Calculating taxable income is one thing. Figuring out how much tax you actually owe, when to pay it, and how to deal with situations like foreign income or refunds? That’s another level of detail altogether. In this blog, we’ll walk you through how corporate tax is calculated in the UAE, how tax credits reduce your liability, the process of making payments, and how businesses can claim refunds if they’ve overpaid. No jargon. Just clear, straightforward explanations.
Preface
So, you’ve worked out your taxable income. Great. But now comes the part where you need to figure out what that means in terms of actual tax liability. That’s where this blog picks up.
We’re going to walk through what happens after you’ve calculated taxable income. We’ll look at how the UAE corporate tax is actually applied, how you can reduce your liability through tax credits, how payments are handled, and what to do if you find yourself in a refund situation. Everything here connects directly to your financial statements—and your calendar.
Let’s break it down step by step.
Calculation and Settlement of Corporate Tax
Your corporate tax starts with a basic formula: apply the tax rate to your taxable income. That gives you the gross tax amount. But you won’t necessarily pay that full figure. Here’s why:
There are deductions and credits you may be able to apply, and they go in this order:
- Foreign Tax Credit
- Withholding Tax Credit
- Any other applicable reliefs or credits
Once you apply all of these, you’re left with your actual payable tax.
Now, there’s a bit of good news here—the UAE does not require advance tax payments. You pay once, not in instalments throughout the year. That’s a huge relief for businesses that prefer to manage cash flow more flexibly.
Also, all your accounting needs to be in AED. If you’ve got income or expenses in another currency, you have to convert it using the Central Bank of UAE’s exchange rate from the date the income or expense was booked—not the payment date, not the invoice date—the actual accrual date.
Foreign Tax Credit
If your company earns income outside the UAE and ends up paying tax in that country, you might be eligible for what’s called a foreign tax credit. It’s designed to protect you from being taxed twice on the same income.
Here’s how it works:
Let’s say you pay tax abroad on income that’s also taxable in the UAE. The UAE allows you to deduct the amount of foreign tax paid from your UAE corporate tax—but only up to the UAE tax payable on that same income.
So if you pay more tax in the other country than you’d owe in the UAE, the excess amount? It’s gone. You can’t carry it forward. You can’t get it refunded. You simply lose the difference.
And of course, the only way to claim this credit is to have complete, accurate records. You’ll need proper documentation to prove the foreign tax was paid—and that you’ve met any conditions that apply under Double Taxation Agreements
Now, this tax credit comes with limits. There are a few situations where the UAE won’t let you claim it.
For example:
- If the income you earned abroad is already exempt from tax in the UAE (like qualified dividends), you can’t claim a credit for foreign tax on it.
- If the tax system in the foreign country calculates tax based on gross income, but UAE corporate tax is based on net profit, you’ll only get credit up to what the UAE would charge—not what you actually paid.
- Also, and this is important—you cannot deduct the foreign tax as a business expense. It can reduce your UAE tax through a credit, yes. But it’s not a deductible cost when calculating taxable income.
So yes, the credit is helpful—but it comes with strings attached.
Payment of Taxes
Paying corporate tax in the UAE isn’t complicated, but there are a few things to get right.
- First, when you make a payment, you have to specify the tax type and the relevant tax period.
- If you don’t? The tax authority has the freedom to apply your payment however they want. That could mean settling old debts or penalties you weren’t planning to clear just yet.
The actual deadline to pay?
You must settle your corporate tax within nine months after your tax period ends.
And how do you pay? The Federal Tax Authority (FTA) will give you instructions on payment methods. Expect online portals, authorized banks, and maybe even approved exchange houses. All of this falls under the Tax Procedures Law (Decree-Law No. 28 of 2022).
Corporate Tax Refund
What if you paid more tax than you should have? Refunds are possible—but not automatic.
You can apply for a refund in these cases:
- Your withholding tax credit was larger than your tax liability
- You’ve overpaid your corporate tax directly
But refunds won’t be issued under certain conditions, such as:
- If your tax records are under audit
- If there’s a dispute or court case pending
- If the overpayment was due to incorrect reporting
And remember: foreign tax credits are never refunded. You can’t ask for a payout just because you paid too much tax in another country. The credit only applies to reduce what you owe in the UAE—nothing more.
Also, if the tax authority approves your refund, they might use it to settle other dues or penalties you owe before giving you the balance.
Recent Updates in UAE Corporate Tax
A few recent changes are worth keeping in mind:
- Small Business Relief
Still available to UAE-resident businesses that bring in less than AED 3 million in revenue during the tax period. If you qualify, you’re treated as having zero taxable income, which means no tax due. - No Registration Requirement for Certain Entities
Some businesses don’t even need to register for corporate tax. These include:
- Government and government-owned bodies
- Businesses engaged in natural resource extraction, as long as they’re taxed at the Emirate level
- Non-residents who earn income from UAE sources but don’t have a permanent presence in the UAE
- Ministerial Decision 68 of 2023
Allows government entities to consolidate all their income and expenses under one tax registration, provided they meet specific requirements. That means simpler reporting and fewer headaches.
As of now, withholding tax remains at 0% for certain non-resident income, but that could change. The UAE can adjust rates through new Cabinet decisions—so always stay tuned for updates.
Final Thoughts
Corporate tax in the UAE might feel like a big shift, but once you understand the moving parts—calculation, credits, payments, and refunds—it starts to make sense.
The tax system is designed to be modern and competitive. You’re not dealing with complicated advance payments or endless filings. At the same time, rules around tax credits, especially for foreign income, require precision and documentation.
What’s important now is this: get your financials in order. Know what qualifies for credits, and don’t miss payment deadlines. UAE’s corporate tax law is built to support businesses—but only if they play by the rules.
So take the time to understand your obligations now. It’ll save you far more time (and cost) later.
