Hadef Newsflash : UAE Corporate Tax Incentives: The Impact of Federal Decree Law No. 28 of 2025 on the Calculation of Corporate Tax Payable and the Refund of Excess Credits.

Federal Decree-Law No. 28 of 2025 (the Amendment Law) has recently been issued to amend Federal Decree Law No. 47 of 2022 on Taxation of Corporations and Businesses (the CT Law). It amends the CT Law by revising Article 44 dealing with the determination of CT payable and by introducing a new Article 49 bis that provides for a refund of excess tax credits. Prior to this amendment, the CT Law has only been amended once before by Federal Decree Law 60 of 2023 as part of the UAE’s adoption of Pillar 2 and the introduction of a domestic minimum top-up tax.

In this newsflash we briefly consider the two changes, their practical implications for UAE taxable persons and their relevance in the context of current UAE and global tax reforms.   

TAX ANALYSIS

The Amendment Law introduces two changes to the CT Law. Firstly, it introduces a revised Article 44 that deals with the calculation and settlement of a taxpayer’s Corporate Tax (CT) liability. Secondly it introduces a new Article 49 bis, which affords a taxpayer the right to claim its unused tax credit balance. The Amendment Law was issued on 1 October 2025 and came into effect on the day following publication in the Official Gazette in late December. The Amendment Law is therefore effective at the time of this publication. 

Article 44 – Sequence of Settlement 

The revised Article 44 provides that CT shall be settled in the following order:

1. By applying the balance of Withholding Tax Credits attributable to the taxable person as determined under Article 46 of the CT Law.
2. If there is still an amount of CT due after applying clause 1, by applying the available balance of Foreign Tax Credits as determined under Article 47.
3. If there is still an amount of CT due after applying clause 2, by applying any credits, incentives or other forms of relief as may be specified by Cabinet Decision at the suggestion of the Minister.
4. If there is still an amount of CT due after applying clause 3, this amount shall be paid in accordance with Article 48 of the CT Law (requires payment within 9 months from the end of the relevant tax period, unless otherwise determined by the Federal Tax Authority (FTA)).

The amended Article 44 therefore aligns with the original as far as the order of settlement is concerned, but expands on the third category by expressly including a reference to incentives that might be introduced though Cabinet Decision in future. 

From a practical perspective, the UAE does not currently impose any withholding tax and the first category would therefore not find application as no credit would arise under Article 46. Foreign tax credits on the other hand are relevant, and taxpayers should ensure that they maintain the relevant supporting documentation to support any foreign tax credits claimed under Article 47. Taxpayers can refer to the FTA’s Guide on the Taxation of Foreign Source Income (CTGFSI1) for guidance on the requirements and documentation that need to be maintained in this regard.

The third category refers to credits, incentives or other forms of relief as may be specified by Cabinet Decision. Article 44 does not prescribe what these are, but rather serves to incorporate them into the formula to be applied when calculating CT payable. This has presumably been done in anticipation of future tax incentives that will be announced by the Ministry of Finance (MOF) in due course (see comments below on anticipated incentives). 

Article 49 bis – Refund for Tax Credits 

Prior to the amendment, a taxable person was only able to claim a CT refund under Article 49 where:

1. its Withholding Tax Credits exceed its CT payable; or
2. where the taxable person has paid CT in excess of what is due. 

Practically speaking, as no withholding taxes are imposed at present, a refund claim can therefore only arise where the taxable person has overpaid CT.  

Article 49 bis expands on this by providing a taxable person with the right to claim back excess (or unused) tax credits arising from incentives and reliefs as provided under Article 20(2)(g) and Article 44(3) of the CT Law, subject to the periods, controls, and procedures specified by Cabinet Decision. The FTA is further granted the ability to withhold amounts from CT and other supplementary tax revenues for the purposes of settling these claims, subject to a decision by its Board of Directors.

