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Limitation of Deduction of Interest under UAE Corporate Tax

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May 17, 2022

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3 mins read

Limitation of Deduction of Interest under UAE Corporate Tax

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

Limitation of Deduction of Interest under UAE Corporate Tax - 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

UAE Corporate Tax Consultant

More about  “Interest Deduction Limitation – Exceptions” – Subscribe UAE Corporate Tax Course

Related Party Interest

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

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

More about  “Limitation of Deduction of Interest under UAE Corporate Tax”  – Subscribe UAE Corporate Tax Course

Arinjay Jain

Bio of author

Arinjay is a Chartered Accountant with more than 20 years of post-qualification experience. He worked as Director, in the M&A Tax Division at KPMG in India. Presently, he is advising several MNCs in UAE on Economic Substance Regulations and impact of the UAE Corporate Tax Law on their business and clients across globe on International Tax issues . He is a well recognised Trainer of International Tax and UAE Corporate Tax. The areas of service include the following : - Advise and Compliance relating to International Tax Issues; Advise relating to UAE Corporate Tax Issues; Advise and Compliance relating to UAE Economic Substance Regulations; Advise and Compliance relating to Indian Income Tax Issues; Other connected matters from a Regulatory perspective.

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