A UAE company is taxed on its worldwide income, so profit earned abroad is inside the 9% unless a specific relief applies. Two reliefs exist. Article 47 of Federal Decree-Law No. 47 of 2022 gives a credit for foreign tax already paid, capped at the UAE tax due on that income, and Article 24 lets you elect to leave a foreign permanent establishment out of the calculation entirely. You cannot use both on the same income.

The credit is the default and the election is the alternative. Choosing between them is the whole decision, and it turns on one number: whether the foreign country taxes at less than 9% or more.

This guide covers when foreign income is taxable in the UAE, how the foreign tax credit is calculated and where it is lost, when the foreign permanent establishment election is worth making, and why there is no UAE withholding tax on the way out. If you are asking the mirror question, about a foreign business becoming taxable here, see when a foreign company has a permanent establishment in the UAE.

Foreign Income Is Taxable by Default

A resident juridical person is taxed on income from both inside and outside the UAE. There is no general exemption for foreign-source profit, so consulting fees from a client abroad, profit from an overseas branch and income from foreign assets all enter the same taxable income figure as domestic revenue.

That surprises owners who assume the UAE only taxes what happens locally. It does not, and the reliefs that follow exist precisely because the default is worldwide taxation.

The obligation to file exists regardless of where the income arose, and the deadlines and penalties are the same as for a purely domestic company, as set out in the corporate tax return deadlines and penalties.

Two things are outside this. Dividends and other profit distributions received from a resident person are exempt, and qualifying income of a genuine free zone person is at 0% under its own regime, which is set out in the five conditions for qualifying free zone status.

The Foreign Tax Credit, and the Three Limits On It

Article 47(1) allows corporate tax due to be reduced by the foreign tax credit for the relevant tax period. Article 47(2) caps that credit at the amount of corporate tax due on the relevant income, and Article 47(3) states that any unutilised credit “cannot be carried forward or carried back.”

Read those three clauses together and the shape of the relief becomes clear. It removes double taxation up to the UAE rate and no further.

The practical consequence is that foreign tax above 9% is a real, permanent cost rather than a timing difference. Pay 20% in a foreign jurisdiction on income of AED 1 million and you can credit AED 90,000 against the UAE liability on that income; the other AED 110,000 is gone, and Article 47(3) forbids carrying it to another year.

The Cap Is Per Income, Not Overall

Article 47(2) ties the cap to “the amount of Corporate Tax due on the relevant income,” which is narrower than a cap on your total bill. High foreign tax on one stream cannot be used to shelter a different stream taxed lightly or not at all.

That makes the arithmetic stream by stream rather than in aggregate. It also makes record-keeping matter more than it first appears, and Article 47(4) says so directly: a taxable person “shall maintain all necessary records for the purposes of claiming a Foreign Tax Credit.”

What Counts as Foreign Tax

The credit is for tax on income imposed outside the State. It is not a credit for foreign VAT, customs duty, social security contributions or license fees, none of which are taxes on income.

There is a related trap on the deduction side. Article 33(8) denies any deduction for “tax on income imposed on the Taxable Person outside the State,” so foreign income tax cannot be treated as a business expense as an alternative to claiming the credit.

The Foreign Permanent Establishment Election

Article 24(1) lets a resident person elect not to take into account the income and associated expenditure of its foreign permanent establishments at all. Where the election is made, Article 24(2) removes the foreign losses, the foreign income and expenditure, and any foreign tax credit that would otherwise have been available under Article 47.

This is a cleaner relief than the credit where it is available, because the foreign profit simply never enters the UAE calculation. It is also a blunter one, for three reasons that are easy to miss.

The 9% Condition

Article 24(7) restricts the exemption to a foreign permanent establishment “that is subject to Corporate Tax or a tax of a similar character under the applicable legislation of the relevant foreign jurisdiction at a rate not less than” the 9% rate. A branch in a zero-tax or low-tax jurisdiction does not qualify.

