Foreign Tax Credit Advisory in the UAE

Living and working in the UAE has always been a smart move for your wallet. But as the world gets more connected, things are getting a bit more complicated. It’s no longer just about the money you make in Dubai or Abu Dhabi; many UAE residents and businesses now have income flowing in from all over the map, through rental property in the UK, stock dividends from the US, or a tech startup in India.

Because the UAE now has its own corporate tax system, managing that international money requires a bit of a game plan. That’s where Foreign Tax Credit (FTC) advisory comes in.

If you’re earning money abroad, you’ve probably noticed that the country where you earned the money usually wants a cut, and now the UAE tax office might be looking at that same income. This is the double taxation trap, and it’s one of the biggest headaches for residents today.

Foreign tax credit advisory helps businesses and individuals understand how taxes paid in another country can be adjusted or claimed, so you’re not paying more tax than necessary. Many UAE-based businesses earn income through foreign branches, international clients, or overseas investments. Similarly, residents may earn salaries, consultancy income, dividends, or rental income from other countries. Managing the tax side of this cross-border income can be confusing and stressful without the right guidance.

Foreign tax credits are meant to ease this burden by reducing or offsetting taxes paid overseas, helping you avoid double taxation. If you’ve already paid tax on your income in another country, the UAE allows you to subtract that amount from what you owe here.

What Is a Foreign Tax Credit (FTC)?

A Foreign Tax Credit (FTC) is a tax relief that helps prevent your income from being taxed twice. It means, if you have already paid tax on your income in another country, a foreign tax credit allows you to reduce your tax liability on that same income under applicable tax laws. This is especially helpful for UAE businesses and residents earning income from overseas.

How Does a Foreign Tax Credit Work?

When income is earned outside the UAE, and tax is paid in a foreign country, that tax amount may be claimed as a credit against the tax payable in the UAE (subject to rules and limits). Instead of paying tax twice on the same income, the foreign tax paid is adjusted, making your overall tax burden more manageable.

Foreign Tax Credit vs Tax Deduction: What’s the Difference?

Although they sound similar, a tax credit and a tax deduction work very differently:

Types of Foreign Taxes That May Qualify for Credit

Not all foreign taxes are eligible, but commonly qualifying taxes include:

• An Income-Based Tax: It must be a tax specifically on profits or income (like Corporate Tax or Withholding Tax).
• A Final Tax: You must have actually paid it to a foreign government and have proof (it can’t just be a potential tax).
• Non-Refundable: If you can get the tax back from the foreign country through a refund, the UAE won’t give you a credit for it.

Common Examples:

• Withholding Tax: Often taken out of dividends, interest, or royalties earned abroad.
• Corporate Income Tax: Paid by your branch or business office located in another country.

Indirect taxes like VAT or Sales Tax usually do not count as a Foreign Tax Credit. Those are handled differently in your accounting.

Does the UAE Allow Foreign Tax Credits?

Yes, the UAE allows for Foreign Tax Credits. In fact, since the introduction of Corporate Tax, the UAE has made it a core part of its tax framework to stay business-friendly and aligned with international standards.

Overview of the UAE’s Tax Framework:

For a long time, the UAE didn’t need a Foreign Tax Credit (FTC) because there was no federal corporate tax. However, that changed with Federal Decree-Law No. 47 of 2022.

Under the current rules:

• Taxable Persons: Most businesses and certain individuals (earning over AED 1 million from business activities) are subject to a 9% Corporate Tax on profits exceeding AED 375,000.
• Worldwide Income: If you are a UAE resident, the government looks at your income from all over the world, not just what you earn inside the Emirates. Because of this, the FTC was introduced to prevent you from being punished for doing business globally.

The UAE has one of the world’s largest networks of tax treaties, with over 140 agreements in place (including major partners like India, the UK, and China).

These agreements are designed to prevent the same income from being taxed twice. Under DTAAs, relief is usually provided through:

• The foreign tax credit method, where tax paid overseas is credited against UAE tax, or
• The exemption method, where certain foreign income is excluded from UAE taxation

DTAAs also clarify which country has the right to tax specific types of income, such as business profits, dividends, interest, or royalties.

How Foreign Tax Credit Applies Under UAE Corporate Tax?

The FTC is the primary tool used to reduce your UAE tax bill. However, there are two golden rules you need to know: 

1. The “Lesser Of” Rule: The credit you get is limited to the lower of two amounts: 

• The actual tax you paid to the foreign government.
• The UAE Corporate Tax due on that same income.

2. Use It or Lose It: If you pay 15% tax in a foreign country, but the UAE tax is only 9%, you can only claim a credit for 9%. The remaining 6% cannot be refunded or carried forward to next year; it simply expires. 

Relevance for UAE Businesses with Foreign Income or Branches:

If your UAE company has a branch or a Permanent Establishment (PE) in another country, you have two main options to handle taxes:

• Option A: Claim the FTC (The Credit Method): You include the branch’s profits in your UAE tax return, calculate the 9% UAE tax, and then subtract the foreign tax you already paid.
• Option B: Foreign Branch Exemption: In some cases, you can choose to completely exempt the profits of your foreign branch from UAE tax altogether. This is often simpler if your branch is in a high-tax country, as it removes the need to calculate credits every year.

Who Needs Foreign Tax Credit Advisory in the UAE?

Foreign tax credit advisory in the UAE is not just for large multinational companies. It is equally important for businesses and individuals who earn income from outside the UAE and may already be paying tax in another country.

1. UAE businesses with overseas operations

Companies that have foreign branches, subsidiaries, or permanent establishments often pay corporate tax in other countries. Foreign tax credit advisory helps ensure that these taxes are properly adjusted under UAE Corporate Tax rules and relevant DTAAs.

