INTRODUCTION
The Emirate of Dubai in 2024 issued Law No. (1) of 2024 Concerning Tax on Foreign Banks Operating in the Emirate of Dubai. The law’s passing is an essential step to clarify the applicability of separate tax laws for foreign banks operating in Dubai. A similar law passed in 1996 imposed a Dubai Banking Tax on foreign banks. However, with the advent of the Federal Corporate Tax Law of 2022, it was not clear whether the foreign banks were to be liable for both taxes separately. Hence the 2024 law makes the tax liability of foreign banks clear.
APPLICABILITY
The law defines a foreign bank as a branch of a foreign bank licensed by the Central Bank of United Arab Emirates (UAE) to operate in the nation. This law is applicable to all the foreign banks operating in Dubai, including the ones established in Special development zones and free zones. However, the law does not apply to the foreign banks operating in the Dubai International Financial Centre (DIFC) with respect to the income they realize from conducting their business within or through the DIFC.
TAX RATE AND TAXABLE INCOME
The law imposes a tax rate of 20% of the taxable income of foreign banks. The tax paid under the UAE’s Corporate Tax Law i.e. 9% may be deductible from the 20% tax rate where foreign banks are subject to corporate income tax in accordance with Federal Law No. 47/2022 on the taxation of corporations and businesses and its amendments where applicable.
The taxable income of the foreign bank will be calculated as per the rules and regulations approved by the Director General of the Department of Finance (DOF) relating to the methods of calculating Joint Revenues, Expenditures, head office and regional management expenditures, unrealized losses and gains and any profits excluded from the income statement and other relevant measures for calculating taxable income for foreign banks. For matters not explicitly covered by the DOF’s rules and regulations, the provisions of Federal Decree-Law No. 47/2022 on the Taxation of Corporations and Businesses shall apply.
OTHER PROVISIONS
Other notable provisions include:
1. Voluntary disclosure forms in case a taxable person have over-assessed or under-assessed their tax liability and an opportunity to correct the same. In case of under-assessment, the taxable person shall be liable to pay the outstanding tax within 30 days of the knowledge. In case of over-assessment, a refund can be claimed from the Department of Finance by filing a voluntary disclosure form within 30 days of knowledge.
2. Fine equal to double the amount of the tax evaded by a taxable person and a similar fine on a third party assisting the taxable person in evading tax,
3. The penalty of 2% on any unpaid tax or fine for every month of the delay,
4. Any administrative violations of the tax law will lead to a fine of up to AED 500,000 on the first offence and up to AED 1,000,000 for the second offence committed within two years of the first offence.
5. Duties, responsibilities and powers of an Auditor to audit a taxable person and to verify compliance with the tax laws.
For more information, you may contact:
Fauzia Khan
