The purpose of such restrictions is to discourage excessive debt financing and ensure that interest payable will be deductible only in cases where the company has a commercial need to borrow funds.

The general rule sets a limit on the deduction of interest for the purposes of taxation of the company, which is calculated as the largest of the following values:

• 30% of the taxpayer's adjusted profit before interest, taxes, depreciation and amortization (EBITDA);

• 12 million dirhams UAE.

The UAE Income Tax Law also provides for a special rule. Interest deduction is prohibited if the loan was received from a related party for the following transactions:

⁃ рayment of dividends and other distribution of profits to Related party

⁃ repurchase of shares, shares, and returnable capital to a related party

⁃ contribution to the capital of a related party ⁃ purchase of shares or shares from a person who becomes related after the acquisition

The law also provides for a special rule. Interest deduction is prohibited if the loan was received from a related party for the following transactions:

• payment of dividends and other distribution of profits to a Related party;

• repurchase of shares, shares, return of authorized capital to a Related party;

• contribution to the capital of a Related party;

• purchase of shares or shares from a person who is or becomes a Related Party after the acquisition.

If the taxpayer can demonstrate that tax advantages are not the main purpose of obtaining a loan, then the cost of paying interest for the above purposes is deductible.

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