The 30% EBITDA interest cap in UAE Corporate Tax: how much of your finance cost actually deducts
Net interest deducts only up to the greater of 30% of tax-EBITDA or the AED 12m safe harbour — the mechanics, the ten-year carry-forward, and the loans the rule ignores.
The rule in numbers
The general interest deduction limitation caps net interest expense — interest expense minus interest income — at the greater of 30% of adjusted EBITDA (earnings before interest, tax, depreciation and amortisation, computed on tax numbers) or the AED 12 million safe harbour. Whatever exceeds the cap is not lost: it carries forward up to ten tax periods, deductible in later years inside those years' own caps.
The safe harbour does most of the work for SMEs: a business whose net interest is under AED 12 million never meets the 30% computation at all. The rule is aimed at leveraged structures — but 'aimed at' is not 'limited to', and a capital-intensive business with thin EBITDA can hit the cap well below headline-large borrowings.
A worked example
Net interest AED 20m, adjusted EBITDA AED 50m. Cap = greater of 30% × 50m = AED 15m and AED 12m → AED 15m. Deductible now: 15m. Carried forward: 5m, usable for ten periods. Now run a bad year — EBITDA AED 20m: cap = greater of 6m and 12m → the safe harbour takes over at 12m. The cap breathes with earnings, which is exactly why loss-making leveraged years hurt twice.
What the cap ignores — and what other rules catch
- Loans agreed before 9 December 2022 sit outside the limitation under the grandfathering rule — document the vintage
- Banks and insurance providers are excluded from the rule; ordinary groups are not
- The cap is not the only gate: interest on connected-person loans used to pay dividends or similar distributions can be disallowed entirely under its own rule, before the cap is even computed
- Islamic finance equivalents count as interest for these purposes — the label on the instrument does not change the analysis
Managing it
- Track net interest against both prongs quarterly — the binding prong flips between years, and the answer changes borrowing decisions
- Model the carry-forward: disallowed interest is an asset with a ten-year clock, and it expires worthless if EBITDA never grows into it
- In groups, remember the computation runs at the taxable-person level (or tax group level if grouped) — where the debt sits determines whose cap it consumes
How Orbit applies this
Orbit computes adjusted EBITDA from the ledger as periods close, runs both prongs of the cap, maintains the disallowed-interest carry-forward register with its expiry clock, and shows the binding constraint in the CT working — so financing decisions see their tax shadow before the debt is drawn.
Questions people actually ask
How much interest can a UAE company deduct for Corporate Tax?
Net interest expense is deductible up to the greater of 30% of adjusted EBITDA or AED 12 million. The excess carries forward for up to ten tax periods.
Does the 30% interest cap apply to small businesses?
Rarely in practice: the AED 12 million safe harbour means the 30% computation only binds when net interest exceeds AED 12m. Most SMEs never reach it, though the connected-person loan rules still apply at any size.
Are old loans grandfathered from the UAE interest limitation?
Loans whose terms were agreed before 9 December 2022 benefit from grandfathering under the rule. Keep the loan agreement evidencing the date — refinancing or amending terms can compromise the position.
Do Islamic finance costs count as interest for the cap?
Yes — amounts economically equivalent to interest under Islamic financial instruments are treated as interest for the limitation, regardless of the instrument's form.
General information for Gulf businesses, not tax advice. Regulations move — verify against the official FTA/ZATCA text or your advisor before acting.