Interest deduction limitation: what it means in UAE tax.

What interest deduction limitation means

Also called: General Interest Deduction Limitation Rule, GIDLR, 30% EBITDA rule.

The interest deduction limitation is the Corporate Tax rule that stops highly borrowed businesses wiping out their taxable profit with interest. Under Article 30 of the Corporate Tax Law, Net Interest Expenditure, meaning interest costs minus taxable interest income, is deductible only up to 30% of the business's EBITDA as adjusted for tax.

Most SMEs are not affected, because the cap only applies once Net Interest Expenditure for the year exceeds AED 12,000,000. Above that, the business may deduct the higher of AED 12,000,000 and 30% of tax EBITDA. Any amount disallowed can be carried forward and used in the next ten Tax Periods.

A separate, specific rule in Article 31 blocks interest on loans from Related Parties used for things such as paying dividends or returning capital to them, unless the business shows the main purpose was not a tax advantage. Interest here is broad: it includes Islamic finance profit, arrangement and guarantee fees, and the finance element of leases.

How it works

• Net Interest Expenditure is deductible up to 30% of tax EBITDA, excluding Exempt Income (Article 30(1)).
• The limit does not apply if Net Interest Expenditure is AED 12,000,000 or less; above that, the higher of AED 12,000,000 and 30% of EBITDA is deductible, pro rata for short or long Tax Periods (Ministerial Decision No. 126 of 2023, Article 8).
• Tax EBITDA is Taxable Income plus Net Interest Expenditure plus tax depreciation and amortisation, and cannot be below zero (Ministerial Decision No. 126 of 2023, Article 9).
• Disallowed interest is carried forward for up to 10 Tax Periods, oldest first (Article 30(4)).
• Banks, insurance providers and natural persons doing business are outside the rule (Article 30(6)).

Worked example

A Dubai property developer has interest costs of AED 16,000,000 on project loans and AED 1,000,000 of interest income on deposits. Its tax EBITDA for the year is AED 30,000,000.

Interest expenditure	AED 16,000,000
Less taxable interest income	AED (1,000,000)
Net Interest Expenditure	AED 15,000,000
30% of tax EBITDA of 30,000,000	AED 9,000,000
De minimis amount	AED 12,000,000
Deductible (higher of the two)	AED 12,000,000
Disallowed and carried forward	AED 3,000,000

The AED 12 million floor protects more than the 30% test here, and the extra AED 3 million is not lost but deferred.

Common mistakes

• Counting only bank interest and forgetting Islamic finance profit, facility fees and lease finance charges, which count as Interest.
• Assuming a business below AED 12 million of net interest can ignore Article 31 on related party loans.
• Losing track of carried forward interest, which must be used in the order it arose.

The law

• Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses, Articles 29, 30 and 31
• Ministerial Decision No. 126 of 2023 on the General Interest Deduction Limitation Rule, Articles 3, 4, 5, 8 and 9

Frequently asked questions

Does the interest limit apply to a small business with a bank loan?

Usually not. The 30% cap only bites where Net Interest Expenditure for the Tax Period exceeds AED 12,000,000. The specific rule on certain Related Party loans can still apply.

What happens to interest carried forward in a year the business elects Small Business Relief?

Net Interest Expenditure from a relief year cannot be carried forward, although amounts from earlier non-relief years can be used later in non-relief years (Ministerial Decision No. 73 of 2023, Article 5).

Related terms

Taxable income · Related party · Small Business Relief · Tax loss relief. See every term in the UAE tax glossary.

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