FAQ – Article 29 Interest Expenditure
Source: https://mof.gov.ae/corporate-tax-faq/
- Will my interest expenditure be fully deductible?
The Corporate Tax Law provides for certain restrictions on the deductibility of interest expenditure to discourage excessive debt financing, and to ensure that debt financing used or arising as a result of certain specific intra-group transactions will only be deductible if there is a valid commercial reason for obtaining the loan.
General interest deduction limitation rule
Businesses with net interest expenditure above a threshold to be set by the Minister will be allowed to deduct net interest expenditure up to 30% of their earnings before interest, tax, depreciation and amortisation (EBITDA), excluding any exempt income. Any net interest expenditure which exceeds this limit may be carried forward and utilised in the subsequent 10 tax periods.
Businesses with net interest expenditure below the threshold to be set by the Minister will not be subject to the general interest deduction limitation rule.
The general interest deduction limitation rule will not apply to banks and other finance institutions, insurance providers or individuals.
Specific interest deduction limitation rule
Where a loan is obtained from a Related Party and is used to finance income that is exempt from CT, the interest on the Related Party loan will not be deductible unless the taxpayer can demonstrate that the main purpose of obtaining the loan and carrying out the transaction is not to gain a CT advantage.
