Interest expense limit
We pay a lot of bank interest. Is all of it deductible?
The situation
Net interest is deductible up to 30 percent of tax-adjusted EBITDA, with a de minimis amount. Excess can be carried forward for 10 periods.
The law
- Art 30, Federal Decree-Law 47 of 2022: General interest deduction limitation at 30 percent of EBITDA
What it means for you
Small businesses often fall under the de minimis amount set by Cabinet decision, so all interest is allowed. Example for a larger case: EBITDA AED 20 million and net interest AED 8 million; the cap is AED 6 million, so AED 2 million is carried forward. Related party loans must also be at arm's length.
What to do
- Compute net interest expense.
- Compute tax-adjusted EBITDA.
- Apply the 30 percent cap if above the de minimis amount.
- Record carried-forward interest.
Check the current de minimis amount in the Cabinet decision before applying the cap.
We can do this for youStandard Corporate Tax return: taxable income computation at 0% and 9%, adjustments, losses and payment: AED 4,750