Calculation of UAE Corporate Tax Payable

Introduction – Chapter 13 Calculation of UAE Corporate Tax Payable

One of the key provisions of the UAE Corporate Tax Law is the one laid down for the calculation of Corporate Tax Payable. Further, it is quintessential for every economy to create a framework for the correct determination of tax liability of various taxpayers in the State. This ensures the free flow of appropriate funds to the State which are then used for the development of the economy.

Article 43 – Currency to be used for determination of Corporate Tax Payable under the UAE Corporate Tax

All sums shall be determined for the purposes of the UAE Corporate Tax Law in the United Arab Emirates Dirham.

Further, any amount calculated in another currency must be converted using the current exchange rate set by the United Arab Emirates Central Bank. This is subject to any restrictions that may be outlined by the Authority.

​​​For instance, when a payment is made in a currency other than the United Arab Emirates dirhams, like Euro, the responsibility for withholding tax still applies. This also extends to foreign taxes for which a credit is sought under Article 47.​​​​ 

Article 44 – Calculation and Settlement of Corporate Tax Payable under the UAE Corporate Tax

The UAE Corporate Tax Law prescribes the order in which the Corporate Tax Liability is to be settled by a Taxable Person.

According to the UAE Corporate Tax Law, Corporate Tax is to be paid in the following manner:

1. Withholding Tax Credit:

   Firstly, the Taxable Person can reduce the Corporate Tax payable under the Law by reducing the amount with the Withholding Tax Credit available to it. Further, it is to be noted that before proceeding to the next step. One must exhaust its Withholding Tax Credit, if any, as provided under Article 46 of the UAE Corporate Tax Law. Additionally, if the amount of the Taxable Person’s Withholding Tax Credit is greater than the amount of Corporate Tax payable for the Tax Period. Then, the excess Withholding Tax Credit shall be refunded to the Taxable Person.

2. Foreign Tax Credit:

   To the extent that there is any remaining amount after exhausting one’s Withholding Tax Credit. Then, the Taxable Person can now use any Foreign Tax Credit available to it as determined under Article 47.  Further, if the amount of the Taxable Person’s Foreign Tax Credit is greater than the amount of Corporate Tax payable for the Tax Period. Then, any excess Foreign Tax Credit will be forfeited, and no refund will be given by the Authority for the excess Foreign Tax Credit amount

3. By using any credits or reliefs:

   If there is any Corporate Tax Liability remaining after utilizing WTC and FTC. Then, the Taxable Person may use any other credits or relief available (as per any decision of the Cabinet) to reduce their Tax Payable by such amount.

4. Settle remaining Corporate Tax Liability within nine months:

   Also, any shortfall in tax after completely utilizing the WHT Credit and any other credit or relief, available to the Taxable Person must be paid to the FTA to settle its Corporate Tax Payable within nine months of the end of Tax Period.

Want to settle your Corporate Tax Liability under the UAE CT Law, but unsure how to proceed?

Article 45 – Applicability of Withholding Tax under the UAE Corporate Tax

Withholding tax is collected at the source by the payer of the income on behalf of the recipient of it. It is a kind of Corporate Tax that is generally applicable to international payments like dividends, interest, royalties, etc. Also, withholding taxes are a common form of imposing income tax on cross-border transactions and other payments involving non-residents. And in other situations where a withholding tax would provide a means of protecting the tax base.

1. Income subject to Withholding Tax: The following income is subject to withholding tax at a rate of 0% (zero percent). Or at any other rate determined by a Cabinet decision following a Minister’s recommendation:
2. UAE-sourced Income: The various types of State-Sourced Income derived by a Non-Resident. This is to the extent of the income which is not attributable to a Permanent Establishment of the Non-Resident Person in the UAE
3. Any other income that may be specified by the Cabinet.
4. The Withholding Tax payable is to be deducted from the gross amount of the payment (income earned) and then deposited with the Federal Tax Authority.
5. This must be remitted to the Federal Tax Authority in the manner, form, and timeline specified by the Authority.

Article 46 – Effect of Withholding Tax Credit under the UAE Corporate Tax

In the event that a person becomes a Taxable Person during a Tax Period. Then, the Corporate Tax Payable under the UAE Corporate Tax Law may be reduced by the Withholding Tax Credit for that Tax Period.

1. Maximum Withholding Tax Credit: The maximum Withholding Tax Credit under the UAE Corporate Tax Law shall be lower of:
   1. The amount of Withholding Tax deducted under Article 45 of the UAE Corporate Tax Law; or
   2. The Corporate Tax is due in accordance with the UAE Corporate Tax Law.
2. Excess Withholding Tax Credit: Any excess Withholding Tax Credit for a Tax Period shall be refunded to the Taxable Person as per Article 49.

Article 47 – Foreign Tax Credit under the UAE Corporate Tax

Foreign Tax credit is the amount of tax which is paid on income or profits as per the foreign jurisdiction. It can be deducted from the Corporate Tax due as per the specified conditions under UAE Corporate Tax Law.

Taxes not similar to UAE Corporate Tax 

• Consumption taxes such as Value Added Tax (VAT) / Goods and Services Tax (GST) / Sales Tax 
• Customs duty / Excise Tax / other forms of import duties 
• Transaction taxes such as stamp tax and capital duty
• Property taxes and wealth taxes are calculated based on ownership of specified items or the value of assets without regard to income 
• Estate Tax / other forms of inheritance taxes and duties 

Utilization of Foreign Tax Credit 

The Foreign Tax Credit is to be utilized as follows:

1. The amount of the Foreign Tax Credit for the applicable Tax Period may be deducted from the Corporate Tax Payable.
2. The Foreign Tax Credit cannot be greater than the amount of Corporate Tax due on the revenue earned for the relevant Tax Period.

Unutilized Foreign Tax Credit: Any unutilized Foreign Tax Credit cannot be carried forward or carried backward.

Maintain Relevant Records:

In order to claim a Foreign Tax Credit, Taxable Persons has to maintain all necessary documents and records. This is relevant to claiming FTC.

This would include proof of the tax paid under the laws of a foreign jurisdiction. 

Paid refers to the amount that has been: 

1. Remitted or  
2. Accrued to the tax authorities in the foreign jurisdiction.  

Not considered as Paid:

Further, the amount would not be considered as paid to the foreign tax authority if the tax liability in the foreign jurisdiction is: 

1. Contingent or  
2. Has not yet formally accrued.  
3. An amount of tax paid that has been refunded or  
4. It has been confirmed as being refundable. 

Want to know the Withholding Tax Credit and/or Foreign Tax Credit available to you under the UAE CT regime? Contact us today.