UAE announces maximum net interest rate cap for corporate tax

UAE announces maximum net interest rate cap for corporate tax

The UAE’s Ministry of Finance on Tuesday set out the maximum cap of interest that can be deducted by companies undertaking a business or business activity in the UAE, under the corporate tax law.

The ministry announced that the net interest expenditure that can be deducted is capped at the higher of 30 per cent of adjusted earnings before interest, tax, depreciation, and amortisation (Ebitda) or a safe harbour amount of Dh12 million.

It further clarified that tax groups with members who are banks and insurance providers must exclude these members’ income and expenditure when determining the 30 per cent Ebitda threshold.

The ministry and the Federal Tax Authority (FTA) have issued a number of clarifications about the corporate tax ahead of its implementation on Thursday, June 1, 2023. The UAE will levy a nine per cent corporate tax on profits of companies earning more than Dh375,000 as well as individuals generating a turnover of more than Dh1 million.

These new regulations are part of three new Ministerial Decisions issued for the purposes of corporate tax. These include Ministerial Decision No 125 of 2023 on Tax Grouping, Ministerial Decision No 126 of 2023 on General Interest Deduction Limitation Rule, and Ministerial Decision No 127