Is Corporate Tax charged on foreign income of a UAE company?

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

Example 8: Related Party transactions (transfer of assets and repatriation of funds) Company A (a company incorporated and resident in the UAE) has set up a clothesmanufacturing unit (branch office) in Country B which constitutes a Foreign Permanent Establishment. It also has a subsidiary, Company U, which is a company incorporated and resident in Country U. To enhance clothes manufacturing, machinery is transferred from Company U to Company A’s Foreign Permanent Establishment in Country B. At the end of the Tax Period the Foreign Permanent Establishment repatriates its profit to its head office i.e. Company A. Whilst legally the Foreign Permanent Establishment is part of Company A, for Corporate Tax purposes it is treated as a separate and independent Person which is related to the head office and any other Related Party of the head office. Thus, when determining the profit which could benefit from the Foreign Permanent Establishment exemption, the transfer of the asset from Company U to the Foreign Permanent Establishment of Company A must be in line with the arm’s length principle. The repatriation of surplus funds from the branch in Country B to its head office in in the UAE is receipt of own funds by Company A since branch and head office are the same legal person. Hence, the repatriation transaction is not a taxable event from the perspective of Company A and is ignored for Corporate Tax purposes. This is the case whether or not an election has been made for the Foreign Permanent Establishment exemption. 7.3. Determining Corporate Tax Payable The Corporate Tax Law does not prescribe any separate Corporate Tax rates for foreign source income. Thus, foreign source income is aggregated with all other income when determining Taxable Income. For a Taxable Person, other than a Qualifying Free Zone Person, the applicable rates currently are:64 • 0% for Taxable Income up to and including AED 375,000; and • 9% for Taxable Income exceeding AED 375,000. Where a Taxable Person has paid foreign tax in another jurisdiction, a tax credit may be available.65 Refer to Section 8 for details. 64 Article 3(1) of the Corporate Tax Law. 65 Article 47 of the Corporate Tax Law. Corporate Tax Guide | Taxation of foreign source income | CTGFSI1 34

4.1.8. Income from foreign sources received by a juridical Resident Person Where a juridical person that is a Resident Person has a Foreign Permanent Establishment, the juridical person can make an election to exclude the income and expenditure derived by the Foreign Permanent Establishment in calculating its Taxable Income, if certain conditions are satisfied.23 A Foreign Permanent Establishment refers to a fixed place of Business, such as an overseas branch, office or factory, or a dependent agent who habitually exercises an authority to conduct a Business or Business Activity on behalf of a Resident Person overseas. Example 7: Foreign source income from Foreign Permanent Establishments Company H is a hospitality and travel company incorporated in the UAE. It has Foreign Permanent Establishments in other countries in the form of sales offices. As a UAE incorporated company, Company H is a juridical person that is a Resident Person for Corporate Tax purposes. Normally, this means that Company H is subject to Corporate Tax on its income earned in the UAE and the income earned by its Foreign Permanent Establishments. However, Company H meets the necessary conditions that are required to be able to make a Foreign Permanent Establishment election. If Company H makes this election, it should not include the income and associated expenditure or losses from its Foreign Permanent Establishments when calculating its Taxable Income for the purposes of the Corporate Tax Law. In addition, certain income received from foreign companies is exempt from Corporate Tax if the Resident Person holds a Participating Interest in the foreign company. 24 A Participating Interest is an interest in a juridical person that meets all the conditions of Article 23(2) of the Corporate Tax Law. If the conditions for a Participating Interest are met, the following income will be exempt from Corporate Tax: 23 Article 24(1) of the Corporate Tax Law. 24 Article 22(2) and (3) read with Article 23 of the Corporate Tax Law and Ministerial Decision No. 116 of 2023. Tax Procedures Guide | Tax Resident and Tax Residency Certificate | TPGTR1 27

