The UAE Corporate Tax interest limitation: the AED 12,000,000 safe harbour is a cliff, not an allowance
Interest is deductible in the Tax Period in which it is incurred, and then two Articles take some of it back (Article 29 of Federal Decree-Law No. 47 of 2022, which makes the deduction subject to Articles 30 and 31). The General Interest Deduction Limitation Rule in Article 30 is usually quoted in one line: Net Interest Expenditure is deductible up to 30% of EBITDA, and there is an AED 12,000,000 safe harbour.
Both halves of that sentence are correct. Taken together they describe the rule as a graduated allowance, which is not what it is. This page is not tax advice; the Decree-Law, the Cabinet and Ministerial Decisions and the FTA control.
1. The safe harbour is a switch, not an allowance
Article 30(3) says the limitation in Clause 1 shall not apply where Net Interest Expenditure for the period does not exceed an amount specified by the Minister, and the Minister specified AED 12,000,000 (Ministerial Decision No. 126 of 2023, Article 8).
The operative word is *apply*. Below the line the rule is switched off and the whole of the Net Interest Expenditure is deductible however small EBITDA is. One dirham above the line the rule is switched on and the whole of the Net Interest Expenditure meets the 30% cap, not merely the part above AED 12,000,000. There is no transition.
What that does to a real set of accounts, recalculated in the workbook rather than asserted:
| Interest expenditure AED 12,000,000 | Interest expenditure AED 12,100,000 | |
|---|---|---|
| Accounting Income | 8,000,000 | 7,900,000 |
| EBITDA for the rule | 20,000,000 | 20,000,000 |
| Net Interest Expenditure | 12,000,000 | 12,100,000 |
| Does the limitation apply? | **No** | **Yes** |
| Interest disallowed | 0 | **6,100,000** |
| Taxable Income | 8,000,000 | 14,000,000 |
| Corporate Tax | **686,250** | **1,226,250** |
A business whose Net Interest Expenditure is anywhere near AED 12,000,000 is therefore not managing a percentage. It is managing a threshold, and the figure it needs to know before year end is not its interest cover but how close the period's net interest will land to the line.
2. The EBITDA in the rule is not the EBITDA in the accounts
Article 30(1) caps the deduction at 30% of accounting earnings before interest, tax, depreciation and amortisation, excluding any Exempt Income under Article 22. Exempt income still shows up in the profit the accounts report. It does not count towards the cap.
The same company again, with AED 3,000,000 of its profit being exempt dividends from UAE residents rather than trading profit: EBITDA for the rule falls from AED 20,000,000 to AED 17,000,000, and the cap with it, from AED 6,000,000 to AED 5,100,000. Both figures recalculated.
The size of the gap is predictable and it is worth stating plainly: the cap falls by 30% of the exempt income, dirham for dirham. A holding company carrying debt against subsidiaries whose dividends are exempt under Article 22, or whose gains fall under the Participation Exemption in Article 23, has the smallest interest allowance of any company its size, precisely because the income the debt supports is not taxed.
3. The ten-period carry-forward can expire without ever being used
Article 30(4) carries disallowed Net Interest Expenditure forward into the subsequent ten Tax Periods, used in the order it was incurred. That sounds like deferral rather than loss, and for a company with a one-off spike it is.
Article 30(2) is what makes it less than that. It defines a period's Net Interest Expenditure as the interest expenditure incurred during the period including any amount carried forward under Clause 4, less taxable interest income. The brought-forward amount is not deducted on top of the cap; it is pushed through the same cap, behind the current period's own interest. A carried-forward amount is only usable in a period where 30% of that period's EBITDA is more than that period's own net interest, and it is usable only by the difference.
So a company whose borrowing and earnings are stable never recovers any of it. Each year's cap is consumed by that year's interest, nothing is left for the queue, and in the eleventh period the oldest tranche drops off. Ten Tax Periods is the outside limit on the carry-forward, not an assurance that the deduction arrives.
