15 July 2026 · Carry Forward
Carrying Forward Disallowed Interest
Net interest disallowed by the 30% EBITDA cap is not a permanent loss — it carries forward and can be deducted in any of the next ten tax periods, in a period where your net interest sits below that period's cap and there is headroom to absorb it. The carry-forward is a running balance, not a single fixed amount: it can be partly used in one period, partly rolled to the next, and it needs to be tracked period by period until it is either fully absorbed or the ten-year window closes. Without a proper schedule, a genuine future deduction can become impossible to use in practice.
Exiloz Management & Tax Consultant · Dubai-based FTA-focused advisory · VAT, corporate tax & accounting
A future deduction
When your net interest exceeds the cap in a given period, the excess is recorded as disallowed for that period but is not written off. It sits as a carried-forward balance available to be deducted in any of the following ten tax periods, provided the cap in that later period is high enough — or your net interest low enough — to leave headroom. In effect, the ten-year window gives a leveraged business time for its EBITDA to catch up with its borrowing.
- The excess over the cap in any period becomes a carried-forward balance, not a lost deduction.
- It can be used in any of the next ten tax periods, not just the immediately following one.
- It is deducted only in a period where you have headroom under that period's cap.
- Headroom exists when current-period net interest is below the current-period cap.
- A rising EBITDA or falling net interest in a later period creates the headroom needed.
- The relief has genuine cash value — it is a real future deduction, not a formality.
Track and use it
The carry-forward only has value if it is tracked properly. Each period you need to know the opening balance brought forward, any new amount disallowed in the current period, how much (if any) was absorbed against current-period headroom, and the closing balance carried on. Reconcile that schedule on every corporate tax return, because a balance you cannot evidence is a balance the FTA has no reason to accept.
- Maintain a running schedule: opening balance, additions, amounts used, closing balance.
- Apply available headroom to the carry-forward before it ages further into the ten-year window.
- Use the balance within ten tax periods of when it was originally disallowed — it does not carry indefinitely.
- Reconcile the carry-forward schedule to each year's corporate tax return.
- Keep the underlying EBITDA and net interest workings for every period in the schedule, not just the totals.
How the balance moves year to year
Take the leveraged business from our EBITDA guide: it disallowed AED 7,000,000 of net interest in one period because its cap was AED 18,000,000 against actual net interest of AED 25,000,000. The following period its tax-adjusted EBITDA rises to AED 80,000,000, giving a cap of AED 24,000,000 (30% of EBITDA), while its actual net interest falls to AED 20,000,000. That leaves AED 4,000,000 of headroom under the new cap. The business applies AED 4,000,000 of the AED 7,000,000 brought forward, deducting it in the new period, and carries the remaining AED 3,000,000 on to future periods — still well inside the ten-year window.
- Headroom is the gap between a period's cap and its actual net interest.
- Headroom absorbs the carry-forward balance first, oldest amounts typically used before newer ones.
- A balance can take several periods to fully unwind, moving in step with EBITDA and borrowing.
- Model likely future EBITDA and net interest to estimate when a balance will actually be usable.
What happens if the balance is not used in time
The carry-forward window is ten tax periods, not indefinite. A balance that is never absorbed because net interest stays persistently above the cap in every subsequent period simply expires unused once the window closes. For a structurally leveraged business — one that expects to remain interest-heavy for the foreseeable future — that is a real possibility worth planning around, whether through refinancing, restructuring debt, or reviewing whether a corporate tax group changes the group's combined EBITDA and cap position.
- The ten-tax-period window is a hard limit, not a renewable one.
- A structurally over-leveraged business risks the balance expiring unused.
- Refinancing or restructuring debt can help bring net interest back under future caps.
- Group formation can change the combined EBITDA and cap available to absorb a carry-forward.
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Frequently Asked Questions
Managing disallowed interest over time raises its own set of questions — here is what we are asked most by Dubai businesses carrying a balance forward.
Do I lose interest I cannot deduct?
No. It carries forward for up to ten tax periods and can be deducted later once you have headroom under the cap in one of those periods. It is a genuine future deduction, not a write-off.
How long can I carry it?
Up to ten tax periods from the period in which the interest was originally disallowed. After that window closes, any unused balance can no longer be deducted.
When can I use it?
In any later period where your net interest sits below that period's cap, leaving headroom to absorb some or all of the carried-forward balance. You can use it partially across several periods if the headroom in any one period is not enough to absorb the whole amount.
Can Exiloz track my carry-forward?
Yes. We maintain a period-by-period schedule of the balance, apply it whenever headroom appears, and reconcile it on each corporate tax return.
Can I choose which period to use the carry-forward in?
The relief is used against headroom as it arises rather than by free election — if a period has headroom under the cap, the available carry-forward is applied. Planning ahead is about creating headroom, not choosing when to claim it.
What happens if I never have headroom within ten periods?
Any balance not absorbed within the ten-tax-period window from when it was originally disallowed can no longer be deducted. This is why structurally leveraged businesses should model their likely future cap position rather than assume the balance will eventually clear.
Does forming a corporate tax group affect an existing carry-forward?
Group formation changes the combined EBITDA and net interest position going forward, which can create or reduce headroom for the group as a whole. Existing balances and how they interact with group formation should be reviewed as part of that decision.
Do I need to keep records for the full ten-year window?
Yes. You need to be able to evidence both the original disallowance and every period's use of the balance for as long as any part of it remains outstanding, which can mean holding records well beyond a typical retention period.
Never lose a disallowed-interest deduction
Exiloz maintains your carry-forward schedule period by period, applies it the moment headroom appears under the cap, and keeps the workings ready so the deduction survives an FTA review.