Introduction
Aligned with Gulf Cooperation Council countries’ initiatives for economic diversification, Dubai enacts Law No. (1) of 2024. This legislation supersedes Regulation No. (2) of 1996, introducing a contemporary framework for taxing foreign banks operating within the Emirate, including special development zones and free zones, with an exemption for entities licensed by the Dubai International Financial Center (DIFC) concerning income generated from activities within or through the DIFC.
Taxation Framework
- An annual taxation rate of twenty percent (20%) on taxable income is imposed on foreign banks.
- The applied tax rate allows for deductions corresponding to the corporate tax rate under Federal Decree Law No. (47) of 2022 on corporate and business tax, provided the foreign bank complies with the aforementioned Corporate Tax Law.
Rights and Audit Procedures for Tax Subjects
- Foreign banks and their branches, licensed by the Central Bank of the United Arab Emirates to operate in Dubai, are recognized as subjects for tax audits.
- Procedures for notifying tax audit results are established, including the right to object to the Department of Finance regarding assessed taxes or fines, as delineated by this Law.
Calculation and Submission of Taxable Income and Audits
- Guidelines for calculating taxable income, submitting tax returns, tax payments, and auditing are established, including voluntary declaration and detailed tax audit responsibilities.
Administrative Violations and Financial Penalties
- Acts constituting administrative violations under this Law and resultant decisions are defined, with financial penalties set for each violation, not to exceed five hundred thousand (500,000) dirhams. Penalties for recurrent violations within a two-year timeframe may double, up to a maximum of one million (1,000,000) dirhams.
Duration and Timing of Tax Obligations
- The duration of tax obligations and the rules for time period calculations are specified, ensuring clarity and compliance enforcement.
Conclusion
The law on the taxation of foreign banks in Dubai underlines Dubai’s strategic approach towards economic diversification and the integration of foreign financial institutions into its economic framework. This legislative measure reflects the broader objective of the UAE and the Gulf Cooperation Council countries to cultivate a sustainable, diversified economy. It emphasizes transparency, fairness in taxation, and the global integration of the financial sector, enhancing Dubai’s position as a leading global financial hub.
