Intercompany Loan Agreement (UAE)

An Intercompany Loan Agreement in the UAE is the contract that documents a loan made between two members of the same corporate group — typically a parent company and its UAE subsidiary, or two sister companies under common ownership — on terms that reflect the UAE Corporate Tax Law's arm's-length and interest-deduction requirements. The agreement records the principal, interest rate, repayment schedule, purpose, security (if any), and the transfer pricing basis for the interest rate, all of which are required for the borrower to claim an interest expense deduction in its UAE Corporate Tax return filed with the Federal Tax Authority.

The UAE introduced Corporate Tax by Federal Decree-Law No. 47 of 2022, effective for financial years commencing on or after 1 June 2023. The law introduced two critical provisions affecting intercompany lending. Article 34 imposes the arm's-length principle on all related-party transactions, including intercompany loans: the interest rate charged must reflect what an independent lender would charge in comparable circumstances. The Federal Tax Authority may substitute an arm's-length rate if the agreed rate does not meet the standard, increasing the borrower's taxable income. Article 30 limits the deductibility of net interest expense — the total interest paid less the total interest received — to the higher of AED 12 million per tax period or 30% of the company's adjusted EBITDA. Excess interest is carried forward up to ten tax periods.

The UAE Civil Code, Federal Law No. 5 of 1985, provides the contractual foundation for loan agreements. Articles 714 through 757 of the Civil Code govern loans and advances, establishing the general rules for principal repayment, interest, and default. Under Article 714, a loan transfers ownership of the principal to the borrower, who is obliged to return an equivalent amount on the agreed date. The Civil Code also contains specific provisions on interest: Article 714 permits interest only if the rate is expressly agreed in the contract, and the Central Bank of the UAE's regulations govern maximum commercial interest rates in the UAE banking sector.

The Commercial Companies Law, Federal Decree-Law No. 32 of 2021, is relevant because a UAE LLC's managers have fiduciary duties to all shareholders, and making or receiving a large intercompany loan — particularly an upstream loan from a subsidiary to a parent — may require board approval or shareholder consent under the Memorandum of Association to confirm that the arrangement is in the best interests of all partners.

For groups with operations in the Dubai International Financial Centre or the Abu Dhabi Global Market, intercompany loans may be governed by DIFC law or ADGM law, applying those free zones' common-law-based contract and financial services frameworks while remaining subject to UAE federal Corporate Tax.

The forms-legal.com Intercompany Loan Agreement (UAE) covers party identification, group relationship, principal amount and currency, interest rate and type, loan term, repayment schedule, purpose, security, Corporate Tax interest deduction acknowledgment, withholding tax position, transfer pricing compliance, and governing law. Available in PDF and Word format.

An Intercompany Loan Agreement in the UAE is needed whenever a member of a corporate group provides a loan to another member and wants to claim an interest deduction, record the liability on the borrower's balance sheet, or comply with the Federal Tax Authority's transfer pricing documentation requirements.

At group formation: When a multinational group establishes a UAE subsidiary, the parent often injects initial capital as a combination of equity (shares) and debt (intercompany loan). The intercompany loan component must be documented if the subsidiary is to deduct the interest cost in its Corporate Tax return. A capital injection treated as a loan without a signed agreement is likely to be reclassified as equity by the Federal Tax Authority, disallowing the interest deduction entirely.

For working capital support: UAE subsidiaries that experience seasonal cash flow shortfalls — common in trading companies, construction businesses, and hospitality operators — may draw on intercompany credit lines from the group treasury. Each drawdown should reference the intercompany loan agreement to maintain the documented audit trail required by the Federal Tax Authority.

For cash pooling: Groups that operate cash pooling structures — where surplus cash from one group entity is pooled and lent to other entities needing funds — must document each notional or physical pool participation as a series of bilateral intercompany loans. The Central Bank of the UAE regulates cash pooling arrangements involving UAE-licensed banks, and the documentation requirements for UAE participants are particularly important.

When refinancing external debt: A UAE subsidiary that has borrowed from a third-party bank (Emirates NBD, First Abu Dhabi Bank, or a UAE branch of an international bank) and is refinancing with intercompany funds needs a signed intercompany loan agreement to evidence the transaction for the Federal Tax Authority and for the company's auditors.

