[author: Thomas Paoletti]
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 the United Arab Emirates (UAE) to operate within the nation. It applies to all foreign banks operating in Dubai, including those in special development zones and free zones. However, it excludes foreign banks operating in the Dubai International Financial Centre (DIFC) concerning income realized from business conducted within or through the DIFC.
Tax Rate and Taxable Income
The law imposes a tax rate of 20% on the taxable income of foreign banks. Taxes paid under the UAE’s Corporate Tax Law (9%) may be deductible from this 20% rate, provided the foreign banks are subject to corporate income tax in accordance with Federal Law No. 47/2022 on the taxation of corporations and businesses. The calculation of taxable income will follow rules set by the Director General of the Department of Finance (DOF), covering aspects such as joint revenues, expenditures, head office and regional management expenditures, unrealized losses and gains, and any profits excluded from the income statement. For matters not explicitly addressed by the DOF’s rules, the provisions of Federal Decree-Law No. 47/2022 will apply.
Other Provisions
Notable provisions include:
- Voluntary Disclosure: Taxable persons who have over-assessed or under-assessed their tax liability have the opportunity to correct it. In cases of under-assessment, the outstanding tax must be paid within 30 days of becoming aware. For over-assessment, a refund can be claimed from the Department of Finance by filing a voluntary disclosure form within 30 days of knowledge.
- Penalties for Tax Evasion: A fine equal to double the amount of the tax evaded will be imposed on the taxable person, with a similar fine on any third party assisting in the evasion.
- Late Payment Penalty: A penalty of 2% will be charged on any unpaid tax or fine for every month of delay.
- Administrative Violations: Administrative violations of the tax law can lead to fines up to AED 500,000 for the first offense and up to AED 1,000,000 for the second offense committed within two years of the first.
- Auditor's Role: The law outlines the duties, responsibilities, and powers of an auditor to audit taxable persons and verify compliance with tax laws.
