Foreign Tax Credit Under UAE Corporate Tax

Article 33(8) refuses a deduction for tax on income imposed on the Taxable Person outside the State. You do not add foreign corporate tax back as an expense and also credit it. The only domestic relief in the Decree-Law for that foreign tax is Article 47.

Article 46 is a different credit: Withholding Tax Credit for tax deducted under Article 45(4) in the UAE. At the current 0% Article 45 rate, that credit is zero. Foreign Tax Credit is tax paid under the laws of a foreign jurisdiction. Do not file an Article 47 claim for UAE withholding that was never deducted, and do not file an Article 46 claim for Indian or UK tax withheld on a dividend.

Article 1 defines Foreign Tax Credit as tax paid under the laws of a foreign jurisdiction on income or profits that may be deducted from the Corporate Tax due, in accordance with Article 47(2). Paid is the word. An unpaid assessment, a provision, or a deferred tax line in the IFRS accounts is not Article 47.

Article 47(2) is the whole limitation: the Foreign Tax Credit cannot exceed the amount of Corporate Tax due on the relevant income. The Decree-Law does not publish a per-country basket, a sourcing schedule, or a method for spreading the AED 375,000 0% band across foreign and domestic lines. What it does say is that the credit is limited to the UAE tax on the relevant income. Unused credit cannot be carried forward or back under Article 47(3). A high-tax foreign year does not create a voucher for a later UAE year.

Worked numbers below are illustrative inputs. The cap is not. Take relevant foreign-source income of AED 200,000 that sits entirely in the 9% band, and foreign tax paid of AED 30,000. UAE Corporate Tax on that income is AED 18,000. The credit is AED 18,000. The leftover AED 12,000 is not carried forward. If the same AED 200,000 sat entirely in the 0% band, Corporate Tax due on that income would be zero, and so would the credit.

Article 43 requires all amounts to be quantified in dirham, converting at the applicable exchange rate set by the Central Bank of the UAE, subject to any conditions the Authority may prescribe. Convert the foreign tax, and the relevant income, before you apply 47(2). Do not mix year-end IFRS rates with a Central Bank rate the Authority has specified for the return without reading that specification.

Article 44, as replaced, settles Corporate Tax due in a fixed order. First, available Withholding Tax Credit under Article 46. Then, to the extent anything remains, available Foreign Tax Credit under Article 47. Then any credits or incentives a Cabinet decision specifies. Then cash under Article 48, within nine months from the end of the tax period.

The order matters when both credits exist. At the current 0% Article 45 rate, the first slot is empty and Article 47 is the first real reduction. If a Cabinet decision later puts a positive withholding rate on a category of income, Article 46 is applied before Article 47 on the same bill.

Article 47(4) requires the Taxable Person to maintain all necessary records for claiming the credit. The Decree-Law does not publish a document checklist. A foreign assessment, proof of payment, and a working that identifies the relevant income in the UAE computation are the records that can actually be tested. A spreadsheet with no foreign tax receipt is not Article 47(4).

Article 24(2)(c) is the interaction. Where a Resident Person elects not to take into account the income and associated expenditure of its Foreign Permanent Establishments, it also shall not take into account any Foreign Tax Credit that would have been available under Article 47 had the election not been made. Exemption of the PE, or inclusion plus credit. Not both.

A foreign subsidiary is not a Foreign Permanent Establishment. Tax paid by the subsidiary is not the parent's Foreign Tax Credit just because the parent consolidates it in IFRS. The parent may have Article 23 exempt income from a Participating Interest, in which case there is no UAE tax on that income and therefore nothing for Article 47 to credit. Related expenditure of exempt income is already out under Article 28(2)(b). Do not credit foreign tax against UAE tax that Article 22 never charged.

This page does not restate double tax agreement articles. A treaty can allocate taxing rights or require the UAE to credit. The domestic machinery for that credit, in the Decree-Law, is still Article 47. Open the current consolidated treaty text published by the Ministry of Finance for the other state's rate. Do not treat a treaty rate as a second, uncapped UAE credit.