For transfer pricing compliance: Any UAE company with related-party transactions exceeding AED 40 million in a tax period must file the Transfer Pricing Disclosure Form. Intercompany loans are among the most common related-party transactions and require a signed agreement with an arm's-length interest rate as the foundation of the disclosure.

A UAE Intercompany Loan Agreement must contain the following key elements to withstand Federal Tax Authority scrutiny under Article 34 and Article 30 of Federal Decree-Law No. 47 of 2022 and to be enforceable under the UAE Civil Code, Federal Law No. 5 of 1985.

Party identification: Full legal names, jurisdictions of incorporation, and trade licence or registration numbers for both the lender and the borrower. The group relationship must be stated to trigger the transfer pricing rules.

Principal amount and currency: The loan amount in the specified currency (AED, USD, EUR, or GBP). The AED-equivalent value is needed for the Federal Tax Authority's Transfer Pricing Disclosure Form threshold calculations.

Purpose: A clear statement of the business purpose of the loan — working capital, capital expenditure, acquisition financing, or general corporate purposes. An undefined purpose creates a risk that the Federal Tax Authority will treat the loan as a constructive dividend or an equity injection without a deductible interest component.

Arm's-length interest rate: The agreed interest rate with an explicit statement that it has been determined on an arm's-length basis consistent with Article 34 of Federal Decree-Law No. 47 of 2022. The benchmarking methodology (EIBOR-based, SOFR-based, or comparable transaction analysis) should be documented in a supporting transfer pricing memorandum.

Interest deduction limitation acknowledgment: A clause acknowledging that the borrower is aware of the Article 30 limitation (AED 12 million or 30% of EBITDA) and that excess interest will be carried forward rather than currently deducted — to demonstrate that the parties entered the arrangement with full knowledge of the UAE tax consequences.

Repayment schedule: Clear repayment dates — whether bullet at maturity, quarterly instalments, or monthly amortisation — with a maturity date that creates a genuine credit obligation rather than an indefinite balance that might be recharacterised as equity.

Security: Whether the loan is secured or unsecured, and if secured, a description of the collateral and the perfection method under UAE law.

Governing law and dispute resolution: Dubai Courts, Abu Dhabi Judicial Department, DIAC arbitration, or DIFC Courts, with the choice consistent with the jurisdictions of the parties and the location of any security.

Transfer pricing documentation reference: A commitment by both parties to maintain transfer pricing documentation consistent with Ministerial Decision No. 97 of 2023 and to complete the Transfer Pricing Disclosure Form where required. The forms-legal.com Intercompany Loan Agreement (UAE) assembles all these elements in a transfer-pricing-compliant, Federal Tax Authority-aligned format.

Completing a UAE Intercompany Loan Agreement begins with the parties section. Enter the lender's full legal name and jurisdiction — if the lender is a BVI or Cayman holding company, state that jurisdiction; if the lender is another UAE entity, state its emirate and trade licence number. Enter the borrower's full legal name, trade licence number, and emirate. State the group relationship — parent-to-subsidiary, subsidiary-to-parent (upstream), or sister companies — because the transfer pricing analysis required by the Federal Tax Authority depends on the direction and structure of the loan.

In the loan terms section, enter the principal amount in the chosen currency. For AED loans, the AED amount is entered directly. For USD loans, enter the USD principal and note the AED equivalent for disclosure purposes. Enter the annual interest rate and select the interest type — fixed or variable (EIBOR-plus-margin). If using EIBOR-plus-margin, define the EIBOR reference (typically 3-month EIBOR) and the agreed margin in basis points. Document the arm's-length basis for the rate in a separate benchmarking memorandum to be retained with the agreement.

Enter the loan term (for example '3 years from the drawdown date') and the drawdown date. Select the repayment schedule — bullet repayment at maturity is the simplest for administrative purposes; quarterly or monthly amortisation is appropriate for operational loans being repaid from operating cash flows.

For the purpose field, describe the business use of the loan specifically — 'capital expenditure on the UAE entity's new warehouse and racking equipment' is more credible than 'general corporate purposes,' and a specific purpose is more defensible before the Federal Tax Authority.

In the security and tax section, confirm whether any security is being provided and address the Article 30 interest deduction limitation — tick 'Yes' to confirm the borrower has acknowledged the limitation. Enter the withholding tax position — for most UAE-resident borrowers paying to a non-UAE lender, the current Federal Tax Authority position is that no UAE withholding tax applies to interest, but this should be confirmed with a UAE tax adviser.

