A UAE taxable person that is not a bank, insurance provider, or natural person has Net Interest Expenditure of AED 20 million and tax-adjusted EBITDA of AED 50 million for a tax period. Under UAE Corporate Tax Law's General Interest Deduction Limitation Rule (Article 30), how much Net Interest Expenditure can this taxable person deduct in the tax period?
- AED 15 million (30% of the AED 50 million EBITDA), since the AED 12 million de minimis figure is a floor that does not reduce a higher EBITDA-based deduction capacity
- AED 12 million only, because the AED 12 million de minimis figure is an absolute cap that always overrides the 30%-of-EBITDA calculation
- AED 20 million in full, because the entire Net Interest Expenditure is below the taxable person's total EBITDA of AED 50 million
- AED 6 million, calculated by applying 30% to the AED 20 million of Net Interest Expenditure rather than to EBITDA
Why A? And why not the others?
Correct answer: A. AED 15 million (30% of the AED 50 million EBITDA), since the AED 12 million de minimis figure is a floor that does not reduce a higher EBITDA-based deduction capacity
Article 30's General Interest Deduction Limitation Rule allows a taxable person to deduct Net Interest Expenditure up to the greater of 30% of tax-adjusted EBITDA or AED 12 million for the tax period. Here 30% of AED 50 million EBITDA is AED 15 million, which is greater than the AED 12 million de minimis figure, so AED 15 million is deductible and the remaining AED 5 million is disallowed for the period (though it may be carried forward). Option B is wrong because the AED 12 million figure is a minimum safe-harbour amount that always remains deductible even without meeting the 30% test, not a ceiling that caps deductions once the 30%-of-EBITDA figure is higher. Option C is wrong because deductibility is capped at the greater of the two Article 30 figures, not simply by comparing total interest to total EBITDA. Option D is wrong because the 30% rate is applied to EBITDA, not to the Net Interest Expenditure itself.
Source: UAE Federal Decree-Law No. 47 of 2022, Article 30 (General Interest Deduction Limitation Rule)