Article 6 – Subject to Tax 1. A Participation shall be considered to have met the requirement of paragraph (b) of Clause 2 of Article 23 of the Corporate Tax Law for a given Tax Period when it is resident for tax purposes throughout this same Tax Period in another country or foreign territory that levies a tax that meets all of the following requirements: a. The tax is applied on a similar basis to Corporate Tax, taking into account the conditions set out in Clauses 2, 3, 4 and 5 of this Article. b. The tax is levied at a rate not less than (9%) nine percent. 2. For the purposes of Clause 5 of Article 23 of the Corporate Tax Law, the Participation will be considered as having continued to meet the condition under paragraph (b) of Clause 2 of Article 23 of the Corporate Tax Law where the Participation meets the conditions of Clause 1 of this Article in the period in which the income or gains arise. 3. None of the following shall result in the tax imposed under the applicable legislation of the other country or the foreign territory in which the Participation is resident for tax purposes to not be considered a tax that is applied on a similar basis to Corporate Tax under paragraph (a) of Clause 1 of this Article: a. Differences in reductions and reliefs. b. Lower tax rates applicable to certain brackets of income. c. Targeted incentives or exemptions of a temporary nature. d. Application of alternative taxes on income or profits. 4. A tax imposed under the applicable legislation of the other country or foreign territory in which the Participation is resident for tax purposes shall not be Ministerial Decision No. 116 of 2023 – As published by Ministry of Finance 5 considered a tax which is of a similar nature to Corporate Tax in any of the following cases: a. The tax is applicable only to selected activities. b. The tax paid is refunded at the time of distribution of the relevant profits or income. c. The tax is only due in the event of a distribution of profits or income. 5. A Participation shall also be considered to have met the requirement of paragraph (b) of Clause 2 of Article 23 of the Corporate Tax Law if it demonstrates to the Authority either of the following: a. It is subject to a tax on income or profits at an effective rate in the relevant Tax Period of not less than (9%) nine percent. b. If it recalculated its accounting net profits according to the basis provided for in the Corporate Tax Law, and the tax levied on such profits, then this would result in an effective tax rate of not less than (9%) nine percent. 6. A Participation that is resident for tax purposes in another country or foreign territory that does not impose a tax that meets the requirements of Clause 1 of this Article shall be considered to have met the requirement of paragraph (b) of Clause 2 of Article 23 of the Corporate Tax Law if it is subject to a tax charged in respect of income, equity or net worth, or a combination of any or all of these in that other country or foreign territory, and the tax levied results in an effective tax rate of not less than (9%) nine percent on the accounting profits of the Participation calculated in accordance with the Accounting Standards in the relevant Tax Period.

Article 6 – Subject to Tax 1. A Participation shall be considered to have met the requirement of paragraph (b) of Clause (2) of Article (23) of the Corporate Tax Law for a given Tax Period when it is resident for tax purposes throughout this same Tax Period in another country or foreign territory that levies a tax that meets all of the following requirements: a. The tax is applied on a similar basis to Corporate Tax, taking into account the conditions set out in Clauses (2), (3), (4) and (5) of this Article. b. The tax is levied at a statutory rate not less than (9%) nine percent. 2. For the purposes of Clause (5) of Article (23) of the Corporate Tax Law, the Participation will be considered as having continued to meet the condition under paragraph (b) of Clause (2) of Article (23) of the Corporate Tax Law where the Participation meets the conditions of Clause (1) of this Article in the period in which the income or gains arise. 3. None of the following shall result in the tax imposed under the applicable legislation of the other country or the foreign territory in which the Participation is resident for tax purposes to not be considered a tax that is applied on a similar basis to Corporate Tax under paragraph (a) of Clause (1) of this Article: a. Differences in reductions and reliefs. b. Lower tax rates applicable to certain brackets of income. c. Targeted incentives or exemptions of a temporary nature. d. Application of alternative taxes on income or profits. 4. A tax imposed under the applicable legislation of the other country or foreign territory in which the Participation is resident for tax purposes shall not be considered a tax which is of a similar nature to Corporate Tax in any of the following cases: a. The tax is applicable only to selected activities. b. The tax paid is refunded at the time of distribution of the relevant profits or income. c. The tax is only due in the event of a distribution of profits or income. 5. A Participation shall also be considered to have met the requirement of paragraph Ministerial Decision No. 302 of 2024 – As published by the Ministry of Finance 6 (b) of Clause (2) of Article (23) of the Corporate Tax Law if it demonstrates to the Authority either of the following: a. It is subject to a tax on income or profits at an effective tax rate in the relevant Tax Period of not less than (9%) nine percent. b. If it recalculated its accounting net profits according to the basis provided for in the Corporate Tax Law, and the tax levied on such profits, then this would result in an effective tax rate of not less than (9%) nine percent. 6. A Participation that is resident for tax purposes in another country or foreign territory that does not impose a tax that meets the requirements of Clause (1) of this Article shall be considered to have met the requirement of paragraph (b) of Clause (2) of Article (23) of the Corporate Tax Law if it is subject to a tax charged in respect of income, equity or net worth, or a combination of any or all of these in that other country or foreign territory, and the tax levied results in an effective tax rate of not less than (9%) nine percent on the accounting profits of the Participation calculated in accordance with the Accounting Standards in the relevant Tax Period.