UAE Corporate Tax on Foreign Income: Dividends, Share Gains, Branches and Tax Credits
How a UAE company's foreign income is taxed: the participation exemption for dividends and share gains, the branch election and foreign tax credits.
Zola
UAE Business Advisory Team
Table of contents
Share
As of October 2026, a company incorporated in the UAE, or incorporated abroad but effectively managed and controlled in the UAE, is taxed on its worldwide income under Federal Decree-Law No. 47 of 2022, and the Federal Tax Authority's guide to the taxation of foreign source income sets out three reliefs for income earned abroad: the participation exemption for foreign dividends and share gains, an election to exempt foreign branch profits, and a credit for foreign tax paid. Foreign income has no rate of its own: it is added to the company's other income and taxed at 0% on taxable income up to and including AED 375,000 and 9% above that, for every taxable person other than a Qualifying Free Zone Person.
Which relief applies depends on how the money reaches your company. A dividend from a foreign subsidiary, a fee from a foreign client with tax withheld and the profit of a branch you run abroad each follow a different rule, set side by side in the table below. Who pays corporate tax, registration and the general rates are covered in our guide to how UAE corporate tax works; this page deals only with income from abroad.
How the income reaches your company | Relief that can apply | Main condition | Foreign tax paid on it |
|---|---|---|---|
A dividend from a foreign company, or a gain on selling its shares | Participation exemption (Article 23) | The shareholding is a Participating Interest: 5% or more, or an acquisition cost of AED 4,000,000 or more, held for 12 months, in a company taxed at 9% or more | No credit, because the income is exempt |
The profit of a branch the company runs abroad | Foreign branch election (Article 24) | Covers every foreign branch subject to tax at 9% or more; the company cannot choose some branches and leave out others | Disregarded along with the branch's income |
Fees, interest, royalties, or branch profit that stays taxable | Foreign Tax Credit (Article 47) | A foreign tax of a similar character to corporate tax, paid and documented | Credited up to the UAE tax due on that income, with no carry forward |
As of October 2026, according to Federal Decree-Law No. 47 of 2022 and the FTA's foreign source income guide (CTGFSI1).
When Foreign Income Is Taxable for a UAE Company
Foreign income is taxable for a UAE company unless a specific exemption or exclusion takes it out. The FTA guide says a juridical person incorporated in the UAE, or incorporated outside it but effectively managed and controlled in the UAE, is a Resident Person subject to corporate tax on income derived from the UAE and from outside it, and that the Corporate Tax Law applies to tax periods starting on or after 1 June 2023 (Source: FTA, CTGFSI1, Sections 2.1 and 3).
Foreign income and foreign costs are pooled with everything else. Taxable income and deductible expenditure from all sources, domestic or foreign, are aggregated, so a tax loss from a foreign source can reduce UAE taxable income. The exceptions are expenses that relate to exempt income and the results of a foreign branch exempted under the election described below (Source: FTA, CTGFSI1, Sections 7.1.4 and 7.3).
What Counts as Foreign Income
The FTA defines foreign source income as income that originates in a foreign jurisdiction and is earned or received by a person in the UAE. Its own examples are dividends and other profit distributions from companies that are not UAE resident, gains on selling shares in such companies, interest on a loan or deposit outside the UAE, income from selling goods or providing services outside the UAE, income from property located outside the UAE, royalties for intellectual property used outside the UAE, and the profits or losses of a branch abroad, which the law calls a Foreign Permanent Establishment.
What Does Not Count as Foreign Income
Free zones are inside the UAE, so income your company receives from a Free Zone Person is not foreign source income. The same goes for a branch on the UAE mainland: the FTA guide says income from a Domestic Permanent Establishment is not foreign source income, while a Qualifying Free Zone Person's income from a branch outside the UAE is (Source: FTA, CTGFSI1, Sections 4.2 and 4.3).
This page is about companies. For individuals, the FTA guide says a person is taxed on business income only where turnover from business in the UAE is above AED 1 million in a calendar year, and on foreign income only where it relates to that UAE business, while salary, personal investment income and real estate investment income are not subject to corporate tax wherever they arise. Large multinational groups have further rules that this page does not cover.
