How Article 30's Interest Deduction Limitation Rule Affects Your UAE Corporate Tax

One rule catches out more highly geared UAE businesses than almost any other at filing time: the interest deduction limitation. If your business carries significant borrowings, Article 30 of Federal Decree-Law No. 47 of 2022 limits how much interest you can deduct when calculating taxable income — capping deductible net interest at the greater of AED 12,000,000 or 30% of adjusted EBITDA. This guide explains how the 30% EBITDA rule works, when the AED 12 million safe harbour applies, and how disallowed interest carries forward. If you would rather have it computed and filed for you, our UAE corporate tax team runs the full Article 30 calculation as standard for any business with material debt.

What is the General Interest Deduction Limitation Rule (Article 30)?

The General Interest Deduction Limitation Rule (GIDLR) is set out in Article 30 of Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses. It limits how much interest a business can deduct when calculating its taxable income for UAE corporate tax. The core rule is that net interest expenditure is deductible up to 30% of the taxable person's adjusted EBITDA for the tax period, excluding any exempt income under Article 22.

The rule was detailed further in Ministerial Decision No. 126 of 2023, which defines the treatment of interest expense and income, and the FTA has since published a dedicated corporate tax guide with worked examples [VERIFY: MD date & FTA guide reference]. It aligns the UAE with the OECD's BEPS Action 4 framework, which targets base erosion through excessive interest deductions — without a cap, a business could load up on debt purely to inflate deductions and cut its tax bill.

In practice, if your business has borrowings of any kind — bank loans, shareholder loans, Islamic finance facilities or inter-company debt — you must check whether the GIDLR bites when preparing your return. Get it wrong and you either claim too much (risking FTA penalties) or too little (overpaying tax). Our corporate tax filing service runs the full Article 30 computation as standard for any business with material debt.

When does the AED 12 million safe harbour apply?

Article 30 works as a two-tier system, and the first tier is a generous safe harbour. If your net interest expenditure for the tax period does not exceed AED 12,000,000, the 30% EBITDA limitation does not apply at all — you can deduct the full amount of your net interest cost with no restriction and no further calculation.

This is why the vast majority of UAE SMEs and mid-market businesses are simply unaffected by the GIDLR. It is a rule aimed at businesses with substantial debt financing, not the typical trading company whose annual interest cost is a fraction of that threshold. If you are comfortably below AED 12M in net interest, you can stop at this step.

“Net” is the key word: it is your interest expense reduced by any taxable interest income for the same period. A business with large gross borrowings but significant interest income of its own may sit below the threshold even when its headline finance costs look high.

How does the 30% adjusted EBITDA cap work?

Once your net interest expenditure exceeds AED 12 million, the second tier applies and your deduction is capped. You may deduct the greater of AED 12,000,000 (the fixed minimum) or 30% of your adjusted EBITDA — whichever figure is higher becomes your ceiling for the period. Any net interest above that ceiling is disallowed for the current year.

Because you always keep at least the AED 12,000,000 minimum, the cap can never fall below that floor even if 30% of EBITDA is lower. The disallowed amount is not forfeited: it can be carried forward for up to 10 tax periods and deducted in a future year, subject to the same limitation in each of those years.

The practical challenge is that the 30% is applied to a tax-adjusted EBITDA figure, not the EBITDA in your management accounts. Getting that adjusted figure right is where most of the technical work — and most of the errors — sit.

How do you calculate adjusted EBITDA for the GIDLR?

Adjusted EBITDA under the UAE Corporate Tax Law is not the same as accounting EBITDA. You build it from your taxable income, add back the items the law specifies, exclude exempt income, and floor the result at zero. The table below sets out the mechanics.

The 30% cap is then applied to this adjusted figure. If 30% of adjusted EBITDA works out below AED 12 million, you still get the AED 12 million minimum deduction. And because a negative adjusted EBITDA is treated as AED 0, a loss-making year does not create a negative cap — it simply means your deduction is limited to the AED 12 million floor.

Worked examples: how does Article 30 apply?

The three scenarios below show the rule at each tier — below the threshold, above it with headroom, and above it with a disallowance that carries forward. All figures are in AED.