In summary article 49 bis expands a taxable person’s ability to claim refunds under the CT Law, by adding the right to claim back excess tax credits that might result from future CT incentives and reliefs 

Implications for Taxpayers

In practice the amendments lay the groundwork for integrating future tax incentives into the UAE’s CT framework by:

1. confirming that tax credits arising from future incentives and/or reliefs (as determined by Cabinet Decision) will be applied in reduction of the taxable person’s CT Payable; and
2. where these tax credits exceed the CT Payable, such excess can be claimed back as a refund. 

The Amendment Law does not introduce or provide any guidance on the incentives or reliefs that will give rise to these tax credits and we therefore await further guidance on this. The Amendment Law also does not address administrative aspects such as the time periods, controls, and procedures for claiming a refund and this will also have to be determined through future Cabinet Decisions. 

Relevance in the context of UAE and Global Tax Reforms

UAE Tax Incentives

MOF has previously indicated that it is considering the introduction of a Research and Development (R&D) tax incentive, aimed at encouraging R&D activities within the UAE, with the proposed incentive expected to take effect for tax periods starting on or after 1 January 2026. Although no formal legislation has been released yet, it is understood that the incentive will be expenditure-based, offering a potential tax credit ranging between 30 to 50 per cent and that it will be refundable depending on the revenue and number of employees of the business in the UAE. It is further understood that the scope of qualifying R&D activities will be aligned with the OECD’s guidelines.

A refundable tax credit for high-value employment activities is also being considered. This seeks to encourage businesses to engage in activities that deliver significant economic benefits, stimulate innovation, and enhance the UAE’s global competitiveness. MOF has previously suggested that the incentive could be granted as a percentage of eligible salary costs for employees engaged in high-value employment activities, including C-suite executives and other senior personnel performing core business functions that add substantial value to the UAE economy.

We await further details from MOF on both these incentives.

Interaction with Pillar 2

In terms of Federal Decree Law 60 of 2023 as read with Cabinet Decision No. 142 of 2024 and Ministerial Decision No. 88 of 2025 (the UAE’s Pillar 2 Rules), the UAE has introduced a top-up tax on in-scope multinational enterprises (MNEs) as part of its domestic adoption of Pillar 2 with effect from 1 January 2025.

In summary this requires constituent entities of an in-scope MNE Group to pay a top-up tax in the UAE where the group’s effective tax rate (ETR) in the UAE falls below the global minimum rate of 15%. In summary the ETR of the MNE Group is equal to the sum of the Adjusted Covered Taxes of each Constituent Entity located in the UAE divided by the Net Pillar Two Income of the UAE for the Fiscal Year. Changes to the Constituent Entities’ Adjusted Covered Taxes and Pillar Two Income will therefore factor into the determination of the MNE Group’s ETR and accordingly the top-up tax payable in the UAE.

In the determination of a group’s ETR, special consideration should be given to tax credits, as depending on the characterisation of the tax credit, they impact the ETR calculation in different ways. For example the table below summarises the potential impact of three different types of tax credits on the ETR calculation:

Considering the impact on the ETR computation summarized above, the QTI treatment under the Substance-based tax incentive Safe Harbour therefore appears most favorable for Pillar 2 purposes, followed by a QRTC, and lastly a NQRTC or non-refundable tax credit. In this regard we note that groups may elect to treat a QRTC as a QTI, provided that the QRTC is determined with reference to expenditure incurred or tangible property produced in jurisdiction.

The Amendment Laws and in particular Article 49 bis therefore ensures that tax credits arising from future incentives introduced by MOF (e.g. the proposed R&D incentive or high-value employment incentive) will be refundable under the CT Law for purposes of evaluating their characterisation under Pillar 2 (as read with the SbS Package).

Depending on the form that the UAE incentives ultimately take, these may potentially also qualify as QTIs where they are determined with reference to expenditure incurred in the UAE or based on tangible property produced in the UAE. Taxpayers should therefore carefully consider the nature of these incentives and their potential tax implications, not just from a domestic CT perspective, but also as far as they could impact their domestic top-up tax computation in the UAE.     

OUR TAX SERVICES

Hadef & Partners provide clients with specialist tax advice, planning and implementation support to achieve optimal tax outcomes for their business and personal interests in the UAE. Should you require support, please contact Theunis Claassen, our Head of Tax, to arrange an initial consultation.