UAE Interest Limitation Rule: 30% EBITDA Cap & AED 12m Threshold

Key takeaways

• The UAE interest limitation rule (the general interest deduction limitation rule in Article 30 of Federal Decree-Law No. 47 of 2022) caps the corporate tax deduction for net interest at the higher of 30% of EBITDA or AED 12 million per tax period, as of October 2026.
• A UAE company whose net interest expenditure is AED 12 million or less in a tax period is not caught by the cap at all, because Ministerial Decision No. 126 of 2023 switches the rule off below that amount.
• Interest that the UAE interest limitation rule disallows isn't lost: it can be carried forward for the next 10 tax periods and deducted when there is room under the cap.
• Banks, insurance providers and natural persons conducting a business are outside the rule, and debt agreed before 9 December 2022 is excluded for the interest attributable to it.

What is the UAE interest limitation rule?

The UAE interest limitation rule is an anti-erosion measure in the corporate tax law: it limits how much net interest a company can deduct in a tax period, so that profits can't be reduced to nothing through heavy borrowing. It sits in Article 30 of Federal Decree-Law No. 47 of 2022, with the detail set by Ministerial Decision No. 126 of 2023.

It's the last test interest passes through, not the first: interest must first qualify as a business expense under Article 28, and the related-party rule in Article 31 (covered below) can apply as well.

How much interest can a UAE company deduct?

A company can deduct net interest expenditure up to the higher of 30% of EBITDA or AED 12 million for the tax period. Above AED 12 million of net interest, the company works out 30% of EBITDA and takes whichever figure is larger.

Here is a hypothetical to show the mechanics. Say a company has EBITDA of AED 50 million and net interest expenditure of AED 20 million. Thirty per cent of EBITDA is AED 15 million, which is higher than AED 12 million, so AED 15 million is deductible and AED 5 million is carried forward. Now say a different company has EBITDA of AED 30 million and net interest of AED 12 million: 30% of EBITDA is AED 9 million, but net interest is within the threshold, so the full AED 12 million is deductible.

AED 12 million: net interest expenditure per tax period at or below which the 30% EBITDA cap doesn't apply. Source: Article 8, Ministerial Decision No. 126 of 2023, checked 30 October 2026.

How is EBITDA calculated for the cap?

EBITDA for this rule is built from taxable income, not read straight off the accounts. Under Article 9 of Ministerial Decision No. 126 of 2023, you start with taxable income (floored at zero), then add back net interest expenditure, depreciation and amortisation deducted in arriving at that taxable income, and interest on financial assets or liabilities held before 9 December 2022.

Interest capitalised under accounting standards enters EBITDA as it's amortised over the asset's life, not when it's incurred (Article 9(3)).

The Decision also widens what counts as interest. The interest-like element of Islamic financing instruments, the finance element of lease payments and foreign exchange gains and losses arising from interest are all treated as interest (Articles 4 to 6), so a company using Islamic finance or leases can't assume the rule only touches conventional bank loans.

Who is exempt from the UAE interest limitation rule?

Banks, insurance providers and natural persons conducting a business are excluded from the Article 30 cap, and some debt is carved out as well. The table sets out the main exclusions.

The consolidated law text doesn't carve out free zone companies. A free zone company is a taxable person like any other for this purpose, and how the cap interacts with qualifying and non-qualifying income for a Qualifying Free Zone Person is something to confirm against the FTA's Interest Deduction Limitation Rules Corporate Tax Guide and your own facts.

What happens to interest that exceeds the cap?

Interest above the cap is disallowed for that tax period and carried forward for the subsequent 10 tax periods (Article 30(4)). It's deducted in a later period only if that period has unused room under the cap.

Tax groups have their own carry-forward rules. When a subsidiary joins a tax group, its carried-forward interest can be used only against the group's taxable income attributable to that subsidiary (Article 12 of Ministerial Decision No. 126 of 2023). For a group that includes a bank or insurer outside the cap, that member's income and expenditure are disregarded when testing the group (Article 12(5)).