Select the governing law. Dubai Courts jurisdiction is appropriate for Dubai-registered entities; Abu Dhabi Judicial Department for Abu Dhabi entities; DIAC arbitration for cross-border arrangements where a neutral arbitral forum is preferred. Sign, date, and retain for seven years.

The legal requirements for a UAE Intercompany Loan Agreement flow from the Corporate Tax Law, the UAE Civil Code, and the anti-money-laundering framework.

Arm's-length requirement (Article 34, Federal Decree-Law No. 47 of 2022): The interest rate and other terms of the intercompany loan must reflect arm's-length pricing. The Federal Tax Authority may adjust the interest rate and disallow the non-arm's-length component if the agreed rate is too low (benefiting the borrower at the expense of taxable income) or too high (inflating the interest deduction). Transfer pricing documentation must be maintained for seven years.

Interest deduction limitation (Article 30, Federal Decree-Law No. 47 of 2022): Net interest expense above the higher of AED 12 million or 30% of EBITDA is not currently deductible. Excess interest is carried forward up to ten tax periods. The borrower must model this limitation before finalising the loan amount and interest rate, to understand the actual after-tax cost of the financing.

Transfer Pricing Disclosure Form (Ministerial Decision No. 97 of 2023): Taxpayers with related-party transactions exceeding AED 40 million must complete the Transfer Pricing Disclosure Form. Intercompany loans are typically included in the disclosure.

UAE Civil Code obligations (Federal Law No. 5 of 1985): The loan agreement is a contract governed by the Civil Code. Interest must be expressly agreed in the contract. Where the contract is governed by UAE law and enforced before the Dubai Courts or the Abu Dhabi Judicial Department, the Commercial Transactions Law, Federal Decree-Law No. 50 of 2022, may also apply to interest calculation and enforcement.

Anti-money laundering (Federal Decree-Law No. 20 of 2018 and Cabinet Resolution No. 10 of 2019): UAE banks processing intercompany loan disbursements and repayments are required to verify the documented basis for the transaction. A signed intercompany loan agreement, together with board resolutions approving the borrowing, is standard supporting documentation for payments processed through UAE corporate bank accounts at Emirates NBD, First Abu Dhabi Bank, and other UAE-licensed banks.

Record retention (Tax Procedures Law, Federal Decree-Law No. 28 of 2021): All Corporate Tax documents, including intercompany loan agreements and supporting transfer pricing documentation, must be retained for seven years.

Common mistakes in a UAE Intercompany Loan Agreement begin with using a non-arm's-length interest rate without benchmarking documentation. Groups that agree a rate of 0% or 1% — well below UAE market rates — to minimise the interest cost at the borrower level expose themselves to a Federal Tax Authority adjustment that increases taxable income, with associated penalties under the Tax Procedures Law, Federal Decree-Law No. 28 of 2021.

Ignoring the Article 30 interest deduction limitation is a planning error that can be costly. A borrower that incurs AED 20 million in intercompany interest expense but has only AED 5 million in EBITDA will be unable to deduct AED 18.5 million (the amount above 30% of EBITDA × AED 5 million = AED 1.5 million). The excess is carried forward, but it ties up cash that the Federal Tax Authority will tax at 9% before the deduction is eventually utilised.

Not documenting the loan's business purpose is a red flag for transfer pricing audits. An intercompany loan without a stated purpose may be recharacterised as a constructive dividend — particularly if the borrower's business activities do not require the amount borrowed — with the result that the entire 'interest' is disallowed and the principal may be treated as a deemed distribution subject to Corporate Tax at the UAE parent level.

Failing to make actual drawdowns through documented bank transfers means the loan exists only on paper. The Federal Tax Authority expects to see bank records showing the transfer of funds from the lender's account to the borrower's account, consistent with the agreement terms. A 'loan' that is simply a credit on the intercompany account without a real cash movement is vulnerable to being disregarded for Corporate Tax purposes.

Omitting a repayment schedule or using an indefinite term — 'repayable on demand' without a fixed outside date — risks the loan being treated as a permanent equity contribution rather than genuine debt. The Federal Tax Authority's guidance indicates that debt must have the features of genuine debt, including a fixed or determinable repayment date, to support an interest deduction.