Dubai Introduces 20% Annual Tax Law on Foreign Banks, Excluding DIFC

Dubai has enacted a new law imposing a 20% annual tax on foreign banks operating within the emirate, with exceptions granted to those licensed within the Dubai International Financial Centre (DIFC). The legislation, passed by Sheikh Mohammed bin Rashid, Vice President and Ruler of Dubai, governs guidelines for determining taxable income and protocols for filing tax returns, as announced by the Dubai Media Office.

The law also regulates procedures for auditing tax returns and voluntary disclosures, along with outlining responsibilities and procedures associated with tax audit proceedings. It encompasses all foreign banks operating in Dubai, including those within special development zones and free zones. Corporate tax rates paid under the Corporate Tax Law will be deducted from the annual 20% tax.

Under the new law, the Chairman of the Executive Council of Dubai will issue decisions on breaches and impose penalties. Penalties imposed should not exceed Dh500,000 ($136,147), with fines doubled for repeat breaches within two years, up to a maximum of Dh1 million. The Director-General of the Department of Finance will issue necessary decisions to implement the law, which will be published in the official gazette.

The law specifies the rights of entities subject to tax audit, namely foreign banks and their branches licensed by the UAE Central Bank to operate in Dubai. Despite these regulatory changes, banks in the UAE are expected to maintain strong earnings in 2024, benefiting from an improving macroeconomic environment and consistently high interest rate regimes.

S&P Global Ratings noted in a recent report on UAE banking that increased business and trading activity witnessed last year is anticipated to continue boosting profitability in 2024. Dubai’s economy expanded by 3.3% annually in the first nine months of the previous year, driven by growth in the tourism and transport sectors. The UAE Central Bank revised its 2024 growth forecast for the country’s economy to 5.7% in October, primarily due to an expected rise in oil production.