The 30% Rule That Could Silently Raise Your UAE Corporate Tax Bill

If your UAE business carries debt, one of the quietest traps in the Corporate Tax regime is the Interest Deduction Limitation Rule. It does not announce itself. Your accountant deducts the full interest charge, the software accepts it, and the problem only surfaces at filing — when the Federal Tax Authority disallows part of the deduction and your tax bill jumps.

The September 30, 2026 filing deadline for December 2025 year-ends has just passed. Many businesses discovered this rule the hard way in their first return. If your financial year ends in December 2026, you still have time to plan. Here is what you need to know.

The Rule in One Paragraph

Under Article 30 of Federal Decree-Law No. 47 of 2022 (the UAE Corporate Tax Law), a business can deduct Net Interest Expenditure up to the greater of:

• 30% of Tax EBITDA for the tax period, or
• AED 12 million (the de minimis threshold)

Any net interest above that cap is not deductible in the current period. The excess is carried forward to future tax periods, where it remains subject to the same 30% ceiling in each year it is used. Banks and insurance businesses are excluded — for everyone else, the rule applies.

Tax EBITDA Is Not Accounting EBITDA

This is where most businesses slip. The cap is based on Tax EBITDA, not the EBITDA line your finance team pulls from the P&L. Tax EBITDA starts from your accounting figures but is adjusted for Corporate Tax purposes — depreciation, amortisation, and interest are added back, and the figure moves with the various adjustments and elections the CT law requires.

If you have been computing the cap from your management accounts, you may have been understating or overstating your headroom without knowing it.

Why This Matters Now

Three practical reasons to look at this before your year-end:

1. The carry-forward is not a refund. Disallowed interest is carried forward, but it can only be used in a year when you have capacity under the 30% cap. A highly leveraged business can accumulate disallowed interest for years — a deferred asset on paper, cash cost in reality.

2. Related-party loans add a second layer. If your group funds the UAE entity through shareholder or affiliate loans, the interest faces not only the 30% cap but also transfer pricing scrutiny. The FTA expects related-party financing to be at arm’s length, priced defensibly, and documented. A badly structured intercompany loan can fail both tests at once.

3. Free zone entities are not automatically exempt. The interest limitation sits in the general deduction provisions of the CT law. Qualifying Free Zone Persons should not assume their financing costs escape scrutiny simply because most of their income is exempt.

What To Do Before December 31

• Compute your Tax EBITDA now, not in the filing season scramble. Model the cap, and compare it against your full-year interest forecast.
• Review your group financing structure. Where debt sits within the group changes how much interest the UAE entity can actually use.
• Check the paperwork on related-party loans. Interest benchmarks, loan agreements, and transfer pricing documentation should be consistent before the auditor asks.
• Track carry-forward amounts from any prior period so disallowed interest is not silently forgotten.

The Bottom Line

The interest limitation rule is one of the few CT provisions that can be planned around before year-end — and one of the most expensive to discover late. With Dec 2026 year-ends closing in, a half-day review of your debt structure today can save a painful adjustment letter later.

FSH Financial Consultants helps UAE businesses with corporate tax filings, transfer pricing documentation — including related-party financing — and year-end tax planning. Reach out via fshconsultants.com to have your interest deductibility position reviewed before your financial year closes.