Dubai Enacts New Taxation Law For Foreign Banks, Exempts DIFC

In a significant move by His Highness Sheikh Mohammed bin Rashid Al Maktoum, in his role as the Ruler of Dubai, Vice President, and Prime Minister of the UAE, Law No. (1) of 2024 has been issued, focusing on the taxation of foreign banks operating within Dubai. This law encompasses all foreign banks across Dubai, including those within special development zones and free zones, with the notable exception of those licensed to operate in the Dubai International Financial Centre (DIFC).

Under this new legislation, foreign banks are now subject to a 20% tax on their annual taxable income. This comes with a provision that allows for the deduction of corporate tax paid in line with Federal Law No. (47) of 2022 on the Taxation of Corporations and Businesses and its amendments from their total tax liability. The law meticulously outlines the principles for calculating taxable income, alongside detailing the procedures for tax filing, payments, audits, voluntary disclosure, and the responsibilities and procedures related to tax auditing.

Furthermore, the law clarifies the rights of foreign banks and their branches licensed by the Central Bank of the UAE. It delineates the process for notifying entities about the results of tax audits and establishes a framework for lodging objections with Dubai’s Department of Finance concerning tax amounts or fines imposed, under specific conditions.

The Chairman of The Executive Council of Dubai is tasked with issuing decisions on acts considered violations of this law and determining penalties for such violations. Notably, penalties for violations are capped at AED500,000, with provisions for doubling this fine in cases of repeat violations within a two-year period, up to a maximum of AED1 million.

This law is set to be applicable from the tax year commencing after its enactment. The Director-General of the Department of Finance is empowered to issue necessary decisions for implementing this law's provisions, which will be published in the Official Gazette.

It's important to note that Law No. (1) of 2024 supersedes Regulation No. (2) of 1996 and any other legislation that may conflict with it. However, decisions and memos issued under Regulation No. (2) of 1996 will remain effective until replaced by new decisions.

The enactment of Law No. (1) of 2024 marks a pivotal moment in Dubai's approach to regulating foreign banking operations within its jurisdiction. This legislation not only aims at streamlining tax collection from foreign banks but also at ensuring compliance with broader federal tax laws. As this law takes effect following its publication in the Official Gazette, it represents a structured effort by Dubai's leadership to enhance fiscal governance and regulatory oversight over foreign banking entities operating in the emirate.

With inputs from WAM