New Rules for Tax Settlement and Credit Refunds

The UAE has issued a new Federal Decree-Law amending Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses. The amendment introduces a structured approach to calculating and settling CIT (Corporate Income Tax) obligations and creates a formal process for businesses to claim refunds on unutilised tax credits.

For businesses in the UAE, these changes bring welcome clarity to how tax liabilities should be settled and how excess credits can be recovered.

A Defined Sequence for Settling

The amendment establishes a clear order for businesses to apply available credits and incentives before paying any remaining tax liability. This structured approach removes ambiguity and ensures consistent treatment across all taxpayers.

The settlement process works as follows. First, the CIT liability is offset against any available WHT (Withholding Tax) credit balance under Article 46 of the law. If a balance remains after this step, businesses may then apply their available FTC (Foreign Tax Credit) in accordance with Article 47. Following this, any other approved incentive or relief balances may be applied. The Cabinet will specify these additional reliefs based on recommendations from the Ministry of Finance. Once all applicable credits have been used, any remaining tax due must be paid in accordance with Article 48.

This sequencing matters because it determines the order in which different types of credits are consumed. Businesses cannot choose to preserve certain credits while paying cash if other credits are available higher in the sequence.

Refunds for Unutilised Tax Credits

One of the more significant additions is the formal mechanism for claiming refunds on unutilised credits. Previously, the process for recovering excess credits derived from eligible incentives and reliefs was not clearly defined in the law. The amendment addresses this gap.

Businesses that accumulate credits exceeding their tax liability will now have a defined pathway to request refunds. This is particularly relevant for companies benefiting from specific incentive schemes where credits may build up over time.

What This Means for Your Business

If your UAE company is subject to CIT, you should review how these changes affect your tax planning. Companies with foreign tax credits, withholding tax exposures, or those benefiting from government incentives should pay particular attention to the new settlement hierarchy.

Proper documentation of all credits and their sources will be essential. The structured approach means your finance team or advisors need to track each credit type separately and apply them in the correct order when filing returns.

For businesses that expect to generate excess credits, understanding the refund process will be important for cash flow planning. Credits that previously sat on the balance sheet indefinitely may now be recoverable.