When a UAE business earns income abroad and pays tax on it in another country, it can face being taxed twice on the same income: once overseas and again under UAE Corporate Tax. The foreign tax credit is the mechanism that prevents that. It lets a business offset foreign tax already paid against its UAE Corporate Tax on the same income, up to a limit. If you have searched for how the foreign tax credit works, here is the principle, where it sits in the law, the cap that applies, and what you must keep.
What the foreign tax credit does
The credit relieves double taxation. It comes from Article 47 of Federal Decree-Law No. 47 of 2022, the Corporate Tax Law. Where foreign income is also taxable in the UAE, tax paid on that income in the source country can be credited against the UAE Corporate Tax due on it. The effect is that you do not pay full tax twice on the same income; the foreign tax reduces the UAE liability on that slice. It is a credit against tax, not a deduction from income, which makes it more valuable than it first appears.
How the offset works
| Foreign income is included in your UAE taxable income |
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| UAE Corporate Tax is calculated on that income |
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| Foreign tax paid on the same income is credited, capped at the UAE tax on it (Art 47) |
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| You pay the UAE tax net of the credit |
Try the interactive calculator. Enter the foreign income, the foreign tax paid, and the UAE rate, and see the credit, the cap, and the net UAE tax worked out for you.
The credit is capped
The relief is not unlimited. Under Article 47, the foreign tax credit cannot exceed the amount of UAE Corporate Tax that would be due on that foreign income. If the foreign tax paid is lower than the UAE tax on the income, you credit the full foreign tax and pay the difference here. If the foreign tax is higher, the credit is limited to the UAE tax on that income, and the excess foreign tax is generally not refunded or carried forward. In short, the credit brings your UAE tax on that income down to zero at most; it does not turn a foreign overpayment into a UAE refund.
| Situation | Credit allowed | Result |
|---|---|---|
| Foreign tax lower than UAE tax on the income | Full foreign tax | Pay the UAE difference |
| Foreign tax higher than UAE tax on the income | Capped at the UAE tax | No UAE tax on it; excess not refunded |
Evidence is everything
A credit is only as good as the proof behind it. To claim foreign tax paid, you need to show that the tax was genuinely imposed on the same income and actually paid, with the supporting documentation. A claim asserted without evidence is exactly the kind of position that fails on review. Keep the foreign assessments, receipts, and workings that tie the foreign tax to the specific income included in your UAE return.
What to do about it
If your business earns income abroad that is also taxable in the UAE, identify the foreign tax paid on it and claim the credit under Article 47, remembering it is capped at the UAE tax on that income. Do not expect relief for foreign tax above that cap. Keep clear evidence linking the foreign tax to the income, because the credit rests on it. And where cross-border income is significant, look at the wider picture, including any relevant tax treaties and how the income is characterised, since the foreign tax credit is one part of managing double taxation rather than the whole of it.
This article is general information and is not tax advice. It refers to Article 47 of Federal Decree-Law No. 47 of 2022, which should be confirmed against its current official text, and foreign tax credit outcomes depend on your circumstances and the source country. We would be glad to help you claim relief for foreign tax correctly.