The operations of most businesses in the UAE are spread across various jurisdictions through branches or subsidiaries. A foreign branch would generally constitute a Permanent Establishment (PE) in the foreign country and will be subject to the corporate tax or its equivalent tax on its profits in that foreign country. This will make the business liable to pay corporate tax in that foreign territory. However, under the proposed UAE corporate tax regime, businesses can claim a credit for the tax paid in foreign jurisdiction against the UAE corporate tax liability on the foreign-sourced income that has not been otherwise exempted. This is termed the “Foreign Tax Credit” under the UAE corporate tax regime. A foreign tax credit is generally offered by income tax systems that tax residents on worldwide income, to mitigate the potential for double taxation. The credit may also be granted in those systems taxing residents on income that may have been taxed in another jurisdiction.
What Will Be the Maximum Tax Credit Available?
The UAE corporate tax public consultation document details the maximum Foreign Tax Credit available. Corporate tax consultants in Dubai can provide in-depth advice on this. The maximum tax credit will be the lower of:
• The amount of tax that was paid in the foreign jurisdiction; or
• The UAE Corporate Tax payable on the foreign-sourced income