If you'd rather not track corporate tax dates by hand, the free UAE compliance calendar lists them for your company.

How does the related-party loan rule work with the cap?

Article 31 is a separate, stricter rule: no deduction at all for interest on a loan from a related party where the loan funds a dividend or profit distribution, a share capital redemption or reduction, a capital contribution, or the acquisition of an interest in a related party. It doesn't apply if the taxpayer shows the main purpose wasn't to obtain a corporate tax advantage, and no advantage is deemed to arise if the related party is taxed on the interest at no less than the 9% statutory rate.

What most guides don't tell you

• Check the order of the tests. Interest has to clear the general business-expense test, the arm's length test and the Article 31 rule before the cap is applied, according to commentary on the FTA's guidance. A loan from a shareholder at a rate that doesn't look arm's length can lose deductions before the 30% figure is ever calculated, so a company well under AED 12 million can still see interest challenged.
• Net interest is the number that matters. The test uses interest expense minus interest income, so interest earned on deposits or on loans to related companies reduces the figure that is compared with the cap.
• Debt signed before 9 December 2022 isn't protected forever. The exclusion covers the interest attributable to those liabilities; a later change to the terms of the arrangement can bring it back inside the cap, according to FTA guidance as reported by advisers. Ask your lender or your accountant before you refinance an old facility.
• Short periods shrink the threshold. A first tax period shorter than 12 months gets a pro-rated AED 12 million figure (Article 8(3)), so a newly formed company that borrows heavily in its first months has less headroom than the headline number suggests.

Which deadlines apply to your company?

The cap is tested in each corporate tax return, so the figures have to be ready before the filing date for your tax period. For a free calendar of your company's UAE tax and compliance deadlines, personalised from a few questions, as a PDF and calendar file, use the UAE compliance calendar.

Frequently asked questions

Is interest expense fully deductible under UAE corporate tax?

No: interest is deductible only if it meets the general business-expense test and then falls within the interest limitation rule. Net interest of up to the higher of 30% of EBITDA or AED 12 million is deductible, and the related-party rule in Article 31 can remove the deduction altogether on certain loans.

What expenses are deductible for UAE corporate tax?

Expenditure is deductible if it's incurred wholly and exclusively for the business and isn't capital in nature (Article 28, Federal Decree-Law No. 47 of 2022). Costs with a private element are deductible only for the identifiable business portion.

Are entertainment expenses deductible for corporate tax?

Only 50% of entertainment, amusement or recreation expenditure is deductible, subject to the general business-expense test (Article 32, Federal Decree-Law No. 47 of 2022). The cost of entertaining customers, suppliers, shareholders or other business partners falls under this cap.

Can I carry forward tax losses in the UAE?

Yes: a tax loss can be offset against taxable income of later tax periods, capped at 75% of each later period's taxable income before loss relief (Article 37, Federal Decree-Law No. 47 of 2022). Losses from before corporate tax started or from exempt activities don't qualify.

What is a tax group and does it change how the interest cap works?

A tax group is treated as one taxable person for corporate tax, and the interest cap is tested at group level. Carried-forward interest of a subsidiary that joined the group can be used only against the taxable income attributable to that subsidiary (Article 12, Ministerial Decision No. 126 of 2023).

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, with amendments (Ministry of Finance, consolidated text)
• Ministerial Decision No. 126 of 2023 on the General Interest Deduction Limitation Rule (Ministry of Finance)
• Interest Deduction Limitation Rules Corporate Tax Guide (FTA): for detailed examples and free zone treatment
• Alvarez & Marsal Middle East tax alert on the FTA guide, 9 May 2025: used only to interpret the FTA guide, not as a rule source

Last checked: 30 October 2026

This is general information, not tax or legal advice for your specific situation.