All sums for the purposes of the UAE Corporate Tax Law are determined in the United Arab Emirates Dirham (AED).
Introduction – Chapter 13 Calculation of UAE Corporate Tax Payable
One of the key provisions of the UAE Corporate Tax Law are the ones laid down for calculation of Corporate Tax Payable. 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 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.
Any amount calculated in another currency must be converted using the current exchange rate set by the United Arab Emirates Central Bank subject to any restrictions that may be outlined by the Authority.
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 in the following manner:
- 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. 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.
- Foreign Tax Credit: To the extent that there is any remaining amount after exhausting one’s Withholding Tax Credit, the Taxable Person can now by use any Foreign Tax Credit available to it as determined under Article 47 of the UAE Corporate Tax Law, .
- By using any credits or reliefs: If there is any Corporate Tax Liability remaining after utilising WTC and FTC, the Taxable Person may use any other credits or relief available with (as per any decision of the Cabinet) it to reduce their Tax Payable by such amount.
- Settle remaining Corporate Tax Liability within nine months: Any shortfall in tax after completely utilising 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 end of Tax Period.
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Article 45 – Applicability of Withholding Tax under the UAE Corporate Tax
Withholding tax is collected at source by the payer of the income on behalf of the recipient of it. It is kind of Corporate Tax that is generally applicable to international payments like dividend, interest, royalties, etc.
- 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:
- UAE-sourced Income: The various types of State-Sourced Income derived by a Non-Resident to the extent of the income which is not attributable to a Permanent Establishment of the Non-Resident Person in the UAE
- Any other income that may be specified by the Cabinet.
- 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.
- 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, the Corporate Tax Payable under the UAE Corporate Tax Law may be reduced by the Withholding Tax Credit for that Tax Period.
- Maximum Withholding Tax Credit: The maximum Withholding Tax Credit under the UAE Corporate Tax Law shall be lower of:
- The amount of Withholding Tax deducted under Article 45 of the UAE Corporate Tax Law; or
- The Corporate Tax due in accordance with the UAE Corporate Tax Law.
- Excess Withholding Tax Credit: Any excess Withholding Tax Credit for a Tax Period shall be refunded to the Taxable Person as per Article 49 of the UAE Corporate Tax Law.
Article 47 – Foreign Tax Credit under the UAE Corporate Tax
Foreign Tax credit is the amount of tax which is paid on the income or profits as per the foreign jurisdiction and it can be deducted from the Corporate Tax due as per the specified conditions under UAE Corporate Tax Law.
The Foreign Tax Credit is to be utilized as follows:
- The amount of the Foreign Tax Credit for the applicable Tax Period may be deducted from the Corporate Tax Payable under the UAE Corporate Tax Law.
- 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, the UAE CT law mandates Taxable Persons to maintain all necessary documents and records relevant for claiming FTC.
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