UAE - Taxation of Foreign Banks in Dubai - Administrative Resolution No. 107 of 2024
6 January 2025 – On 4 December 2024, the General Director of the Department of Finance, Dubai, issued Administrative Resolution No. 107 of 2024 (the "Resolution"), providing guidance on the implementation of Law No. (1) of 2024 with respect to the Tax on Foreign Banks Operating in the Emirate of Dubai, United Arab Emirates (UAE) (the "new Emirate Law").
This Resolution became effective upon its publication in the official gazette on 9 December 2024. It outlines key provisions related to the calculation of taxable income and tax liability, tax filing, and payments for foreign banks operating in Dubai.
Key Highlights
Clarification on the Tax Period
- The Resolution specifies that the standard tax period for determining taxable income and tax liability follows the fiscal year of the foreign bank. However, foreign banks can apply to the Department for an adjustment to their tax period, subject to specific conditions, to align it with either the corporate tax period or their home jurisdiction’s tax period.
- Although the new Emirate Law was initially set to take effect for tax periods starting on or after 8 March 2024, the Resolution clarifies that it will now apply from 1 January 2024.
Avoidance of Double Taxation
- The Resolution allows foreign bank branches in Dubai to offset UAE Federal corporate tax paid against their Emirate-level tax liabilities. To claim the tax credit, foreign banks must provide supporting documentation verifying the payment of corporate tax. It also aligns the deadlines for submitting both the Emirate-level tax return and the UAE corporate tax return, simplifying the administrative process.
Guidance on Computation of Taxable Income
The Resolution provides detailed guidance on calculating various items relevant to taxable income and tax liability. Key points are summarized below:
Items |
Calculation Mechanism/Treatment |
Tax liability |
20% of taxable income minus the equivalent amount of corporate tax paid under the Corporate Tax Law |
Shared revenue relating to treasury management business |
Net central revenues of the treasury × (Monthly average of liquidity transferred from the taxable person / Monthly average of liquidity transferred to the central treasury from branches of the foreign bank inside or outside the state) |
Other net shared revenues |
Net shared revenue × (Monthly average of assets of taxable persons / Monthly average of branches assets inside and outside the state) |
Shared expenses |
Total shared revenue × (Monthly average of assets of taxable persons / Monthly average of branches assets inside and outside the state) |
Regional management expenses |
The deduction should be limited to the proportion of total regional expenses related to the total interest income of the regional branches, with additional auditor certification required. |
Central management expenses (i.e., supervisory expenses of the management of the head office on international branches) |
The deduction should be limited to the proportion of central management expenses charged to the international branches to the total interest income from the international branches, also requiring auditor certification. |
Unrealized gains and losses |
Taxable or deductible on a realization basis. |
Expected credit losses (IFRS 9, stages 1 and 2) |
Not deductible except after impairment of these losses. |
Credit losses (IFRS 9, stage 3) |
Deductible under specific conditions related to provisions for doubtful debts and suspended interest. |
Other provisions |
Deductible based on utilization. |
Interest on banking transactions between related parties |
Calculated using daily balances or reference rates, depending on the type of transaction. |
Commissions |
Calculated based on prevailing banking systems. |
Depreciation and amortization |
In line with IFRS rates specified in the Resolution. |
Accrued expenses |
Deductible if paid or reversed within nine months post-fiscal year-end with supporting documents. |
Any other expenses not specifically covered by the Resolution |
General rules under Corporate Tax Law apply if not specifically covered by the Resolution. |
Foreign banks operating in Dubai must consider the Corporate Tax Law provisions when computing taxable income under the new Emirate Law.
Additional Key Provisions
Administrative and Compliance Requirements
- Pay due tax liabilities within three months post-tax period after offsetting UAE Federal corporate tax if any.
- Tax returns, including supporting documents, must be filed within nine months post-tax period, certified by the designated person and the external auditors.
- Certificates detailing share of regional and central management expenses, audited by external auditors, are mandatory.
Tax Audit Results
- Payment of tax audit amounts within 20 days of notification.
- Excess tax payments can be claimed as refunds or adjusted against future liabilities.
Deferred Tax Assets Register
- Foreign banks must maintain a certified register for deferred tax assets, presented during audits.
Financial Transactions with DIFC Branches
Interest income from financial transactions with a Dubai International Financial Centre (DIFC) branch should adhere to prevailing market interest rates.
Key Takeaways
The Emirati law became applicable with effect from 1 January 2024.
Extended Deadlines:
- Tax return submission deadline extended to nine months post-tax period.
- Tax payment deadline remains three months post-tax period.
Tax Credits:
- Foreign banks can offset UAE Federal corporate tax paid against Emirate-level tax liabilities with proper documentation.
Opting for Alignment:
- Option to align the Emirate-level tax period with the UAE Corporate Tax period for streamlined compliance.
Compliance Requirements:
- Detailed guidance on the calculation of taxable income and tax liability.
- Foreign banks must maintain accurate financial records and acquire necessary auditor certifications.
Audit and Documentation:
- Deferred tax assets register must be maintained and certified.
- Certificates of regional and central management expense shares must be audited by external auditors.
Planning and Strategy:
- Proper financial planning and strategic decision-making are crucial.
- Ensuring strict adherence to new provisions to avoid potential penalties.
By adhering to these guidelines and preparing in advance, foreign banks can ensure compliance and optimize their tax liabilities effectively.
Contacts
We have a dedicated Business Tax team based in the UAE who have in-depth experience and can support you throughout your readiness journey. Please get in touch with one of our tax experts listed on the following page.
