How is VAT Applicable on Banking Transactions in UAE?

Banks in UAE charge VAT on their certain services as applicable at a standard rate of 5%. As an account holder, it is important to know about those taxable services, in order to manage the expenses, to record them properly and to claim for input tax recovery, if possible. Here we discuss the implications of VAT on banking activities, covering the routine transactions that we come across in our daily life.

How is VAT on banking transactions defined in UAE VAT regulation?

In the VAT regulation banking transactions are included under the category of financial services, as these are more related to money and tax treatments are specified for them accordingly. 

How can a bank charge VAT on your bank accounts in UAE?

Bank charges VAT at a standard rate of 5% on the service fees it charges for maintaining the bank account and providing specific services as agreed with their customers. For example, bank charges can be in the form of account opening/closing fee, bank statement fee, account maintenance fee, withdrawal fee, fee on providing cheque books, subscriptions for any priority service opted by the customer and any other service fee as applicable to each transaction made by the account holder.

What is the impact of VAT on money transfers?

There are always fees charged by the bank on facilitating the bank transfers for the account holders. Rates of such bank charges may differ for different banks and the account holder can enquire with the bank representatives for the rate of bank charges for each type of transfer transaction. Nevertheless, those bank charges are indeed taxable at a standard rate of 5%.

Will VAT be applied on any your cash related transaction with the bank?

There are sometimes bank services relating to cash transactions that can incur bank charges and respective VAT as well. Such charges include fees for cashing cheque, charges for providing change or any other cash handling fees. Such charges also are taxable at a standard rate of 5% and the customer has to pay the amount including VAT to the bank.

Is there any impact of VAT while making transactions through credit or debit card?

VAT registration is compulsory for businesses. There are several types of fees charged by the bank with respect to the credit or debit card services they offer on different occasions. Such charges include charges for making ATM transactions, fees for statement, cash withdrawal fee, charges on balance transfers, charges on overdraft facility, bank commission, authorization fee, general card fee etc. Whenever such fees are charged by the bank, they are taxable at a standard rate of 5% and the same is deducted from card balances. It is always advised to enquire with the bank representatives to know about the fees charged by the bank, before making each particular card transaction, to know about the total expense including VAT.

What are the implications of VAT on interest income in your bank accounts in UAE?

Returns on investments made by the account holder are generally treated as outside the scope of VAT provided those transactions meet some conditions. Such returns include interest on deposits, withdrawals made by the account holder etc. It is to be noted that, for such transactions to be deemed as outside the scope of VAT, there shall no service or transaction provided in return by the account holder for such payments.

How CDA help in VAT related activities?

Since UAE VAT was introduced in recent years, the tax regulatory framework that entails the guidance materials and multiple clarifications is still in the evolving stage. Individuals and corporates face various issues on implementing appropriate tax treatments even in their routine transactions. CDA has experience of serving clients in different sectors, enabling us to enhance our VAT expertise in diverse situations. 

This brings us to the conclusion of our discussion on how VAT can be applied to banking transactions in UAE. If you have queries on VAT and accounting related matters, you can contact us to obtain more clarity and thereby get a chance to take advantage of our exceptional client service.