A UAE company can claim a foreign tax credit for income tax it has already paid abroad on the same income, under Article 47 of Federal Decree-Law No. 47 of 2022. The credit is the lower of the foreign tax paid or the UAE corporate tax due on that income, per the FTA's Taxation of Foreign Source Income guide.
TL;DR
- Foreign tax credit is available under Article 47 of Federal Decree-Law No. 47 of 2022 for tax paid abroad on income that is also taxable in the UAE.
- The credit is capped at the lower of the foreign tax paid or the UAE tax due on that income.
- Credit is computed income-by-income — you can't cross-credit between different foreign income streams.
- Double Taxation Agreements can give relief the domestic credit doesn't — treaty terms prevail where they differ.
Can a UAE business claim tax credit for taxes paid abroad?
Yes — Article 47 of Federal Decree-Law No. 47 of 2022 gives a foreign tax credit for income tax paid under a foreign jurisdiction's law on income that is also taxable in the UAE. The FTA's Taxation of Foreign Source Income guide (November 2023) explains that the credit is the lower of two figures: the foreign tax actually paid, or the UAE corporate tax due on that same income.
| Foreign tax scenario | Tax credit treatment in UAE (2026) | Governing rule |
|---|---|---|
| Tax paid abroad on income also taxable in the UAE | Credit equals the lower of foreign tax paid or UAE tax on that income | Article 47(2) |
| Tax on exempt income (participation exemption or foreign PE) | No credit — income is already excluded from the UAE base | Article 22 and Article 24 |
| Taxes on income taxed at a rate below UAE's | Credit limited to UAE tax on that income; excess is unutilised | Article 47(2) and Article 47(4) |
| Tax paid on income from a different source | Computed income-by-income; no cross-crediting between sources | FTA guide section 8.3.3 |
Which taxes qualify for the foreign tax credit
The foreign tax must be of a similar character to corporate tax — a tax on income or profits. The FTA guide sets out the conditions a foreign tax must satisfy before the credit applies, and confirms the credit is available for taxes paid in the foreign jurisdiction on the same income that the UAE is taxing.
The credit does not apply to taxes on income that is already exempt from UAE corporate tax. If a foreign dividend qualifies for the participation exemption under Article 23, or a foreign permanent establishment's income is excluded under Article 24, the foreign tax paid on it gets no credit — because there is no UAE tax liability on that income to relieve.
How the credit is calculated
The credit is computed income-by-income. Each foreign source of income is treated separately, and the credit for that source is capped at the UAE corporate tax due on it. Where foreign tax exceeds the UAE tax on the same income, the excess is unutilised and is not refunded or carried to another income stream.
The FTA guide's worked example shows the arithmetic: a company with AED 1,000,000 of foreign source income, AED 200,000 of expenditure and AED 300,000 of foreign tax paid, the UAE tax due on the AED 800,000 taxable income is AED 38,250. The credit is capped at AED 38,250 — not the full AED 300,000 foreign tax paid — leaving AED 261,750 unutilised.
When a Double Taxation Agreement changes the answer
Where a Double Taxation Agreement exists between the UAE and the foreign country, the treaty terms apply in place of the domestic credit rules where they differ — Article 66 of the Corporate Tax Law makes the treaty prevail. The FTA guide explains that DTAs often give better relief than the domestic credit, for example where withholding tax rates are capped by treaty and the domestic credit calculation would give a lower relief.
What to document before claiming the credit
The FTA guide's section 8.6 sets out the documentation the credit rests on: evidence of the foreign tax paid, proof the income is included in UAE taxable income, and a computation showing the income-by-income calculation. Claim the credit only on taxes actually paid — accruals don't count until paid, per the FTA guide's definition of 'paid' in section 8.1.2.
FAQ
Can a UAE business claim tax credit for taxes paid abroad in 2026?
Yes — Article 47 of Federal Decree-Law No. 47 of 2022 gives a foreign tax credit for income tax paid in a foreign jurisdiction on income also taxable in the UAE, capped at the lower of the foreign tax or the UAE tax on that income.
How is the foreign tax credit calculated in the UAE?
Income-by-income: for each foreign source of income, the credit is the lower of the foreign tax paid or the UAE corporate tax due on that income. Excess foreign tax is unutilised and can't cross-credit other income streams.
Does a Double Taxation Agreement change the foreign tax credit?
Yes — where a DTA exists, its terms prevail over the domestic credit rules under Article 66 of the Corporate Tax Law, and often give better relief, such as capped withholding tax rates.
Can I claim a foreign tax credit on exempt income?
No. If the foreign dividend or PE income is already exempt under Article 22 or Article 24, there's no UAE tax liability on that income, so there's nothing to credit the foreign tax against.
When is foreign tax considered 'paid' for the credit?
When it is actually paid under the foreign jurisdiction's law — accruals don't count until paid, per the FTA's Taxation of Foreign Source Income guide, section 8.1.2.