This page does not invent a per-country basket, a method for spreading the AED 375,000 band across foreign lines, or a carry-forward that Article 47(3) refuses. It does not quote a Central Bank circular number for the conversion rate. It does not restate treaty withholding or credit articles. Keep the foreign tax receipt, identify the relevant income in the Article 20 computation, apply 47(2), and lose the rest in the same period.

The inbound Permanent Establishment tests, and the Article 45 0% withholding on a non-resident's State Sourced Income, live on their own pages. Article 47 is the resident's credit for tax paid abroad.

Article 1 of the Decree-Law defines Foreign Tax Credit as tax paid under the laws of a foreign jurisdiction on income or profits, and Article 47 makes that paid tax the only thing that can reduce Corporate Tax due. Three conditions sit inside that definition. First, the levy must be a tax on income or profits imposed by a foreign jurisdiction. The classic candidates are foreign corporate tax on a branch, foreign withholding tax deducted from dividends, interest, royalties or technical service fees paid into the UAE, and foreign tax on foreign-source rental income or capital gains. Second, it must be paid. An accrued provision in the IFRS accounts, a contested assessment with no payment, or a deferred tax asset is not Article 47 — Article 1 says paid, and Article 47(4) ties the claim to records the Authority can test. Third, it must attach to income that is in the UAE Article 20 computation for the period, because Article 47(2) caps the credit at Corporate Tax due on the relevant income.

What does not qualify. Foreign VAT, GST or sales tax paid abroad is consumption tax, not tax on income or profits, and Article 47 is a Corporate Tax provision only. Foreign payroll or social security charges are not income taxes. Penalties and interest layered on top of a foreign income tax assessment are a grey area: the Decree-Law text speaks of tax on income or profits and does not expressly extend the credit to penalties or late-payment interest, so do not claim them without a documented position and professional advice. Tax that is refundable on claim in the foreign jurisdiction is not paid for Article 47 purposes once the refund is recovered. And any levy on income that Chapter Seven has already exempted — for example a dividend from a qualifying Participating Interest under Article 23 — produces no UAE tax on that income, so Article 47(2) caps the credit at zero.

The mechanics below use illustrative inputs; the cap rule itself is Article 47(2). All figures are in AED after Article 43 conversion.

Take a UAE company with foreign branch income of AED 500,000 that sits entirely above the 0% band, and foreign tax paid on that income of AED 60,000. Corporate Tax due on the relevant income at 9% is AED 45,000. The credit is the lower of the two: AED 45,000. Residual UAE Corporate Tax on that income is AED 0, and the unused AED 15,000 of foreign tax is lost in the period under Article 47(3) — it is not refunded and not carried forward.

Change only the foreign tax to AED 20,000. The credit is AED 20,000 and the residual UAE tax is AED 25,000, payable in the Article 44 settlement order. Put the same AED 500,000 of foreign-source income inside the 0% band (for example where the rest of the computation is small and the threshold or Small Business Relief leaves no 9% liability on it) and the credit is AED 0, because there is no Corporate Tax due on the relevant income to credit against.

The arithmetic is deliberately simple because the law is. The disputes in practice are about identifying the relevant income — which dirham of the Article 20 computation is the income the foreign tax attached to — not about the multiplication. Keep a working that maps each foreign tax payment to the income line it relates to, converted at the Central Bank rate, before applying 47(2).

Article 47(4) requires the Taxable Person to maintain all necessary records for claiming the credit. The Decree-Law does not publish a document checklist, but the records that can actually be tested are: the foreign tax assessment or withholding certificate, proof of payment such as bank evidence, the Article 43 conversion working at the Central Bank of the UAE rate, and the mapping of the foreign tax to the relevant income in the Article 20 computation. A spreadsheet with no foreign tax receipt is not Article 47(4), and neither is a claim for tax that was accrued but never paid.

The credit is claimed in the Corporate Tax return for the Tax Period to which the relevant income belongs, and it settles in the Article 44 order — after any Article 46 Withholding Tax Credit, before cash. This page does not publish an EmaraTax click-path: the Authority's return schedules are the live source and should be checked against the current return rather than a static page. Where foreign tax is paid after the UAE return for the period is filed — for example a foreign assessment arriving in year two for year-one income — the Decree-Law does not spell out a self-service adjustment route; treat it as a position to take with professional advice, and keep the payment evidence with the original period's records.