UAE Corporate Tax: FTA Releases New Guidance on Interest Deduction
The UAE’s Federal Tax Authority (FTA) has released updated guidance on Interest Deduction Limitation Rules under the Corporate Tax Law. These rules are vital for businesses to correctly determine how interest-related expenses affect taxable income.
At Singiri Auditing, we ensure your business remains fully compliant with these evolving regulations—backed by expert support and strategic advice.
Adjusted EBITDA is calculated as follows:
Adjust | Item | Amounts (AED) |
Accounting Income/(loss) | ##/(##) | |
+/- | All adjustments as per Article 20 of the Corporate Tax Law, except General Interest Deduction Limitation Rule and Tax Loss provisions. | ##/(##) |
+ | Depreciation expenditure (Note below) Amortisation expenditure | ## |
+ | Net Interest Expenditure for the relevant Tax Period (before carry forward Net Interest Expenditure amounts from previous Tax Periods) | ## |
+ | Net Interest Expenditure relating to grandfathered debt instruments | ## |
+ | Net Interest Expenditure relating to Qualifying Infrastructure Projects | ## |
Total: Adjusted EBITDA | ## |
Key Objectives of the Updated Guide
The FTA guide clarifies:
- What qualifies as interest for tax purposes
- How interest is treated under general and specific limitation rules
- How to calculate net interest expenditure
- Handling Islamic finance instruments (e.g., Sukuk, Murabaha)
- Treatment and deduction of capitalized interest
1. Expanded Definition of Interest
“Interest” now includes more than just traditional loan charges. It also covers:
- Premiums or discounts on bonds
- Profits from Islamic finance products
- Fees from repo, factoring, and stock lending
- Returns from money market-based investments (now treated as interest income)
2. Limitation Rules Explained
Article 31: Specific Limitation Rule
Interest is not deductible if the financing arrangement aims mainly to secure a tax advantage, especially in related-party transactions.
Article 30: General Limitation Rule
- Limits interest deduction to 30% of adjusted EBITDA
- Allows carry-forward of excess interest for up to 10 years
3. Capitalized Interest: What’s New
Capitalized interest (e.g., interest rolled into the cost of an asset) must be:
- Amortized over the asset’s useful life
- Counted as interest, not depreciation
- Properly adjusted when calculating EBITDA
Example:
If AED 1.2 million is capitalized in Year 1, then AED 120,000 per year (over 10 years) must be treated as interest, not depreciation.
4. Exemptions to the General Rule
The 30% EBITDA cap does not apply to:
- Banks and insurance companies
- Natural persons running businesses
- Qualifying infrastructure projects
- Small businesses (revenue under AED 3 million)
- Pre-9 Dec 2022 debts that remain unchanged
What Businesses Should Do Now
To ensure compliance, UAE businesses must:
- Review how all interest-related expenses are classified
- Ensure total deductions don’t exceed the 30% EBITDA limit
- Carefully structure Islamic finance and related-party arrangements
- Adjust for capitalized interest in financial statements
Why Singiri Auditing Is the Right Partner
While firms like Spectrum Auditing offer general compliance help, Singiri Auditing delivers specialized, personalized solutions that meet your unique needs.
Here’s why clients trust us:
✅ Tax Law Expertise – Deep knowledge of UAE Corporate Tax and IFRS
✅ Tailored Strategies – End-to-end compliance and reporting support
✅ Proactive Guidance – We simplify complex tax rules for clear decision-making
✅ Client-First Focus – Your business goals drive our approach
Get the Right Tax Guidance Today
Avoid penalties and maximize deductions—let Singiri Auditing help you stay compliant and confident.
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