General Interest Deduction Limitation Rule

General Interest Deduction Limitation Rule

Under UAE CT Law

On 30 May 2023, the Ministry of Finance issued Ministerial Decision No. 126 of 2023, providing a detailed guidance on the computation of deductions with respect to interest expenditure incurred by a taxable person. Below, we have highlighted the key elements of this Decision.

What is treated as interest?

• Finance-related expenses

• Finance elements of lease payments

• Interest on Islamic financial instruments

• Capitalized Interest

• Forex gains/ losses on interest

• Interest on financial derivative instruments

Interest deduction limitation

Deductible interest expense

• Deductible interest expense = Net interest expense * 30% of accounting EBITDA excluding exempt income or AED 12 million - whichever is higher.

Net interest expense

• Net interest expense = (Interest expense of the tax period + brought forward net interest expense)

De Minimis Rule

> AED 12 million

• Interest deduction limitation does not apply if the net interest expense exceeds AED 12 million.

< AED 12 million

• Net interest expense is fully deductible if below AED 12 million.

Exemption

• Banks

• Insurance Provider

• Natural Persons

• Qualifying infrastructure projects

How can Middle East Corporate Service's Helps?

• Conduct an analysis of the current financing structure to assess the tax impact, identifying opportunities for deductions and credits available.

• Advising on structuring financing arrangements to maximize tax benefits, minimizing tax liabilities under the relevant tax laws.

• Advising on compliance and document maintenance related to interest deduction to ensuring adherence to the relevant regulations.