A UAE resident company includes AED 800,000 of foreign-sourced income in its taxable income for a tax period, on which it paid AED 90,000 of foreign tax, while its UAE Corporate Tax payable on that same income (at the 9% rate) is AED 72,000. Under Article 47 of Federal Decree-Law No. 47 of 2022, how much Foreign Tax Credit can the company claim for the tax period, and what happens to any unused amount?
- AED 90,000 in full, and the company can request a cash refund of the entire amount from the Federal Tax Authority regardless of its UAE Corporate Tax liability
- AED 72,000, capped at the UAE Corporate Tax due on that income, and the remaining AED 18,000 cannot be carried forward, carried back, or refunded
- AED 90,000 in full, split evenly over the current and following tax period as a two-year carry-forward of the excess
- AED 0, because Article 47 only allows a Foreign Tax Credit where the UAE has a bilateral double-taxation treaty in force with the foreign jurisdiction in question
Why B? And why not the others?
Correct answer: B. AED 72,000, capped at the UAE Corporate Tax due on that income, and the remaining AED 18,000 cannot be carried forward, carried back, or refunded
Article 47 permits a Taxable Person to reduce Corporate Tax due by a Foreign Tax Credit, but the credit cannot exceed the amount of Corporate Tax due on the relevant foreign-sourced income, which is AED 72,000 here; the excess AED 18,000 is not refundable and cannot be carried forward or carried back to another tax period. The option allowing the full AED 90,000 with a cash refund of any excess is wrong because Article 47 caps the credit at the UAE Corporate Tax actually due on that income and does not permit refunding amounts beyond that cap. The option describing a two-year carry-forward of the excess is wrong because unutilised Foreign Tax Credit under Article 47 simply lapses; there is no carry-forward or carry-back mechanism for the unused portion. The option requiring an existing bilateral double-taxation treaty is wrong because Article 47's Foreign Tax Credit is available for foreign tax actually paid on foreign-sourced income regardless of whether a treaty exists between the UAE and that jurisdiction; a treaty affects double-tax relief through other means but is not itself a precondition for this credit.
Source: UAE Federal Decree-Law No. 47 of 2022, Article 47 (Foreign Tax Credit)