Foreign Dividends and Capital Gains on Foreign Shares
Dividends from a foreign company, and gains on selling shares in one, are exempt from UAE corporate tax when your shareholding is a Participating Interest under Article 23 of Federal Decree-Law No. 47 of 2022. A shareholding that misses any condition leaves the dividend or gain taxable at the normal rates, where a Foreign Tax Credit may reduce the bill.
For tax periods starting on or after 1 January 2025, Ministerial Decision No. 302 of 2024 sets out how the conditions apply. It repealed Ministerial Decision No. 116 of 2023, which still governs tax periods that began before that date. If you are still deciding how to hold foreign subsidiaries, our guide to UAE holding company structures compares the options; the conditions themselves are below.
The Five Conditions for the Participation Exemption
Article 23(2) of the Corporate Tax Law sets the conditions in this order, and a shareholding must meet all five.
Ownership: your company holds 5% or more of the foreign company, or, under Article (8) of Ministerial Decision No. 302 of 2024, the aggregated acquisition cost of its shares is AED 4,000,000 or more (Article 23(2)).
Holding period: your company has held the shares, or intends to hold them, for an uninterrupted period of at least 12 months (Article 23(2)(a)).
Subject to tax: the foreign company is subject to corporate tax, or a tax of a similar character, at a rate of at least 9% (Article 23(2)(b)); under Article (6) of Ministerial Decision No. 302 of 2024 this is met by a tax applied on a similar basis to UAE corporate tax at a statutory rate of at least 9%, or by an effective tax rate of at least 9% in the tax period, and a tax that is due only when profits are distributed, or refunded when they are, does not count.
Profit and liquidation rights: the shares give your company at least 5% of the foreign company's profits available for distribution and at least 5% of its liquidation proceeds (Article 23(2)(c)).
Asset test: not more than 50% of the foreign company's direct and indirect assets consist of ownership interests that would not have qualified themselves (Article 23(2)(d)).
When all five are met, Article 23(5) exempts both the dividends and the gains or losses on selling or otherwise disposing of the shares. A loss on selling a Participating Interest is therefore left out of taxable income in the same way as a gain.
When the Exemption Does Not Apply
Article 23 also contains four rules that limit the exemption, even where a shareholding appears to qualify.
A dividend is not exempt to the extent the foreign company can deduct it for tax under its own country's rules (Article 23(6)).
A loss realised on liquidating the foreign company is not covered by the exemption (Article 23(8)).
The exemption does not apply for 2 years where your company acquired the shares in exchange for a shareholding that did not qualify, or through a restructuring transfer exempted under Article 26 or 27 (Article 23(9)).
If your company does not keep its 5% holding for 12 months, income exempted earlier is added back to taxable income in the tax period in which the holding falls below 5% (Article 23(10)).
The last rule is the price of the intention test: a company that claims the exemption because it intends to hold the shares for 12 months, and then lets its holding fall below 5% before then, sees the earlier exemption reverse.
Costs and Withholding Tax on Exempt Dividends
Exemption cuts both ways. The FTA guide says costs relating to exempt income are not deductible, and gives the cost of acquiring a Participating Interest in a foreign company as its example, so the expense of acquiring or managing a qualifying shareholding does not reduce your UAE taxable income (Source: FTA, CTGFSI1, Section 7.1.3). No Foreign Tax Credit is available on an exempt foreign dividend either, even if the other country withheld tax from it (Source: FTA, CTGFSI1, Section 8.3).
How Foreign Branch Profits Are Taxed
A branch abroad is part of your UAE company, not a separate company, so its profits and losses are included in your UAE taxable income unless you elect to exempt them under Article 24 of the Corporate Tax Law. Without the election, foreign tax the branch pays can be credited as described in the next section. This is the reverse of a foreign company opening a branch in the UAE, which is covered in our guide to opening a branch of a foreign company in Dubai.
The Foreign Branch Exemption Election
Article 24 lets a resident company elect to leave the income and associated expenditure of its foreign branches out of its taxable income. The election reaches every foreign branch that is subject to corporate tax, or a tax of a similar character, at a rate of at least 9%, and the FTA guide says a company with several foreign branches cannot choose different treatments for different branches. A branch that does not meet the 9% condition is not covered by the election and stays inside UAE taxable income.
Once the election applies, the law sets three consequences.
The branches' profits, losses and associated expenditure are all disregarded, and so is any Foreign Tax Credit that would have been available on them (Article 24(2)).
The head office and each branch are treated as separate and independent persons (Article 24(4)).
