The Dubai ruler has issued a law imposing a 20% tax on foreign banks operating in the emirate, including special development zones and free zones.
However, foreign banks that are licensed to operate in the Dubai International Financial Centre (DIFC) are excluded from the tax.
According to the news agency WAM, the Ruler of Dubai Sheikh Mohammed bin Rashid Al Maktoum, Vice President and Prime Minister of the UAE, has issued Law No. (1) of 2024 on taxation of foreign banks operating in Dubai.
As per the law, foreign banks are subject to a 20% tax on their annual taxable income.
However, if these banks pay corporate tax in accordance with Federal Law No. (47) of 2022 on the Taxation of Corporations and Businesses and its amendments, the amount of corporate tax will be deducted from their total tax liability.
The law specifies the principles governing the calculation of taxable income, tax filing and payments, procedures for the audit of tax filing, voluntary disclosure, and responsibilities and procedures related to tax auditing.
The new order also outlines the rights of foreign banks and their branches licensed by the Central Bank of the UAE. It specifies the steps for notifying the results of the tax audit.
Further, it allows the taxable entity to lodge objections with Dubai’s Department of Finance regarding the amount of tax or fines imposed on them, subject to certain conditions detailed in the law.
According to the Law, the Chairman of The Executive Council of Dubai will issue a decision on acts deemed as violations of this Law and penalties imposed for violations.
The total penalties imposed should not exceed AED500,000. The fine will be doubled in case of repeat violations within two years up to a maximum of AED1 million.
This new law applies to the tax year beginning after its enactment.
The Director-General of the Department of Finance will also issue the necessary decisions to implement the provisions of this Law, which will be published in the Official Gazette.
Its interesting to see how Dubai is using its fiscal policy to oversee the banking industry. Nevertheless, tax remains an important tool for the Governments to regulate their economy.
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