15 July 2026 · Dubai SME
Loan Interest Deductibility for Dubai SMEs
For the great majority of Dubai SMEs, business-loan interest is fully deductible for corporate tax, because their Net Interest Expenditure sits comfortably under the AED 12 million safe harbour, so the 30% EBITDA cap never comes into play. The cap becomes relevant mainly for heavily financed or asset-leveraged businesses — real-estate developers, large asset-finance operators and intra-group-funded structures. Interest paid on related-party loans, including loans from shareholders or group companies, faces an entirely separate hurdle: the specific interest deduction limitation rule under Article 31, plus the arm's-length principle, both of which apply regardless of whether the general 30%/AED 12m cap is met.
Exiloz Management & Tax Consultant · Dubai-based FTA-focused advisory · VAT, corporate tax & accounting
Most SMEs deduct in full
An ordinary Dubai SME financing its working capital or a piece of equipment through a bank facility rarely generates anywhere near AED 12 million of net interest in a tax period. That means the safe harbour alone protects the deduction, with no EBITDA calculation required. The condition that does matter, always, is that the interest genuinely relates to the business — a facility used to fund operations, inventory, equipment or property held for the business, not the owner's personal spending.
- Net interest under AED 12 million is fully deductible without any EBITDA test.
- The 30% cap simply never engages below that threshold.
- Ordinary bank term loans and working-capital facilities rarely approach AED 12 million in interest.
- Interest must be incurred wholly for business purposes to be deductible at all.
- General deductibility conditions still apply — the interest cap is an additional test, not a replacement for them.
- Keep loan agreements and drawdown records showing the business purpose of the financing.
When it gets complex
Complexity arrives with leverage and with related parties, not with an ordinary bank loan. A heavily financed business — most commonly in real estate, construction or asset-heavy sectors — can generate net interest well above AED 12 million and needs the full 30% EBITDA calculation every period. Separately, any loan from an owner, a shareholder or a connected group company faces the specific interest deduction limitation rule in Article 31 and must be priced and structured on arm's-length terms, quite apart from whether the general cap is satisfied.
- Heavily financed or asset-leveraged businesses may hit the 30% cap even with strong EBITDA.
- Related-party and connected-person loans face the separate specific rule under Article 31.
- Owner and shareholder loans must be structured and priced at arm's length.
- Passing the general 30%/AED 12m test does not automatically clear the Article 31 test, and vice versa.
- Purely personal borrowing routed through the business is not deductible interest at all.
Why owner and group financing needs extra care
A loan from a company's owner, or between companies in the same group, is one of the most common ways interest deductions get challenged, because it sits at the intersection of two separate rules. The general rule in Article 30 still applies — the loan's interest counts toward Net Interest Expenditure and is measured against the AED 12 million de-minimis and the 30% cap like any other financing. On top of that, Article 31's specific rule scrutinises related-party interest for tax-motivated structuring, and the loan terms themselves need to reflect what unconnected parties would agree — the arm's-length principle. A loan that is fine under one test can still fail the other.
- Related-party interest is tested under both the general cap and the specific Article 31 rule.
- Loan terms — rate, tenor, security — should reflect arm's-length commercial terms.
- Document the commercial rationale for related-party financing, not just the loan agreement.
- Review related-party loans before the return is filed, not after an FTA query arrives.
A quick self-check for Dubai business owners
Before assuming your loan interest is automatically deductible, walk through three questions: is the financing genuinely for the business rather than personal use; does your Net Interest Expenditure for the period sit under AED 12 million, or if not, have you run the 30% EBITDA calculation; and if any of the lenders is a related party, has the loan been priced and documented on arm's-length terms. Most Dubai SMEs answer yes to the first two and can stop there — it is the third question that most often needs a specialist look.
- Confirm the financing is for genuine business purposes.
- Confirm Net Interest Expenditure is under AED 12 million, or run the 30% calculation if not.
- Flag any related-party financing for a separate Article 31 and arm's-length review.
- Revisit the check whenever new financing is taken on, not only at year-end.
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Frequently Asked Questions
Dubai owner-managed businesses ask us the same handful of questions about their loan interest — here is where most of them land.
Is my business loan interest deductible?
Usually yes. Most Dubai SMEs have Net Interest Expenditure well under AED 12 million, so it is fully deductible and the 30% cap never needs to be calculated. The interest still has to be genuinely business-related to qualify.
What about interest on a loan from my company owner?
Related-party and connected-person loan interest faces the separate specific rule under Article 31, on top of the general 30%/AED 12m test, and the loan must be structured and priced on arm's-length terms. It is worth having this type of financing reviewed specifically rather than assuming the general rule covers it.
Is personal loan interest deductible?
No. Only interest on financing that is genuinely for the business is deductible for corporate tax — interest on borrowing used for an owner's personal expenses is not, even if it is routed through the company's accounts.
Can Exiloz review my interest deductions?
Yes. We confirm whether your business-loan interest is deductible, check your position against the AED 12 million de-minimis and 30% cap, and review any related-party financing against Article 31 and the arm's-length principle.
Does the type of lender matter?
It matters for the specific rule, not the general one. A bank or third-party lender is only tested under the general 30%/AED 12m cap, while a related-party lender — an owner, shareholder or group company — is tested under both the general rule and the separate Article 31 specific rule.
What if my business is growing and taking on more debt?
As borrowing grows, Net Interest Expenditure can approach or exceed the AED 12 million de-minimis, at which point the 30% EBITDA calculation becomes necessary every period. It is worth modelling the position before a major financing round, not after it closes.
Do asset-finance and lease arrangements count the same way as loans?
Financing elements within lease and asset-finance arrangements can be economically equivalent to interest and fall within Net Interest Expenditure, so they need to be reviewed alongside conventional loans rather than assumed to sit outside the rule.
How does Exiloz check arm's-length pricing on a related-party loan?
We look at the rate, tenor, security and repayment terms against what unconnected commercial lenders would offer for a comparable facility, and document the comparison so the position is supportable if the FTA asks about it.
Is your loan interest actually deductible?
Exiloz confirms whether your business-loan interest clears the AED 12 million safe harbour or the 30% cap, and separately reviews any related-party financing against Article 31 and the arm's-length principle, so nothing gets disallowed at filing time.