Limitation of Deduction of Interest under UAE Corporate Tax
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May 17, 2022
|3 mins read
Limitation of Deduction of Interest under UAE Corporate Tax
- Tax Base Erosion
- Deductible interest payments, where the recipient of the interest income is not taxed (e.g., an individual shareholder or a Free Zone Person)
- Net interest expense can be deducted to 30% of a business’ earnings before interest, tax, depreciation, and amortisation (EBITDA), as adjusted for CT purposes
Exceptions
Related Party – Pre-existing relation with UAE business through
- Businesses may be allowed to deduct interest up to safe harbour
- NA to banks, insurance businesses, and certain other regulated financial services entities
- Consolidated group to apply a rules by reference to group’s overall position
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Related Party Interest
- Arm’s length interest ;
- Used for intra-group transactions (e.g., to pay a dividend or capitalise a group company) : –
- Valid commercial reason – Related party lender is subject to CT (or an equivalent tax) of at least 9% on the interest income earned.
Non-deductible expenses
- Related party payments made to a Free Zone Person that is taxed at 0% – Mainland Branch ?
- 50% of expenditure to entertain customers, shareholders, suppliers and other business partners
- Administrative penalties, recoverable VAT, and donations paid to unapproved charity
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