Interest Deduction Limitation (Article 30)
The Rule
Net interest expense is deductible up to the lower of:
- AED 10 million per tax period, OR
- 30% of accounting EBITDA (earnings before interest, tax, depreciation, and amortisation)
What is Net Interest Expense?
Net interest expense = Interest income - Interest expense (if negative)
Example
Accounting EBITDA: AED 50,000,000
30% of EBITDA: AED 15,000,000
AED 10M cap: AED 10,000,000
Deductible limit: AED 10,000,000 (lower of the two)
If net interest expense is AED 12,000,000:
- Deductible: AED 10,000,000
- Excess: AED 2,000,000 (carried forward)
Carry-Forward of Excess
Excess interest that cannot be deducted can be carried forward to subsequent tax periods, subject to the same limitation.
Exemptions
- Banks and financial institutions may be exempt
- Cash pooling arrangements within a tax group
- Entities below a de minimis threshold (AED 10M interest)