UAE Interest Deduction Limitation 2026: The 30% EBITDA Cap

• 15 July, 2026
• By Safwan, Managing Partner
• Corporate Tax

The year leverage started to cost you a deduction

Under Article 30 of Federal Decree-Law No. 47 of 2022 and Ministerial Decision No. 126 of 2023, a business can deduct Net Interest Expenditure only up to the higher of 30% of tax-adjusted EBITDA or a de-minimis of AED 12 million per tax period. If your net interest for the period does not exceed AED 12 million, the 30% cap does not apply at all. Anything disallowed is not lost — it carries forward and can be deducted over the next ten tax periods. Banks, insurers and natural persons sit outside the general rule.

For most Dubai SMEs this rule never bites — and that is the single most important thing to know. But for financed, leveraged or intra-group-funded businesses, the interest cap can turn a real cash cost into a non-deductible one. Here is how it works.

The rule in one line

The policy behind it is the classic thin-capitalisation problem: without a cap, a business could be loaded with debt so that interest wipes out its taxable profit. The UAE’s answer ties the deduction to earnings — borrow as much as you like commercially, but the tax deduction for net interest is limited by reference to what the business actually generates.

What counts as Net Interest Expenditure

Net Interest Expenditure is broadly your interest expenditure for the period less taxable interest income. “Interest” is defined widely — it includes amounts economically equivalent to interest, such as financing elements of certain payments — so it is more than just bank loan interest.

The other half of the formula is tax-adjusted EBITDA: broadly, your taxable income before net interest expenditure and depreciation or amortisation, with exempt income excluded. That last adjustment matters more than it looks — a holding company earning large exempt dividends can have a much smaller EBITDA for cap purposes than its accounts suggest, which shrinks the 30% figure. If you are unsure what feeds into the base, start with our guide to taxable income calculation in the UAE — the cap is only as accurate as the EBITDA underneath it.

A worked example

Because the business deducts the higher of 30% of EBITDA (AED 9m) and the AED 12m de-minimis, its cap is AED 12 million. If its actual net interest were AED 10m, all of it is deductible (below AED 12m, no cap). If net interest were AED 15m, AED 3m is disallowed this period and carried forward.

Scenario two: when the 30% cap bites

Now take a leveraged Dubai developer with heavier borrowing. Its tax-adjusted EBITDA for the period is AED 60,000,000 and its net interest is AED 25,000,000. Walk the calculation through step by step:

1. Step 1 — take 30% of EBITDA: AED 60,000,000 × 30% = AED 18,000,000.
2. Step 2 — compare with the de-minimis: AED 18m beats AED 12m, so the cap is the higher figure — AED 18 million.
3. Step 3 — compare with actual net interest: AED 25,000,000 exceeds the cap by AED 7,000,000.
4. Step 4 — deduct and disallow: AED 18m is deductible this period; AED 7m is disallowed.
5. Step 5 — carry forward: the AED 7m is recorded and carried forward for up to ten tax periods.

The cash effect is real. At the 9% corporate-tax rate, AED 7 million of disallowed interest means up to AED 630,000 of extra tax in the current period. It is recoverable in later years — but only if the carry-forward balance is tracked and the workings are kept ready for the FTA.

Carrying forward disallowed interest

Interest you cannot deduct this period is not wasted. It carries forward for up to ten tax periods and can be deducted in a later period when you have headroom under the cap. Track the balance carefully — it is a real future deduction.

Continue the developer example. Next year its tax-adjusted EBITDA rises to AED 80,000,000, so the cap becomes AED 24 million (30% × 80m), while actual net interest falls to AED 20,000,000. That leaves AED 4 million of headroom under the cap — so AED 4m of the AED 7m brought forward is deducted, and AED 3m rolls on to future periods. Because the balance moves every year, it needs a schedule of its own in your tax file — and it has to survive for as long as the record-keeping rules require, or the deduction is unusable in practice.

The general rule vs the specific rule

Article 30 houses the general interest deduction limitation rule — the formula-based cap that applies across the board. Article 31 adds a separate specific rule aimed at related-party financing: an anti-avoidance test for interest on loans from related parties, which must also respect the arm’s-length principle. In practice that means a loan from a shareholder, a parent company or a fellow group entity faces two distinct hurdles — the specific related-party test on one side, and the 30%/AED 12m general cap on the other. Clearing one does not clear the other, so intra-group financing needs to be documented and priced properly before the cap is even considered.

Who sits outside the rule

The general limitation does not apply to banks, insurance providers or natural persons. The carve-outs make commercial sense — a bank’s interest expense is its cost of goods, not a financing choice — but they are narrow. An ordinary trading or property company does not escape the rule because it happens to lend money or sit in a financial free zone; if you are a juridical person within the charge to corporate tax and none of the exclusions applies, the cap is part of your return.

SMEs vs leveraged groups

For a typical mainland SME with a working-capital facility, the rule is a non-event: net interest sits far below AED 12 million, the safe harbour applies, and every dirham of genuine business interest is deductible. The businesses that need to model the cap each year are real-estate developers, asset-heavy operators and intra-group-funded structures, where debt is large relative to earnings and EBITDA can swing sharply between periods. One structural point is easy to miss: a formed corporate tax group is a single taxable person, so the cap and the AED 12m de-minimis are assessed on the group’s combined position rather than company by company — one more factor in the group-versus-standalone decision.

Common mistakes to avoid

What Dubai businesses should do

1. Measure net interest: interest expenditure less taxable interest income for the period.
2. Apply the safe harbour: if it is AED 12m or less, stop — the cap does not apply.
3. Compute the cap: the higher of 30% of tax EBITDA and AED 12m.
4. Carry forward the excess: record any disallowed interest for the 10-year window.
5. Watch related-party loans: Article 31 adds a separate specific anti-avoidance rule.

The legal basis

The general interest deduction limitation rule sits in Article 30 of Federal Decree-Law No. 47 of 2022, with the operative detail — the 30% of tax-adjusted EBITDA figure, the AED 12 million de-minimis and the ten-period carry-forward — set by Ministerial Decision No. 126 of 2023, issued on 30 May 2023. Article 31 of the same law contains the specific interest deduction limitation rule for related-party loans, and the FTA’s published guidance on the regime walks through the calculation in detail. If your financing is anything more elaborate than a simple bank loan, have a corporate tax consultant in Dubai run the numbers before the return is filed — the cap is mechanical, but the inputs rarely are.

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