On March 7th of 2024, the Federal Tax Authority of UAE issued a new law regarding the taxation of Foreign Banks operating in the UAE. This new law will repeal Dubai Regulation No.(2) of 1996 which had previously had a 20% tax rate.
The reason for the new law is to avoid double taxation on foreign banks operating in Dubai.
This decision affects all foreign banks operating in Dubai, with the exception of banks registered under the Dubai International Financial Centre (DIFC) Free Zone.
A rate of 20% is to be applied as tax on the bank’s annual taxable income. Regulations for determining taxable income and submitting the tax return are outlined in the New Law. It also covers voluntary disclosures, fines, and the duties and procedures associated with tax audits. It also covers the procedures for filing tax returns.
The calculation of mentioned tax is based on 4 key points of a business:
- Calculation method of revenue & expenses.
- Unrealized gains and losses from taxable income.
- Profits that do not fall under the income statement.
- Any other provisions necessary for calculating taxable income.
Taxpayers have thirty days to voluntarily disclose any overpayment or underpayment of taxes when they become aware of this. The DOF will specify the forms and mechanisms.
An audit of financial statements is necessary. Any submission that omits any of the information listed above will be refused.
The DOF will specify the deadline for filing the tax declaration. The DOF should receive the following documents:
- The tax return that the DOF specifies;
- Statements of financial position and related disclosures;
- The amount of tax owed along with the relevant paperwork; and
- Any tax that has been paid in compliance with CT law.
What is the fee of late tax payments?
In the event that taxes are not paid on time or that penalties are not paid, taxpayers will be assessed a penalty of 2% each month. In addition, the Chairman of Dubai’s Executive Council shall decide what constitutes a violation of this law and what consequences result from it. Penalties should not be assessed in excess of AED 500,000 in total. If the violation is committed again within two years, the punishment would be doubled, up to a maximum of AED 1,000,000.
What happens in the case of Tax Evasion?
Taxpayers who dodge taxes will be fined twice as much as they avoided paying in taxes.
Which law should be followed if the business’s end of financial year is before March 8? The guidelines and protocols outlined in Regulation No. (2) of 1996 will be implemented for tax periods commencing prior to the enactment of this legislation.
Which law should be followed if the business’s end of financial year is before March 8?
The guidelines and protocols outlined in Regulation No. (2) of 1996 will be implemented for tax periods commencing prior to the enactment of this legislation.
What should I (As a foreign bank owner/investor) do?
International banks doing business in Dubai should evaluate the long-term effects of this law. An earlier Emirate level levy on foreign banks has been replaced by the Law. Foreign Dubai banks will benefit from the opportunity to credit tax paid under the CT statute against emirate responsibility, preventing double taxation. The modification’s effect on any deferred taxes It will be necessary to take balances resulting from the prior Emirate level tax into account.
Note that the law’s precise interpretation indicates that tax periods beginning after March 8, 2024, will be impacted by this law, meaning that the first tax period for banks with a December year end will be from January 1 to December 31, 2025. Therefore there won’t be a tax credit available for 2024.
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