Can a UAE company get relief for foreign tax paid?

Article 47 – Foreign Tax Credit 1. Corporate Tax due under Article 3 of this Decree-Law can be reduced by the amount of Foreign Tax Credit for the relevant Tax Period. 2. The Foreign Tax Credit under this Decree-Law cannot exceed the amount of Corporate Tax due on the relevant income. 3. Any unutilised Foreign Tax Credit as a result of Clause 2 of this Article cannot be carried forward or carried back. 4. A Taxable Person shall maintain all necessary records for the purposes of claiming a Foreign Tax Credit. Chapter Fourteen – Payment and Refund of Corporate Tax

[lower of the following: • AED 1,000 (being the actual amount of foreign tax paid in the foreign jurisdiction) • AED 3,375 [100,000/600,000 of 20,250] (being the amount of the Corporate Tax due on the foreign source income)] Less: Foreign Tax Credit for tax paid in Country Y [lower of the following: • AED 50,000 (being the actual amount of foreign tax paid in the foreign jurisdiction) • AED 16,875 [500,000/600,000 of 20,250] (being the amount of the Corporate Tax due on the foreign source income)] Corporate Tax Payable Unutilised Foreign Tax Credit in relation to foreign tax paid in Country Y (which is forfeited) (16,875) 2,375 33,125 Note that the excess Foreign Tax Credit in relation to Country Y cannot be set off against the tax due on income from Country X. 8.3.4. Scenarios where no Foreign Tax Credit is allowed A Foreign Tax Credit cannot exceed the amount of Corporate Tax due on the relevant foreign income.79 Accordingly, where there is no Corporate Tax Payable on foreign source income, no Foreign Tax Credit is allowed against such income. Therefore, a Foreign Tax Credit is not available in respect of Exempt Income. Likewise, a Foreign Tax Credit is not available where no Corporate Tax is payable due to an election for Small Business Relief or a natural person’s Turnover being below AED 1 million. This is also the case where foreign source income is Qualifying Income of a Qualifying Free Zone Person, i.e. subject to 0% Corporate Tax. Also, where a Taxable Person’s Taxable Income is negative, i.e. they make a loss, there is no Corporate Tax Payable. In such a case, if Taxable Income includes foreign source income on which tax has been paid in the foreign jurisdiction, no Foreign Tax Credit is available in the absence of any Corporate Tax Payable. Example 13: Exempt Income Company A, a company incorporated and resident in UAE, owns 100% of the shares in Company B, a company incorporated and managed in Country X and tax resident of Country X. Company B qualifies as a Participating Interest for the purpose of the 79 Article 47(2) of the Corporate Tax Law. Corporate Tax Guide | Taxation of foreign source income | CTGFSI1 42

9.3.2. Foreign Tax Credit Corporate Tax Payable may be reduced by any available Foreign Tax Credit for the same Tax Period.355 Foreign Tax Credit is the amount of foreign taxes paid on foreign sourced income which has not been exempted. This relief is unilateral and does not rely on a Double Taxation Agreement or any other reciprocal action from the foreign taxing jurisdiction. In order to apply Foreign Tax Credit, the pre-tax foreign income must be included in the Taxable Income of the UAE Resident Person. The amount of Corporate Tax due should be calculated based on the overall Taxable Income, and Foreign Tax Credit can then be deducted from the amount of Corporate Tax Payable. The amount of Foreign Tax Credit cannot exceed the amount of Corporate Tax due on the foreign source income,356 and a Foreign Tax Credit cannot be carried forward or back. 357 No refund will be given for unutilised Foreign Tax Credit. In addition, Foreign Tax Credit can only be applied after any Withholding Tax Credit has been applied.358 Taxable Persons must maintain all necessary records for the purposes of claiming Foreign Tax Credit.359 This could include, for example, Withholding Tax certificates, statements of payments or assessments by the relevant foreign tax authority. Example 36: Application of Foreign Tax Credit C LLC is a UAE resident company that does business through Permanent Establishments in a number of foreign countries. During the Tax Period, C LLC paid AED 300,000 in foreign taxes on the AED 1,500,000 of income it earned in foreign countries. C LLC has not made an election to exempt the income from its Foreign Permanent Establishments. At the end of the Tax Period, C LLC’s Corporate Tax liability was AED 1,000,000. C LLC can reduce its Corporate Tax liability using available Foreign Tax Credit. However, the amount of Foreign Tax Credit is limited to the amount of Corporate Tax that would have been paid in the UAE on the foreign income (AED 1,500,000 x 9% = AED 355 Article 47(1) of the Corporate Tax Law. 356 Article 47(2) of the Corporate Tax Law. 357 Article 47(3) of the Corporate Tax Law. 358 Article 44 of the Corporate Tax Law. 359 Article 47(4) of the Corporate Tax Law. General Corporate Tax Guide | Corporate Tax | CTGGCT1 113