Interest on business loans is usually deductible for UAE Corporate Tax. But for businesses with significant borrowing, the general interest deduction limitation rule caps how much can be deducted in a single year. It is designed to stop profits being stripped out through debt, and it can catch property, trading and leveraged businesses that never thought of themselves as aggressive.
The rule in one line
Net interest expenditure is deductible up to the higher of 30% of adjusted EBITDA and AED 12 million for the tax period. So if your net interest is AED 12 million or less, it is fully deductible.
The key terms
- Net interest expenditure is your interest expense minus your interest income. Interest is defined broadly: it includes loan interest, the interest element of lease payments, and amounts economically equivalent to interest, such as some financing fees and Islamic finance profit.
- Adjusted EBITDA is your taxable income for the period, before deducting net interest, depreciation and amortisation, and excluding exempt income such as qualifying dividends.
- The AED 12 million safe harbour means the limit can never be lower than AED 12 million of net interest for the period, whatever your EBITDA.
The rule is set out in Article 30 of the Corporate Tax Law and Ministerial Decision No. 126 of 2023.
A worked example
A company has adjusted EBITDA of AED 50 million and net interest expenditure of AED 20 million.
- 30% of AED 50 million = AED 15 million, which is higher than AED 12 million, so AED 15 million is deductible
- AED 5 million is disallowed this year
What happens to the disallowed interest
Disallowed net interest is not lost. It can be carried forward for up to 10 tax periods and deducted in a later year when there is enough headroom under the 30% limit. Interest carried forward is used in the order it arose.
Who is outside the rule
The general limitation does not apply to banks, insurance providers and certain other regulated financial businesses, or to natural persons doing business. In a tax group, the rule is applied to the group as a whole.
Separately, a specific interest limitation can deny interest on loans from related parties used for certain intragroup transactions, such as dividends or share acquisitions, unless there is a valid commercial reason.
What to do now
- Total all interest-type costs, including leases, financing fees and Islamic finance profit.
- Estimate adjusted EBITDA for 2026, not just accounting EBITDA.
- Check where you stand against AED 12 million of net interest.
- Track disallowed interest carried forward and when it expires.
- Review related-party loans for the specific limitation and for transfer pricing.
How Dreambooks helps
Dreambooks maps interest, lease interest and financing costs to the right tax categories, calculates adjusted EBITDA from your ledger, and keeps a schedule of disallowed interest carried forward, so the calculation in your Corporate Tax return is ready and traceable.
Official sources
- Ministerial Decision No. 126 of 2023 on the General Interest Deduction Limitation Rule
- FTA: Corporate Tax legislation
This article is general information as of July 2026, not tax advice. Check the Corporate Tax Law, Ministerial Decision No. 126 of 2023 and the latest FTA guidance, or speak to your tax adviser, before acting.