Scenario 1 — below the AED 12M threshold

Company A has net interest expenditure of AED 8,000,000. Because that is below AED 12 million, the GIDLR does not apply; Company A deducts the full AED 8,000,000 with no further calculation.

Scenario 2 — above AED 12M, EBITDA cap gives headroom

Because net interest (AED 20M) is below the 30% cap (AED 27M), the full amount is deductible and nothing is carried forward.

Scenario 3 — disallowed interest with carry-forward

Here net interest (AED 25M) exceeds the cap (AED 18M), so AED 7,000,000 is disallowed this year and carried forward to be deducted within the next 10 tax periods, subject to the same GIDLR test each year.

What counts as “interest” under the Corporate Tax Law?

The definition of interest for the GIDLR is broader than the IFRS definition, so businesses are often caught out by items they did not think of as “interest.” In substance, it captures any cost of raising or using finance. The following are all included in net interest expenditure:

Because the net figure offsets taxable interest income, businesses with treasury income should map both sides carefully. If your finance arrangements are complex, our corporate tax consultants can classify each item correctly before it feeds the Article 30 test.

How does the 10-year carry-forward of disallowed interest work?

Any net interest expenditure disallowed under Article 30 does not disappear. It may be carried forward and deducted in the subsequent 10 tax periods, in the order in which it was originally incurred. For businesses with cyclical earnings or heavy up-front capital expenditure, this carry-forward is a genuine planning opportunity rather than a mere technicality.

The mechanics matter, and they are easy to get wrong across multiple years. The key rules are: carried-forward interest is added to the current period's net interest when calculating that year's deduction; the same 30% EBITDA / AED 12M limitation applies every year; the oldest disallowed amounts are deducted first (FIFO); and anything not used within 10 tax periods is lost permanently.

Accurate, year-on-year tracking of the carry-forward pool is essential — miss it and you either lose relief you were entitled to or claim it in the wrong order. Our CT filing service maintains a running carry-forward schedule for every client with a disallowance.

Who is exempt from the GIDLR?

Article 30 does not apply to everyone. Certain taxable persons are carved out entirely because interest is central to their business model or because they fall outside the policy intent. The table below summarises who is exempt.

How are pre-December 2022 loans and capitalised interest treated?

Two special cases regularly trip businesses up: grandfathered loans and capitalised interest. Historical financial liabilities — debt whose terms were agreed before 9 December 2022 — receive special treatment: the net interest attributed to them is exempt from the GIDLR, provided the terms were fixed before that date, no material modifications have been made since, and adequate documentation supports the historical nature of the liability. This recognises that businesses entered these arrangements before the Corporate Tax Law existed.

Capitalised interest — for example construction finance added to an asset's cost — is not deducted in the year incurred because it is capital in nature; instead it is recovered through depreciation over the asset's useful life. For GIDLR purposes, only the relevant annual portion of that capitalised interest (the amount inside each year's depreciation) is tested against the 30% EBITDA cap, and the depreciation add-back in the EBITDA calculation must be reduced by that recharacterised interest.

If the asset is disposed of before the capitalised interest has been fully depreciated, the remaining balance must be brought into the net interest calculation in the year of disposal. These interactions are subtle, and documentation is everything — which is why capitalised interest is one of the most common areas we are asked to review.

Article 30 vs Article 31: how do the two interest rules work together?

The Corporate Tax Law has two separate interest limitation rules, and they operate in sequence. Article 31 is the specific rule: it tests related-party interest against the arm's length principle. Article 30 is the general rule: the 30% EBITDA / AED 12M cap on remaining net interest. Article 31 is applied first, and any interest it disallows is excluded from the Article 30 calculation — so you never double-count the same disallowed interest.

Because Article 31 hinges on the arm's length standard, businesses with cross-border or inter-company debt should align this analysis with their transfer pricing position. The two are closely linked, and inconsistent treatment is a red flag on FTA review.

What are the most common GIDLR mistakes to avoid?

Across the corporate tax returns we file for geared businesses, the same Article 30 errors recur. Each one either overstates a deduction (inviting penalties) or understates it (overpaying tax) — and most are avoidable with disciplined computation and documentation.

Key terms in this guide