a few questions, as a PDF and calendar file.
Frequently asked questions
What expenses are deductible for UAE corporate tax?
Expenditure incurred wholly and exclusively for the taxable person's business, and not capital in nature, is deductible in the period it is incurred (Article 28 of Federal Decree-Law No. 47 of 2022). Private spending and spending that earns exempt income is not deductible, and mixed-purpose spending is deductible only for its business portion.
Are entertainment expenses deductible for corporate tax?
Partly: a taxable person can deduct 50% of entertainment, amusement and recreation expenditure, subject to the general business-purpose test (Article 32 of Federal Decree-Law No. 47 of 2022). Article 32 sets the detail on what counts as entertainment, so check it before classifying a particular cost.
What is the interest limitation rule?
The general interest deduction limitation rule caps net interest expenditure at the greater of AED 12,000,000 or 30% of tax EBITDA for each tax period, as of 30 October 2026. A separate specific rule denies interest on certain related-party loans, such as loans used to fund dividends to a related party.
Can I carry forward tax losses in the UAE?
Yes, tax losses can be carried forward against later taxable income, but the offset cannot exceed 75% of taxable income for the period unless a decision sets a different percentage (Article 37 of Federal Decree-Law No. 47 of 2022). The conditions sit in the Decree-Law, so check them against your own facts.
About Qawi · Qawi is a corporate services firm licensed in the Sharjah Media City (SHAMS) free zone, handling company formation, visas and PRO, bookkeeping, VAT and corporate tax for UAE businesses. Guides are researched from FTA, Ministry of Finance and free zone sources. Qawi on LinkedIn
Sources
- Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses, consolidated with amendments (Ministry of Finance, January 2026 version)
- Ministerial Decision No. 126 of 2023 on the General Interest Deduction Limitation Rule (Ministry of Finance)
- Ministerial Decision No. 73 of 2023 on Small Business Relief (Ministry of Finance)
- Small Business Relief (Federal Tax Authority)
- Corporate tax guides and references (Federal Tax Authority)
- Interpretation only: Deloitte Middle East summary of the FTA interest deduction limitation guide
Last checked: 30 October 2026
This is general information, not tax or legal advice for your specific situation.