Guidance on interest deduction limitation rules 

The FTA has recently published a new CT Guide on interest deduction limitation rules encompassing guidance to taxable persons in UAE.

The guide has elaborated the following key aspects –

1.Expansion of the definition of interest – the term interest shall have its basis in the Ministerial Decision No. 126 issued by the Ministry.

2.carry forward and set off of unutilised net interest expense –

• Carry forward permissible for ten subsequent years 
• Such utilisation is allowed on a FIFO basis .
• If SBR is claimed during a tax period – any disallowed interest carried forward can be utilised in the tax period in which the SBR election is not made.
• If a non-resident juridical person (such as Permanent
  Establishment in the UAE) has ceased to be a taxable person and has de-registered, then any unutilized net interest expenses will be forfeited once the taxable person has de-registered and the
  same cannot be carried forward
• For taxpayers using cash basis of accounting – the interest expense should be considered subject to general interest deduction
  limitation rules once such interest expense has been paid.
•  Loans taken prior to 9th December 2022 – the interest deduction limitation rules are not applicable

3.Interest expense incurred subject to transfer pricing provisions under UAE CT Law – in such cases interest expense shall be allowed as a deduction subject to the amount which is as per the ALP provisions under Article 34 of the UAE CT Law .

4. Non applicability of such interest deduction limitation rules – these rules are not applicable in the below cases –
 

• Insurance providers, banking institutions
•  Natural Persons engaged in business activities in UAE

5. Pertinent points to be kept in mind – 

• Such interest expenses pertaining to QIP shall be 100% deductible 
• Natural persons undertaking business activities through a juridical person such as a one person company would be subject to these rules.

Since it is complicated to navigate the interest deduction rules, thus it is advisable to undertake appropriate interest calculations within the ambit of UAE CT Law provisions .
 

Disclaimer : The Content offer general guidance and should not be considered legal, financial, or tax advice. Consult qualified professionals for personalized guidance. While efforts have been made to ensure accuracy, no guarantee is provided for completeness or applicability to individual situations. Users are responsible for interpreting and actions based on this information, at their own risk.    

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