The UAE Federal Tax Authority (FTA) issued a corporate tax guide (CTGIDL1) on 7 April 2025, outlining the rules for interest deduction limitations. The guide clarifies how businesses should calculate interest expenditures when determining taxable income.
Key details include the definition of interest under the Corporate Tax Law and the application of both General and Specific Interest Deduction Limitation Rules. It also covers how disallowed net interest expenditures can be carried forward and utilized.
The document specifies when income and expenditures from hybrid instruments are classified as interest. It highlights the importance of the arm’s length principle in business interest deductions and provides guidance on how these rules interact with other provisions of the UAE Corporate Tax Law.
Additionally, the guide addresses the Specific Interest Deduction Limitation Rule to prevent base erosion and the General Interest Deduction Limitation Rule for broader business entities. It also outlines the main purpose test to assess the applicability of these rules.
