UAE Corporate Tax Interest Deductions UAE small businesses have been given clarity on UAE corporate tax interest deductions with the Ministry of Finance news. These rules are vital for startups and SMEs that need to comply and work around debt-financing strategies.
The UAE’s revamped corporate tax policy, launched in 2023, has been designed in a way that it aims to conform to international practices and is supportive of small business. This article is intended to help your business understand the interest deductions for UAE corporate tax, and how they will affect your daily finance activities, financial reporting, and strategic planning.
What Is The UAE Corporate Tax Interest Deduction?
UAE Corporate Tax Interest Deductions Under the new tax laws, interest is tax-deductible for business loans, potentially reducing the cost of borrowing. This deduction applies if the borrowed money is to be used to produce a business income that is taxable. 
Nevertheless there are interest restrictions based on thinness of capitalization for financing by related parties or for excessive debt financing in line with the OECD BEPS (Base Erosion and Profit Shifting) recommendations. The complete cabinet decision on this can be accessed from the UAE Ministry of Finance website.
Fundamental Rule: Interest in excess of 30% of EBITDA (earnings before interest, tax, depreciation and amortisation) maybe de-ductible unless there are exceptions.
Who Stands to Gain from Tax Transparency in BOTSWANA?
The new clarifications help small businesses, especially those in the UAE. There were many entrepreneurs and SMEs that did not know if they could deduct the interest paid on financing (especially if it was for growth or working capital). And now the Federal Tax Authority of the UAE has clarified how this is going to work:
Small business with turnover below AED 3 million could be eligible for simplified compliance under the Small Business Relief initiative.
Companies can deduct interest costs up to a level of a safe harbour (AED 12m per annum).
For a more detailed view, please read the corporate tax guide by the Federal Tax Authority (FTA).
Looking for tailored guidance? Visit our Corporate Tax Consulting Services page to ensure that you are compliant.
How to Get Your Business Ready for Tax Filing
Here’s what small business owners can do to prepare:
Review loan agreements when necessary: Make sure interest-bearing loans are used for business purposes.
Track EBITDA limits: Continually estimate your interest deduction with this definition in mind.
Keep clear documentation: Have contracts, bank statements and proof of what the money was used for ready for audit.
Seek out experts: Engaging the services of a tax consultant or advisor in the UAE can aid in the identification of all possible deductions and compliance with the law.
Oh, and be sure to check out our UAE Business Tax Filing Checklist for a step-by-step guide.
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Why It Matters for UAE SMEs
Knowing about UAE corporate tax interest deductions is important as the UAE moves to an open, structure based taxation system. Between the penalties on non-compliance and the ability to lower your tax bill through policy based deductions, the “who, what, when and how” of deductibility can have a drastic effect on your bottom line.
Bonus Tip: Stay out of related-party debt traps. If you’re funded through shareholders or related entities, make sure transfer pricing rules are followed.
Final Thoughts
The UAE is developing a business-friendly, internationally aligned tax system. The UAE rules for corporate tax interest deductions might appear complex, but if strategically utilized, they provide small businesses with an opportunity to better plan and save cash on their taxes.
Keep an eye on the UAE Ministry of Finance News and speak with your business accountant for business-related issues.
To find more guides on UAE business finance, check out our Business Tax Resources page.