Transfers between the head office and a branch are treated as taking place at Market Value (Article 24(5)).
The trade-off is losses. With the election, a branch's losses no longer reduce your UAE profits; without it, they do, because foreign and UAE results are aggregated.
Branch Losses Already Used Against UAE Profits
A company that has already deducted a foreign branch's tax losses against its UAE profits cannot switch to the exemption as soon as the branch turns profitable. Article (14) of Ministerial Decision No. 302 of 2024 says the aggregate of those losses must first be fully offset, either by taxable income from the company's qualifying foreign branches or by an adjustment, before the company can elect the foreign branch exemption.
Bringing Branch Profits Back to the UAE
Moving a branch's surplus cash to the head office in the UAE is not taxable. In Example 8 of its guide, the FTA explains that branch and head office are the same legal person, so the repatriation is a receipt of the company's own funds and not a taxable event.
Foreign Branch or Foreign Subsidiary
The legal form you use abroad decides which relief applies. A foreign branch is either exempted under the Article 24 election or kept taxable, with its losses counted against UAE profits and its foreign tax credited. A foreign subsidiary is a separate company, so its profits reach you as dividends, and those dividends and any gain on selling its shares fall under the participation exemption and its five conditions. The 9% test follows the same split: for a branch it applies to the branch itself, and for a subsidiary to the foreign company that pays the dividend.
How the Foreign Tax Credit Works
Foreign income that is neither exempt nor excluded is taxable in the UAE, and foreign tax paid on it can be credited against your UAE corporate tax under Article 47 of the Corporate Tax Law: the Foreign Tax Credit. The FTA guide says the credit is allowed even where the UAE has no double taxation agreement with the other country (Source: FTA, CTGFSI1, Sections 3 and 8.5).
Which Foreign Taxes Qualify
A foreign tax qualifies when it is of a similar character to corporate tax: imposed by and payable to a foreign government, compulsory, and charged on profit or net income. The FTA treats foreign withholding tax as meeting that last test, which is why tax withheld from a foreign client's fee, from interest or from a royalty can be credited. These do not qualify: value added tax, goods and services tax and sales tax; customs and excise duty; stamp tax, capital duty and other transaction taxes; property and wealth taxes; estate and inheritance taxes; and foreign interest, fines and penalties (Source: FTA, CTGFSI1, Section 8.1.1).
How the Credit Is Capped
The credit is the lower of two amounts: the foreign tax actually paid on the income, and the UAE corporate tax due on that same income, worked out on the net foreign income. Because the first AED 375,000 of taxable income is taxed at 0%, the FTA does not apply a flat 9% to find the UAE tax on the foreign income. It uses a weighted average: the corporate tax due on total taxable income before any credit, multiplied by the foreign income, divided by total taxable income (Source: FTA, CTGFSI1, Section 8.3.1).
The FTA's Worked Example
Example 10 of the FTA guide shows the formula at work. A company has taxable income of AED 10,000,000, which includes AED 1 million of net foreign interest on which AED 50,000 was withheld abroad. Its corporate tax before any credit is AED 866,250, which is 9% of the taxable income above AED 375,000. The cap on the credit is AED 866,250 multiplied by AED 1 million and divided by AED 10,000,000, which gives AED 86,625. The foreign tax paid, AED 50,000, is the lower figure, so the credit is AED 50,000 and the company's corporate tax payable is AED 816,250.
Had more than AED 86,625 been withheld abroad, the credit would have stopped at AED 86,625, and the rest would have been lost for the reasons below.
Unused Credit Cannot Be Carried Forward
Foreign tax above the cap does not wait for a later year. The FTA guide says unused Foreign Tax Credit cannot be carried forward to future tax periods or carried back to earlier ones, and cannot be deducted from taxable profits, so it is forfeited. Three more limits apply to the credit.
It is calculated income by income, so excess credit on one foreign income cannot be set against UAE tax on another.
No credit is available in a tax period with no corporate tax payable, such as a loss year.
No credit is available on exempt income, such as a foreign dividend covered by the participation exemption.