4. What a limited period actually costs
A worked case at the other end of the scale, recalculated in full: Revenue AED 50,000,000, Accounting Income AED 10,000,000, interest expenditure AED 20,000,000 with no interest income, depreciation and amortisation AED 2,000,000, no exempt income, no add-backs and no losses brought forward.
| EBITDA for the rule | 32,000,000 |
|---|---|
| Cap at 30% | 9,600,000 |
| Net Interest Expenditure | 20,000,000 |
| Interest disallowed this period | **10,400,000** |
| Taxable Income | 20,400,000 |
| Corporate Tax payable | **1,802,250** |
| Carried forward into the next ten periods | 10,400,000 |
Taxable Income is more than twice Accounting Income, and the tax is 18.02% of the accounting profit against a headline rate of 9%. Nothing in that case is unusual: it is one leveraged company with ordinary depreciation and no exempt income.
5. Article 30 is not the only interest rule, and Article 31 has no safe harbour
Article 31, the Specific Interest Deduction Limitation Rule, disallows interest outright, with no EBITDA cap and no carry-forward, where the loan comes directly or indirectly from a Related Party and funds one of four transactions: a dividend or profit distribution to a Related Party; a redemption, repurchase, reduction or return of share capital to a Related Party; a capital contribution to a Related Party; or the acquisition of an ownership interest in a Person who is or becomes a Related Party.
The way out is Article 31(2): the Taxable Person demonstrates that the main purpose of the loan and the transaction was not to gain a Corporate Tax advantage. Article 31(3) deems no such advantage to arise where the Related Party is subject to Corporate Tax, or a tax of a similar character abroad, on that interest at a rate not below the rate in Article 3(1)(b).
The AED 12,000,000 safe harbour does not reach this. Article 30(3) disapplies "the limitation under Clause 1 of this Article", and Article 31 contains no equivalent. A group company a long way inside the safe harbour, with interest no one would describe as excessive, can still lose the entire deduction on a related-party loan that funded a distribution.
6. Who the rule does not apply to
Article 30(6) takes four categories outside Clauses 1 to 5 altogether: a Bank, an Insurance Provider, a natural person undertaking a Business or Business Activity in the State, and any other Person the Minister determines. Article 30(7) separately lets the Minister specify how the rule applies to a Taxable Person that must consolidate with Related Persons under the applicable accounting standards, which is the point at which a group stops being able to read the test off a single entity's accounts.
Where the test is done for you
The free UAE Corporate Tax calculator runs the Article 20(2) computation for one Tax Period in the browser, so the effect of a limited period on the liability is the first figure you see. The UAE Corporate Tax Computation Workbook ($29, /uae-corporate-tax/) carries the interest limitation as live formulas: the tax-defined EBITDA with Exempt Income stripped out, the safe harbour as the switch it is, the amount disallowed, the brought-forward tranche tested inside the same cap, and the balance carried into the next period, with the article or decision cited on every line. Team and consultancy licences are $119 and $249. Every figure on this page came out of that workbook recalculated today. The order the whole computation runs in is set out in how UAE Corporate Tax is computed, the relief that switches the interest rule off entirely in UAE Small Business Relief, the free zone route in the QFZP de minimis test, the dates in the return deadline guide, and the cost of missing one in late return vs late payment.
Sources
- Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses: Article 29 (interest deductible when incurred, subject to Articles 30 and 31), Article 30(1) (30% of EBITDA excluding Exempt Income), Article 30(2) (Net Interest Expenditure, including amounts carried forward), Article 30(3) (the limitation does not apply below the Minister's amount), Article 30(4) (ten Tax Periods, in the order incurred, within the same cap), Article 30(6) (Bank, Insurance Provider, natural person), Article 30(7) (consolidated groups), Article 31(1) to (3) (the Specific Interest Deduction Limitation Rule and the main purpose test), Article 3(1) (the 0% band to AED 375,000 and 9% above it), Article 22 and Article 23 (Exempt Income and the Participation Exemption). Read from the Decree-Law text held in this repository's product sources.
- Ministerial Decision No. 126 of 2023 on the General Interest Deduction Limitation Rule, Article 8: the AED 12,000,000 Net Interest Expenditure amount specified for the purposes of Article 30(3).
- Cabinet Decision No. 116 of 2022: the AED 375,000 threshold for the 0% rate under Article 3(1).
Every figure in the tables on this page was produced by recalculating the UAE Corporate Tax Computation Workbook with an independent formula engine on 5 October 2026, not taken from memory or from a secondary summary.
Last checked against the sources on 5 October 2026.
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