How Foreign tax credits work under the UAE Corporate Tax Law

Hey there! Let’s talk about how foreign tax credits work under the UAE Corporate Tax Law.

I’ll share a couple of practical examples to make it easier to understand. At the end, I'll explain how Fastlane can help with corporate tax compliance, especially with managing foreign tax credits.

How is Corporate Tax Liability Calculated?

First off, corporate tax in the UAE is calculated based on your taxable income.

Here's a quick breakdown:

 - Taxable Income up to AED 375,000: 0%

 - Taxable Income above AED 375,000: 9%

So, if your taxable income is AED 500,000, you only pay the 9% tax on the amount above AED 375,000, which is AED 125,000.

What Are Foreign Tax Credits?

Foreign tax credits help you avoid double taxation on income earned outside the UAE. If you've already paid tax on the same income in another country, you can use that as a credit to reduce your UAE corporate tax liability.

Example 1: Foreign Tax Credit Application

Let’s say C LLC, a UAE resident company, earns AED 1,500,000 from its business in another country and pays AED 300,000 in foreign taxes.

At the end of the tax period, C LLC’s UAE corporate tax liability is AED 1,000,000.

However, the foreign tax credit is limited to the amount of UAE tax that would have been paid on the foreign income (AED 1,500,000 x 9% = AED 135,000). So, C LLC can reduce its UAE tax liability by AED 135,000, bringing it down to AED 865,000. The excess AED 165,000 paid abroad cannot be carried forward or refunded.

Requirements for Withholding Tax Credit

Withholding tax is deducted at the source for certain cross-border transactions. While the UAE currently has a 0% withholding tax rate, if this changes in the future, any withholding tax deducted on the same income can be used to reduce your UAE corporate tax liability.

Impact of Double Taxation Agreements (DTAs)

The UAE has agreements with various countries to prevent double taxation. These agreements typically provide methods to eliminate double taxation, either by exempting the income or by allowing a credit for taxes paid abroad. The terms of these agreements take precedence over the UAE Corporate Tax Law if there's a conflict.

How Fastlane Can Help with Corporate Tax Compliance

Navigating foreign tax credits and corporate tax compliance can be tricky, but that's where Fastlane comes in.

We offer a 'Smart Compliance' solution that helps you manage your corporate tax obligations smoothly. Our services include:

 - Ensuring you qualify for relevant tax credits.

 - Managing and optimizing your tax filings.

 - Keeping track of foreign taxes paid and applying appropriate credits.

 - Providing expert advice on leveraging DTAs to minimize tax liability.

With Fastlane, you can focus on growing your business while we handle the complexities of corporate tax compliance. Schedule a free consultation with us to see how we can help your business thrive in the UAE.