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The UAE has introduced a significant overhaul to its Corporate and Business Tax framework, delivering long-awaited clarity on how businesses can utilise, offset, and even recover corporate tax credits. Announced through a new Federal Decree-Law on December 15, 2025, these amendments refine the rules around tax settlements, refunds, and incentives—creating tangible opportunities for eligible businesses to unlock refunds, optimise liabilities, and strengthen cash flow while remaining fully compliant with Federal Tax Authority (FTA) requirements.
What Changed Under the New Corporate Tax Amendments
The updated law clarifies how corporate tax liabilities must be calculated and settled when businesses benefit from credits, incentives, or reliefs. Crucially, it introduces a structured mechanism allowing taxable persons to claim payments for unutilised tax credits, subject to conditions and procedures determined by the FTA.
This marks a shift from a purely offset-based system to one that recognises refundable elements in specific scenarios—enhancing fairness and predictability for taxpayers.
How the New Corporate Tax Settlement Mechanism Works
The amendments establish a mandatory sequential order for settling corporate tax liabilities, ensuring consistency and transparency.
Step 1: Withholding Tax Credits (Article 46)
Any available withholding tax credit balance must be utilised first. While the UAE currently applies a 0% withholding tax, this provision sets a clear framework for future applicability.
Step 2: Foreign Tax Credits (Article 47)
If a tax liability remains after applying withholding tax credits, businesses may offset foreign tax credits related to overseas income, subject to limitations and eligibility rules.
Step 3: Other Approved Incentives and Reliefs
Cabinet-approved incentives or reliefs—such as employment-related tax credits or sector-specific incentives—are applied next. Importantly, any unutilised balance under qualifying incentives may now be eligible for a refund.
Step 4: Final Tax Payment (Article 48)
Any remaining corporate tax liability must be settled through direct payment to the FTA.
Refunds for Unutilised Corporate Tax Credits
One of the most impactful changes is the ability to claim refunds for certain unused tax credits. Previously, excess credits often expired or remained unusable.
Under the new framework:
- refunds are subject to FTA approval,
- claims must be made within prescribed time limits,
- supporting documentation and calculations are required,
- the FTA may offset approved refunds against future corporate or top-up tax liabilities.
This creates real cash-flow benefits for qualifying businesses.
Interaction with the UAE Corporate Tax Regime
These amendments build on the existing corporate tax framework introduced in June 2023.
Key points include:
- a 9% corporate tax rate on taxable profits exceeding AED 375,000,
- continued reliefs for qualifying Free Zone Persons on eligible income,
- clearer alignment between accounting results and taxable income,
- increased emphasis on accurate accrual-based accounting.
Businesses must ensure their tax computations correctly reflect credit utilisation and sequencing.
Impact on Multinational Groups and DMTT
For large multinational enterprises, the amendments intersect with the UAE’s Domestic Minimum Top-up Tax (DMTT), effective January 1, 2025, under OECD Pillar Two.
This means affected groups must:
- reassess effective tax rates across UAE entities,
- prepare enhanced reporting such as master files, local files, and CbCR,
- review Free Zone structures and incentive eligibility,
- evaluate how refundable credits impact top-up tax calculations.
Strategic tax planning is now essential to avoid unintended exposure.
Foundations for Future Withholding Tax
Although withholding tax is currently set at 0%, the clarified settlement order establishes a legal framework for future implementation. Businesses engaged in cross-border transactions should factor this into long-term tax planning and contract structuring.
Why Businesses Should Act Now
The new rules increase both opportunity and responsibility.
Businesses should:
- review historic and current tax credit positions,
- identify unutilised incentives that may qualify for refunds,
- check time limits and eligibility conditions,
- align accounting systems with accrual-based tax reporting,
- prepare for more detailed FTA scrutiny.
Failure to act proactively could mean lost refunds or compliance risks.
Conclusion
The UAE’s latest corporate tax amendments represent a major step forward—unlocking refundable credits, clarifying settlement mechanics, and strengthening alignment with global tax standards. While compliance requirements are increasing, the reforms also provide meaningful opportunities for businesses to reduce liabilities and improve cash flow when managed correctly. Danix Consultancy supports UAE businesses with corporate tax planning, compliance, credit optimisation, and FTA liaison services to help navigate this evolving landscape confidently. To explore how these changes impact your business, visit our contact page.