2. Multinational companies operating in the UAE

Businesses that earn income across multiple countries face complex tax reporting and compliance requirements. Advisory support helps manage foreign taxes efficiently while aligning with UAE Corporate Tax regulations.

3. UAE residents earning income from abroad

Individuals who receive salaries, consultancy fees, dividends, rental income, or investment income from overseas may face foreign tax deductions. Understanding how foreign taxes apply and whether relief is available is key to avoiding double taxation issues.

4. Freelancers and consultants with international clients

Professionals working with overseas clients often face withholding taxes on their income. Foreign tax credit advisory helps clarify tax treatment and documentation requirements.

5. Investors with foreign assets or investments

Those earning dividends, interest, or capital gains from foreign investments can benefit from advisory support to correctly assess tax exposure and claim eligible relief.

Foreign Tax Credit Under UAE Corporate Tax Law

Under Article 47 of the Federal Decree-Law No. 47 of 2022, the UAE Corporate Tax (CT) regime provides a formal mechanism for claiming Foreign Tax Credits (FTC).

When Can Foreign Tax Paid Be Claimed?

You can claim a credit only if you meet the Double Tax criteria:

• The Income is Taxable in the UAE: The credit only applies to income that is included in your UAE Corporate Tax return. If the income is already exempt (like certain dividends under the Participation Exemption), you cannot claim a credit for any taxes paid abroad on that same income.
• The Tax Was Actually Paid: You must have paid the tax to a foreign government (federal or state level) or have a legal obligation to pay it that is documented and final.

Conditions and Limitations for FTC Claims:

While foreign tax credits are allowed, they are subject to certain rules:

• The Nature of Tax Condition: The foreign tax must be similar to the UAE Corporate Tax. It must be a tax on profits or net income. Indirect taxes like VAT, Sales Tax, or Customs Duties do not qualify for a credit.
• The Maximum Cap: You can only claim a credit up to the amount of UAE tax that would have been due on that specific income. For example, if you paid 15% tax in a foreign country, but the UAE tax rate is only 9%, your credit is capped at 9%. You cannot use the extra 6% to lower the tax you owe on your local UAE income.
• Proof of Payment: The Federal Tax Authority (FTA) requires official receipts, withholding tax certificates, or copies of the filed foreign tax return as evidence.

How to Calculate the Allowable Credit?

The foreign tax credit is calculated by comparing:

• The foreign tax actually paid, and
• The UAE Corporate Tax due on the same foreign income

The lower of the two amounts is allowed as a credit. This ensures that the credit does not exceed the UAE tax liability related to that income.

Unlike some countries (like the US), the UAE does not allow you to carry forward unused Foreign Tax Credits. If your foreign tax was higher than your UAE tax in 2025, you cannot save that extra credit to use in 2026. You cannot apply current foreign tax credits to previous years’ tax bills.

Any excess foreign tax paid over the UAE’s 9% limit is simply lost. It cannot even be deducted as a regular business expense.

Shuraa Tax Foreign Tax Credit Advisory Services in the UAE

At Shuraa Tax, we support businesses at every stage of their cross-border tax journey. Our advisory services are designed to simplify foreign tax credit claims, reduce tax risks, and ensure full compliance with UAE Corporate Tax laws and applicable DTAAs.

• Review and Analysis of Foreign Income and Taxes Paid: We carefully review your foreign income streams and assess the taxes already paid overseas. This helps identify which income qualifies for the foreign tax credit and highlights any gaps or risks before filing.
• DTAA Interpretation and Application: With the UAE having an extensive DTAA network, understanding treaty provisions is critical. Our experts interpret relevant DTAAs and apply the correct relief method, based on your business structure and income type.
• Accurate FTC Calculation and Proper Documentation: We ensure your foreign tax credit is calculated accurately in line with UAE Corporate Tax rules. Our team also helps compile and verify all required documentation, reducing the risk of errors or future disputes.
• Corporate Tax Return Support and Compliance: Shuraa Tax provides complete support for UAE Corporate Tax return preparation and filing, ensuring foreign tax credits are correctly reflected and compliant with FTA requirements.
• Ongoing Advisory for Cross-Border Taxation: Cross-border tax obligations don’t end with one filing. We offer ongoing advisory support to help you plan future international transactions, manage foreign tax exposure, and stay updated with regulatory changes.

Shuraa Tax helps you turn foreign tax credit challenges into well-planned tax solutions in the UAE. We align your cross-border income with UAE Corporate Tax rules to support long-term business growth.

Commonly Asked Questions

1. Can I claim a credit for VAT or Sales Tax paid abroad?

No. The Foreign Tax Credit (FTC) only applies to taxes levied on income or profits, such as Corporate Tax or Withholding Tax. Indirect taxes like VAT, GST, or Customs Duties do not qualify.

2. Can individuals in the UAE claim foreign tax credits?

While the UAE does not levy personal income tax, foreign tax credit considerations mainly apply to businesses under Corporate Tax and through DTAA provisions.

3. Do I need a tax treaty (DTAA) to claim a Foreign Tax Credit?

No. The UAE allows for unilateral tax credits. This means you can claim the credit even if the UAE doesn’t have a specific tax treaty with that country, provided you have proof that the tax was paid.

4. Does the 0% Corporate Tax rate for Free Zones affect my credit?

Yes. If your Free Zone company is a Qualifying Free Zone Person paying 0% tax, you won’t have a UAE tax bill to offset. Therefore, you cannot claim a credit for any taxes paid abroad.

5. Can individuals claim FTC, or is it only for companies?

Individuals can claim FTC if they are subject to UAE Corporate Tax. In 2026, this applies to individuals (like freelancers or sole traders) whose business turnover in the UAE exceeds AED 1 million.