1. Relevance of foreign source income under the Corporate Tax Law
2. What is considered foreign source income for Taxable Persons under the Corporate Tax Law?
3. Which Taxable Persons are subject to tax on foreign source income?

A Resident Person in the UAE, or a Non-Resident Person with a Permanent Establishment in the UAE, may earn income from a foreign jurisdiction i.e. “foreign source income” due to activities, operations or assets in another jurisdiction. The UAE Corporate Tax treatment of foreign source income depends on the type of Person receiving the income, the nature of the income and the availability of exemptions and reliefs.

In the case of a Taxable Person, foreign source income may be subject to Corporate Tax as follows:

• A juridical Resident Person, for example a company incorporated in the UAE, is subject to tax on its worldwide income. Hence, any foreign source income may be subject to Corporate Tax in the UAE.
• A natural Resident Person is subject to tax on any income derived from a Business or Business Activity they conduct in the UAE if the total Turnover from such a Business or Business Activities is above AED 1 million within a Gregorian calendar year.

Thus, any foreign source income which is linked to the Business or Business Activity they conduct in the UAE may be subject to Corporate Tax in the UAE. A Non-Resident Person having a Permanent Establishment in the UAE is typically taxed on the income generated from activities conducted in the UAE. Thus, if it receives any foreign source income attributable to its Permanent Establishment in the UAE, that income may be subject to Corporate Tax. The next step is to consider if any exemptions are available with respect to the foreign source income, typically to reduce or eliminate potential double taxation. For example:  the Participation Exemption with respect to Dividends, profit distributions and capital gains derived from juridical Non-Resident Persons.

Where no exclusion or exemption applies, the foreign source income is taxable in the UAE. However, if taxes are paid in the foreign jurisdiction on the foreign source income, this may give rise to a Foreign Tax Credit, potentially reducing the Corporate Tax Payable in the UAE.

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