All About Taxation of Foreign Banks under UAE CT

Foreign banks are taxed under CT rules and regulations in the UAE. Effective from March 8, the taxation of foreign banks was implemented by Highness Sheikh Mohammed bin Rashid Al Maktoum based on Law No. (1) of 2024 (“Law”). It is important to know how foreign banks are taxed in the UAE because this helps both financial institutions and individuals who may want to invest in its banking sector. The aim of this article will be, therefore, to provide all the necessary information regarding the taxation of foreign banks under corporate tax laws within the United Arab Emirates and thereby provide some clarity on this.

Understanding Taxation of Foreign Banks in UAE

To understand how foreign banks are taxed in the UAE under the Corporate Tax laws, it is important to look into details about the taxation regime. This requires understanding things like what determines their tax obligations such as activities they engage in, presence within UAE, if there are any relevant tax treaties, etc., just a few other things. By understanding comprehensively taxation principles and rules governing foreign banks, financial institutions and potential investors can make informed choices while at the same time ensuring that their actions conform with the taxing statutes of UAE. 

Key Considerations for Foreign Banks Operating in the UAE

To manage their tax liabilities well and avoid potential issues of compliance, foreign banks need to have a good understanding of the UAE’s complex tax laws and regulations.

Foreign banks that operate in the UAE should keep in mind several factors that affect their tax obligations including:

Relevance of the Law and Tax Rate: The foreign banks in the UAE are subjected to 20% tax for their taxable income along with the credit which is available for the CT paid. Whether or not a foreign bank is liable for corporate taxes in UAE and the rate applicable will depend on various aspects related to its specific operations, e.g. business activities done and presence within the country.

Calculating Taxable Income: Foreign banks need to understand how taxable income is calculated under UAE law. This may include, determining what constitutes taxable income for foreign banks, allowable deductions from taxable income, and transfer pricing rules.

Tax Returns and Payments: It is important that foreign financial institutions know about the deadlines set by DOF concerning filing tax returns or making payments. In this context they will need to know what forms should be filed, which documents are needed by the DOF like Tax returns as specified by the DOF; Financial statements and associated disclosures; Amounts of taxes payable provided with related documentation; and Any CT taxes paid.

You can also read: What is a “Qualifying Registrant” for e-commerce purposes?

Tax audit: Foreign banks should be ready for a tax audit by the UAE authorities. It is crucial to maintain good record-keeping practices in order to meet compliance requirements during an audit. A taxpayer’s right of objection expires after 20 days from the day when the results of a tax audit were revealed; however, certain documents and conditions must be met. The rule of limitations for tax audits is 5 years, which can extend to 15 years in case of tax evasion.

Types of Activities Conducted: The nature of activities that a foreign bank undertakes in the UAE affects its taxation. For example, banks offering Islamic banking services may have different tax implications than normal banks do.

Carefully considering these factors and using professional help from a company like CDA can have a major impact on your company.

In summary, the taxation of foreign banks in the UAE requires a huge understanding of laws and regulations and professional help. By partnering with CDA, foreign banks have access to specific knowledge and expertise about UAE corporate tax as it applies to foreign banks. By effectively implementing tax strategies for your business, you can achieve a financial advantage in the market. 

It is crucial for banks to stay updated on regulatory changes, leverage tax incentives, and get professional advice to minimize tax liabilities and manage risks effectively. Moving forward, continuous monitoring of tax developments and good adjustment of tax strategies will be essential for foreign banks to navigate the complex tax landscape successfully. 

Why Choose CDA?

CDA can be a valuable partner for foreign banks who are trying to navigate their way through the complexities of Corporate Tax (CT) in the UAE. Here is how our professionals can help you:

• CDA’s team of tax professionals can determine if your foreign bank falls under the applicability of UAE CT and its applicable tax rate by analysing your specific case.
• We could help you calculate taxable income for foreign banks in UAE including identification of expenses that are deductible and ensuring compliance with transfer pricing regulations.
• In the process, CDA would assist you in understanding the filing system as per UAE tax; this will also ensure that correct forms are submitted within deadlines while taxes are paid promptly.
• CDA can support you during the tax audit. In terms of keeping appropriate records and representing you before UAE tax authorities, we can also help you prepare for an audit.
• However, laws and regulations related to taxation change often. The implication of these changes on foreign banks operating in UAE CT will be communicated to you by CDA.

 Contact CDA today to know more!