Treaties and the Timing of the Credit
Foreign tax counts as paid in the tax period in which the related foreign income is taxed in the UAE, even if it is remitted to the foreign authority later. Where a double taxation agreement limits the tax the other country may charge, the UAE credit is limited to that treaty rate, and where an agreement is inconsistent with the Corporate Tax Law, Article 66 says the agreement prevails (Source: FTA, CTGFSI1, Sections 2.4, 8.4 and 8.5). A treaty can therefore change the result for a particular country, and our guide to the UAE's tax treaties covers how they work and how to obtain a Tax Residency Certificate.
Foreign Income of a Free Zone Company
A Qualifying Free Zone Person's 0% rate does not reach income from a branch abroad. The FTA's Free Zone Persons guide lists income attributable to a Foreign Permanent Establishment among the income that does not give rise to Qualifying Income and is taxed at 9%, unless another provision exempts it, such as the foreign branch election.
Foreign Branch Revenue and the De Minimis Test
The same guide sets the de minimis test: a Free Zone Person's non-qualifying revenue must not exceed the lower of AED 5,000,000 or 5% of its total revenue. Citing Article 3(1) of Cabinet Decision No. 100 of 2023, it says revenue attributable to a foreign branch is not taken into consideration when that test is assessed. A Qualifying Free Zone Person's foreign branch income is therefore taxed at 9% without counting towards the non-qualifying revenue limit. Which activities count as qualifying is set by Ministerial Decision No. 229 of 2025, the current decision on Qualifying Activities and Excluded Activities.
No Credit on 0% Qualifying Income
Foreign tax paid on a Qualifying Free Zone Person's Qualifying Income cannot be credited, because that income is taxed at 0% and there is no UAE tax for the credit to reduce (Source: FTA, CTGFSI1, Section 8.3). Income your company receives from another Free Zone Person is not foreign income at all, as set out above.
Small Business Relief and Foreign Tax
A company that elects Small Business Relief cannot claim a Foreign Tax Credit for that tax period. The FTA guide says no credit is available where no corporate tax is payable because of the election, and since unused credit cannot be carried forward, foreign tax withheld while the relief is elected is not credited in a later period either.
According to the Ministry of Finance, Small Business Relief applies to tax periods ending on or before 31 December 2029, following Ministerial Decision No. 131 of 2026. Revenue of AED 3 million or less qualifies, and Qualifying Free Zone Persons and members of multinational enterprise groups cannot elect the relief.
Exchange Rates and the Records the FTA Asks For
Two record-keeping rules apply to foreign income: amounts are converted into AED at Central Bank of the UAE rates, and a credit needs proof of the foreign tax paid.
Converting Foreign Amounts Into AED
Every foreign currency amount is converted into AED at the exchange rate published by the Central Bank of the UAE. The FTA guide accepts spot rates, monthly average rates or yearly average rates, provided the method is used consistently throughout a tax period, and it requires the company to keep a record of why it chose the method and of the rates it used (Source: FTA, CTGFSI1, Section 7.1.5).
Records to Keep for a Foreign Tax Credit
For each foreign income on which you claim a credit, the FTA guide asks you to keep records of the following.
The amount of foreign income taxed abroad, in the currency of the foreign country.
The exchange rate used to convert it into AED.
The financial year in which the income was derived.
The nature and amount of the foreign tax charged on it.
The date on which the foreign tax was paid.
Whether the payment was an advance instalment, a withholding or a final payment of tax.
As evidence that the tax was paid, the FTA accepts an official receipt from the foreign tax authority, a certificate of deduction of withholding tax, a copy of a tax return filed abroad with its calculations, or a letter from the foreign tax authority, and a document that is not in Arabic or English needs a certified translation (Source: FTA, CTGFSI1, Section 8.6). These records sit alongside the general UAE accounting and bookkeeping requirements, and our guide to filing your UAE corporate tax return covers the return they support.
If Foreign Tax Is Refunded Later
If the foreign authority later refunds tax you have already credited, the credit has to be corrected and the FTA told. Confirm the current disclosure requirements, including any amount and deadline, with the FTA when it happens.
The FTA's guides are general guidance and not legally binding. The Corporate Tax Law and its implementing decisions set the rules, and the FTA says each person's own circumstances should be considered (Source: FTA, CTGFSI1, Section 2.6).
How your company's foreign income is taxed comes down to how each stream reaches it: as a dividend or share gain, as the profit of a branch, or as a fee or interest with foreign tax withheld. Zola's accounting, tax and compliance team can map each stream to the treatment that applies and keep the records the FTA asks for. Create your Zola account to get started.