UAE Corporate Tax: Everything You Must Know About Tax Credits

Businesses need to understand how can they claim foreign tax credits since the UAE corporate tax is set to become effective from June 1st 2023. Corporate tax consultants in Dubai can help entrepreneurs claim foreign tax credits to avoid double taxation on their income. Your business in the UAE will be subject to UAE corporate tax on all the income including the overseas income that might have been subject to a tax by another country, which is equivalent to the corporate tax.

This means you may have to face the risk of double taxation when you reside in one nation and receives revenue from any other business in a different country. Double taxation makes the process of carrying out international business unaffordable. It would hinder development if a company is forced to pay taxes in two countries. The UAE corporate tax regime will include the provision of tax credits to avoid the risk of double taxation.

However, businesses need to wait till the government releases the UAE corporate tax law. In this article, we would provide you with basic knowledge on tax credits as stated in the UAE corporate tax public consultation document. You can make further tax decisions once the law comes out with the help of corporate tax advisors in Dubai. Read ahead to know about the provision of tax credits in the UAE corporate tax:

What is a Foreign Tax Credit?

The operations of most businesses in the UAE are spread across various jurisdictions through branches or subsidiaries. A foreign branch would generally constitute a Permanent Establishment (PE) in the foreign country and will be subject to the corporate tax or its equivalent tax on its profits in that foreign country. This will make the business liable to pay corporate tax in that foreign territory. However, under the proposed UAE corporate tax regime, businesses can claim a credit for the tax paid in foreign jurisdiction against the UAE corporate tax liability on the foreign-sourced income that has not been otherwise exempted. This is termed the “Foreign Tax Credit” under the UAE corporate tax regime.

What Will Be the Maximum Tax Credit Available?

The UAE corporate tax public consultation document details the maximum Foreign Tax Credit available. Corporate tax consultants in Dubai can provide in-depth advice on this. The maximum tax credit will be the lower of:

  • The amount of tax that was paid in the foreign jurisdiction; or
  • The UAE Corporate Tax payable on the foreign-sourced income

What’s the Rule for Unused Foreign Tax Credits?

Businesses are not allowed to carry forward or back any unutilised Foreign Tax Credit to other tax periods. The Federal Tax Authority (FTA) will not refund any unutilised Foreign Tax Credit. Corporate tax advisors in Dubai can provide you with further advice on unutilised foreign tax credits.

Tax Credits and Foreign Branch Profit Exemption

Under the proposed UAE corporate tax regime, the UAE resident persons will be taxable in the UAE on their worldwide income. However, certain foreign-earned income, such as that from qualified foreign shareholdings and foreign subsidiaries, will be free from corporate tax. In such scenarios, the UAE companies can opt for either of the following:

  • Claim a foreign tax credit for taxes paid in the foreign branch country; or
  • Elect to claim an exemption for their foreign branch profits

UAE Corporate Tax: What Should a Business Do Now?

The proposed UAE corporate tax regime is set to be effective in a few months, making the businesses start their compliance journey sooner. Preparing early will make the businesses ensure the UAE corporate tax compliance easy and hassle-free. However, as of now, a clear guideline for claiming the tax credit is absent as the UAE corporate tax law is yet to be released.

Corporate tax advisors in Dubai expect the government to include detailed guidelines for claiming the tax credit in the upcoming UAE Corporate Tax Law. It is advisable for businesses to check their corporate structure and other aspects to ensure compliance with the tax. Corporate tax advisors in Dubai can help you with the process.

Consult with the Best Corporate Tax Consultants in Dubai, UAE

The best corporate tax consultants in Dubai such as Jitendra Chartered Accountants (JCA) can help you prepare for the proposed corporate tax regime. JCA can assist companies with robust reviews of their current business operations to assess their readiness for corporate tax. Our services at JCA as Corporate Tax Consultants include:

  • Corporate tax Assessment & Advisory Services (one-time or retainer basis)
  • Corporate tax Compliance Services
  • Corporate tax Agent Services to Represent you to FTA in case of any notices served by FTA