That condition is what makes the choice mechanical. Where the foreign rate is below 9% the election is unavailable and the credit route applies; where it is at or above 9% the election is available and generally better, because the credit would have been capped at 9% anyway.

It Is All or Nothing

Article 24(6) applies the exemption “to all Foreign Permanent Establishments of the Resident Person that meet the condition specified in Clause 7.” You cannot exempt the profitable branch and keep the loss-making one inside the UAE return.

Article 24(2)(a) confirms the losses go with the income. If a qualifying foreign branch makes a loss, that loss is unavailable in the UAE once the election is made, which is the main reason a company with a new or struggling overseas operation may prefer to stay on the credit.

The Branch Is Treated as a Separate Person

Article 24(4) requires the resident person and each foreign permanent establishment to be treated as separate and independent persons, and Article 24(5) deems any transfer of assets or liabilities between them to take place at market value on the date of transfer.

That matters when you set the branch up or wind it down. Moving an asset out to a branch is a market-value event for UAE purposes even though no third party is involved and no money changes hands.

Which Relief Applies to Your Situation

The election only exists for a foreign permanent establishment. Most cross-border income earned by a UAE company is not earned through one, and for that income the credit is the only route.

Situation Relief available Why
Invoicing a foreign client from the UAE, no presence abroad Foreign tax credit only, if any foreign tax was withheld No foreign permanent establishment exists to elect on
Branch abroad in a jurisdiction taxing at 25% Election under Article 24, or credit capped at 9% Condition in Article 24(7) is met; the credit would waste 16 points
Branch abroad in a jurisdiction taxing at 5% Foreign tax credit only Below the 9% condition, so the election is unavailable
Qualifying branch abroad currently loss-making Consider staying on the credit Article 24(2)(a) removes the loss along with the income
Subsidiary abroad rather than a branch Neither; the subsidiary is a separate taxpayer Its profits reach you as a dividend, not as your income

Where the foreign revenue is services billed to an overseas customer, check the VAT treatment separately from the corporate tax one, since zero-rating exported services follows its own conditions and does not track the corporate tax analysis.

The last row causes the most confusion. A branch is part of your company and a subsidiary is a different company, so the two produce different UAE outcomes from identical commercial activity.

There Is No UAE Withholding Tax

Article 45(1) sets withholding tax at 0% on the categories of state-sourced income derived by a non-resident person as prescribed by Cabinet decision, insofar as that income is not attributable to a permanent establishment here. No Cabinet decision has departed from that rate.

So paying a foreign supplier, a foreign lender or a foreign shareholder out of the UAE does not require you to withhold and remit anything. Article 45(2) describes the machinery for deducting and remitting withholding tax if a rate is ever set, which is why the provision exists at all despite the rate being nil.

The direction that does cost money is the other one. Foreign countries frequently withhold on payments into the UAE, and that withheld amount is exactly what the Article 47 credit is designed to relieve.

Where Treaties Come In

The UAE has an extensive double taxation treaty network, and a treaty commonly reduces or removes the foreign withholding at source. Claiming a reduced treaty rate normally requires a tax residency certificate issued by the FTA, and the two types of certificate and the application process are covered in the UAE tax residency certificate guide.

Reducing foreign tax at source is usually better than crediting it afterwards. A credit is capped at 9% and cannot be carried forward, while a lower withholding rate is money that never leaves.

What This Means in Practice

Take a UAE company with AED 2 million of taxable income, of which AED 500,000 came from a country that withheld 10%, or AED 50,000.

UAE corporate tax on the AED 500,000 slice is AED 45,000 at 9%. The credit is capped at that AED 45,000 under Article 47(2), so AED 5,000 of the foreign tax is unrelieved, and Article 47(3) prevents carrying it forward.

Had the same company held a tax residency certificate and claimed a treaty rate of 5%, the foreign withholding would have been AED 25,000, all of it creditable, and the AED 5,000 leakage would not have arisen. That is a modeled illustration rather than a real filing, but the mechanism is the point: treaty relief first, credit second.

