The Chapter Thirteen of the Federal Decree-Law No. 47 of 2022 establishes the conditions and methods for calculating the corporate tax payable by a taxable person, mentioning how amounts must be reported, the order in which the tax liabilities need to be settled, and the mechanisms for applying tax credits such as withholding tax and foreign tax relief. The provisions are designed to ensure accuracy, and consistency in tax reporting, and compliance with the UAE’s corporate tax framework.
Article 43 – Currency
All amounts reported for corporate tax purposes must be quantified in United Arab Emirates dirhams (AED).
If any amount is denominated in a foreign currency, it should be converted into dirhams (AED) and must be converted at the applicable exchange rate prescribed by the Central Bank of the UAE.
The tax authority may issue any specific conditions or guidelines regarding such currency conversions, which must be followed by all the taxable persons .
This helps businesses to stay compliant with regulations and avoid discrepancies caused by fluctuating currency values, and maintain accuracy in tax assessments.
Article 44 – Calculation and Settlement of Corporate Tax
The corporate tax payable by a taxable person is determined and settled in a the order:
- Withholding Tax Credit – The first step in settling the corporate tax payable is to deduct any withholding tax credit as calculated under Article 46 of this Federal Decree Law.
- Foreign Tax Credit – If any corporate tax payable after applying the withholding tax credit, the next step is to apply the foreign tax credit as specified in Article 47 of this decree law.
- Other Credits or Reliefs – If there is still a residual amount after the first two deductions, other credits or reliefs, upon recommendation from the Minister, can be applied.
- Final Settlement – Any remaining balance of corporate tax after applying all available credits must be paid in accordance with Article 48.
These steps ensure that tax liabilities are offset using available tax credits before making any cash settlement.
Article 45 – Withholding Tax
Withholding tax may apply to the following income at the rate of 0% or any specified rate by the Minister:
The certain categories of state-sourced income earned by non-resident persons, is not attributable to a permanent establishment in the UAE.
Any other categories of income subject to withholding tax as specified in the Cabinet decision based on the Minister’s recommendation.
When an amount is subject to withholding tax, the tax must be deducted from the gross payment amount and remitted to the tax authority in which the format, and deadline for remitting this tax will be prescribed by the authority.
This mechanism ensures that certain types of payments to non-residents are taxed at source.
Article 46 – Withholding Tax Credit
If a person becomes a taxable person during a tax period, the corporate tax due for the person in the relevant tax period can be reduced by the amount of withholding tax credit available.
The amount of credit that can be claimed under withholding tax credit is limited to the lower of:
- The amount of withholding tax deducted under Article 45 of this decree law.
- The total corporate tax due for the tax period.
If the available withholding tax credit exceeds the corporate tax due, the excess amount will be refunded to the taxable person as per Article 49 of this decree law.
Article 47 – Foreign Tax Credit
A taxable person may reduce their corporate tax due by claiming a foreign tax credit on the relevant income earned in another jurisdiction. But the amount of foreign tax credit that can be claimed should not exceed the UAE corporate tax payable on the same income.
No Carry-Forward or Carry-Back – Any unutilized foreign tax credit that cannot be applied in the current tax period shall not be carried forward to the future tax periods or carried back to previous tax periods.
The Taxable persons should maintain complete and accurate tax records to support any foreign tax credit claims.
This offers relief from double taxation with clear limitations and documentation requirements to prevent misuse of tax benefits.
