Introduction

Many UAE businesses operate branches or permanent establishments outside the country. Under the UAE Corporate Tax regime, these entities must assess whether income from foreign branches should be taxed in the UAE or if they can claim an exemption or tax credit to avoid double taxation.

This blog explains the options available for foreign branch income and the conditions for claiming double tax relief.

Taxation of Foreign Branch Income

By default, income earned from foreign branches is included in the UAE taxable income. However, under Article 24 of the Corporate Tax Law, businesses may elect to:

Exclude foreign branch income from UAE taxation, provided the following conditions are met:

• The foreign branch is subject to tax in its home country
• The branch income is not earned in a tax haven or used for tax avoidance
• The business maintains proper audited financials for the foreign branch

Conditions for Electing Exemption

To exclude foreign branch income:

1. The election must be made in the corporate tax return
2. It applies only to that financial year (must be renewed annually)
3. The company must:
   1. Be a UAE resident juridical person
   1. Maintain separate financials for the foreign branch
   1. Provide proof of taxation abroad (e.g., local tax return, payment receipts)

Alternative: Foreign Tax Credit

If a company chooses not to exempt foreign branch income, it may claim a foreign tax credit for taxes paid abroad.

Rules for Tax Credit:

• Credit must not exceed the UAE Corporate Tax due on the same income
• Excess foreign tax cannot be carried forward or refunded
• Documentary proof of payment is mandatory

Example

• UAE company earns AED 1 million from a branch in Germany
• Pays EUR 50,000 in German corporate tax
• UAE Corporate Tax on AED 1M = AED 90,000
• Foreign tax credit = AED 90,000 (or actual amount paid, whichever is lower)
• ✅ Net UAE tax due = AED 0 (if full credit is applied)

Important Considerations

• Electing exemption or credit must be made per country and per year
• Income from non-taxable jurisdictions is NOT eligible for exemption
• If you exempt income, foreign losses cannot be deducted in the UAE

Final Thoughts

Foreign branch income doesn’t always have to be taxed twice. UAE businesses should evaluate whether exemption or foreign tax credit offers a better outcome — and maintain proper documentation to support their claims.

Need Help With Foreign Branch Tax Planning?

At Think Biz Management Consultancies, we assist clients with:

• Electing foreign income exemptions
• Claiming foreign tax credits
• Reviewing branch profitability and exposure

Reach out today to protect your international income from unnecessary tax liability.

Contact us today for a free consultation.

Contact number: ‪+971 50 983 0334‬

Email ID: info@alphabets.ae