The Records You Will Need

Article 47(4) requires you to keep all necessary records for a credit claim, and in practice that means proof the foreign tax was actually imposed on you and actually paid. Withholding certificates, foreign assessments and payment confirmations are the usual evidence, matched to the income stream they relate to.

If the company also pays its owner a salary out of that foreign profit, the deductibility of the payment is a separate test again, covered in paying yourself salary versus dividends from a UAE company.

The broader record-keeping obligation sits alongside it, and the retention periods and audit expectations are set out in the bookkeeping and audit requirements for UAE corporate tax.

What We Could Not Verify

The decree-law does not publish the form or the deadline for making the Article 24 election, leaving those to be set by the authority, and no FTA decision setting them was retrievable while writing. Confirm the mechanics with the FTA before relying on the election in a return.

The law also does not state whether the election can be revoked in a later period, and Article 24 is silent on the point. Treat it as a decision with a long horizon rather than an annual toggle until the position is confirmed.

Frequently Asked Questions

Does a UAE company pay corporate tax on foreign income?

Yes. A resident juridical person is taxed on income earned inside and outside the UAE, so foreign-source profit is inside the 9% by default. Relief comes from the foreign tax credit in Article 47 or the foreign permanent establishment election in Article 24, not from a general exemption.

How does the UAE foreign tax credit work?

It reduces the corporate tax due by the foreign tax paid on the same income. Article 47(2) caps the credit at the UAE corporate tax due on that income, so relief stops at 9%, and Article 47(3) provides that any unutilised credit cannot be carried forward or carried back.

What happens if I paid more than 9% tax abroad?

The excess is unrelieved and permanently lost. The credit is limited to the UAE tax due on the relevant income and the surplus cannot be carried to another period, which is why reducing the foreign rate through a treaty is worth more than crediting it afterwards.

Can I exempt my foreign branch from UAE corporate tax?

Only if it is taxed abroad at a rate of at least 9%. Article 24(7) restricts the foreign permanent establishment exemption to branches subject to corporate tax or a tax of similar character at not less than the UAE rate, so a branch in a low-tax jurisdiction cannot be exempted.

Can I exempt one foreign branch and not another?

No. Article 24(6) applies the exemption to all foreign permanent establishments that meet the 9% condition, so the election is all or nothing across qualifying branches.

What happens to losses in an exempt foreign branch?

They are excluded too. Article 24(2)(a) removes losses in any exempt foreign permanent establishment from the UAE calculation along with the income, so a company with a loss-making qualifying branch may be better off remaining on the foreign tax credit.

Is there withholding tax on payments out of the UAE?

No. Article 45(1) sets withholding tax at 0% on prescribed categories of state-sourced income derived by a non-resident, and no Cabinet decision has set a different rate. Payments to foreign suppliers, lenders and shareholders leave without a UAE deduction at source.

Can I deduct foreign income tax as an expense instead of claiming a credit?

No. Article 33(8) expressly denies a deduction for tax on income imposed on the taxable person outside the State, so the credit under Article 47 is the only route to relief for foreign income tax.

Does a foreign subsidiary’s profit get taxed in the UAE?

Not as your income. A subsidiary is a separate taxable person in its own jurisdiction, and its profits reach the UAE parent as a dividend rather than as branch income, which is a different analysis from the branch rules in Article 24.

Do I need a tax residency certificate to claim treaty relief?

Generally yes, because a foreign payer applying a reduced treaty rate will ask for proof of UAE residence. The FTA issues the certificate, and the distinction between a domestic certificate and one issued for double taxation agreement purposes matters for which one the foreign authority will accept.

Official Sources

Information current as of August 2026. Verify with official authorities before proceeding.

This guide is for informational purposes only and is not tax advice. UAE regulations and rates are subject to change. Always verify current requirements with the Federal Tax Authority or a qualified tax adviser before proceeding with any filing or arrangement.