The UAE corporate tax interest deduction limitation is the rule that decides how much of your borrowing cost actually reduces your tax bill. Interest is an ordinary business expense, and in principle it is deductible — but the Corporate Tax Law puts a ceiling on it, so a heavily-financed business cannot wipe out its taxable profit with interest alone. If your company carries real debt, this is one of the first adjustments to run before you trust the taxable income on your return.
The mechanism sits in Article 30 of Federal Decree-Law No. 47 of 2022, with the detail filled in by Ministerial Decision No. 126 of 2023. It works on net interest, not gross: you take your interest expenditure for the period and subtract the taxable interest income you earned, and the limit applies to what is left. That single word — net — is why a business with matching interest income and expense may never feel the cap at all.
What the UAE corporate tax interest deduction limitation actually does
Under the general rule, your deductible net interest for a tax period is capped at the higher of two figures: a fixed AED 12 million threshold, or 30% of your tax-adjusted EBITDA (earnings before interest, tax, depreciation and amortisation, as adjusted for corporate tax purposes). You compare the two and take whichever is larger. A profitable, modestly-geared company will usually clear the 30%-of-EBITDA figure comfortably; a company in an investment or loss-making phase, where EBITDA is thin, leans on the AED 12 million floor instead.
One trap in the EBITDA calculation: if your adjusted EBITDA is negative, it is treated as zero for this test. It cannot drag the 30% figure below zero, so in a weak year the AED 12 million threshold is effectively the only shelter you have.
Whatever net interest exceeds the cap is simply not deductible in that period. It is not lost, but it does not reduce this year’s tax — which, for a leveraged group, can mean a corporate tax liability in a year the accounts show little or no accounting profit.
The AED 12 million floor most businesses never cross
The AED 12 million figure is a genuine de minimis: if your net interest expenditure for the period does not exceed it, the limitation does not apply and your interest is deductible in full. For the large majority of UAE businesses — owner-funded companies, firms with modest bank facilities, most SMEs — net interest never comes close to AED 12 million, so the rule is a non-event. It is designed to catch the thinly-capitalised, debt-heavy structures where interest is doing the work that equity should, not the ordinary trading company with a working-capital line.
If your net interest for the year is under AED 12 million, you deduct it in full. The 30% EBITDA test only matters once you cross that floor — so the first question is always the number, not the formula.
Net interest, carry-forward, and the figures that travel
Because the cap bites on a single tax period, the law gives back what it takes away over time. Net interest expenditure that is disallowed in one period can be carried forward and deducted in the subsequent ten tax periods, subject to the same cap in each of those later years. So a spike of interest in a heavy-borrowing year is not permanently forfeited — it queues up to be used as future EBITDA headroom opens. Keeping a clean running record of disallowed and carried-forward interest is part of the compliance, not an afterthought.
The two interest rules sit side by side, and it helps to see them together:
| Rule | What it limits | The test |
|---|---|---|
| General limitation (Article 30) | Net interest on all borrowing | Deductible up to the higher of AED 12 million or 30% of tax-adjusted EBITDA; excess carried forward 10 periods |
| Specific limitation | Interest on certain related-party loans | Disallowed where the loan funds a distribution or capital move to a related party, unless the arrangement is genuinely commercial |
The exclusions, and the related-party rule behind them
Some persons sit outside the general limitation entirely. It does not apply to banks, insurance businesses and certain other regulated financial entities, nor to a business carried on by a natural person (an individual). It also does not reach back to net interest on debt agreed before 9 December 2022 — legacy borrowing is grandfathered — or to qualifying infrastructure project persons. If you fall in one of those buckets, the 30%/AED 12 million machinery is not your concern.
Everyone else should also watch the specific interest limitation rule, which is narrower but sharper. Interest on a loan from a related party is non-deductible where that loan was used to fund a dividend or profit distribution, a reduction or return of capital, a capital contribution, or the acquisition of an interest in an entity that becomes a related party — the classic shapes of debt pushed into a group purely to create a deduction. There is relief where the arrangement is genuinely commercial, including where the related-party lender is itself subject to tax on that interest at a rate of at least 9%. The point is that a loan between connected companies gets looked at for what it funds, not just what it costs.
None of this changes the headline principle — business interest is deductible — but it changes the arithmetic for anyone carrying real leverage. Getting the net interest figure, the EBITDA adjustment and the carry-forward record right is exactly the kind of work that belongs in the tax computation, not in a scramble at filing. Our UAE accounting and corporate tax team runs this test before the return is built, alongside the tax and bookkeeping work that produces the numbers it depends on — so the deduction you claim is the one the law actually allows.