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His Highness Sheikh Mohammed bin Rashid Al Maktoum, Vice President, Prime Minister, and Ruler of the Emirate of Dubai issued Law No. 1 of 2024 regarding Tax on Foreign Banks Operating in the Emirate of Dubai (“Law”).
This Law applies to all foreign banks and its branches licensed by the Central Bank of the United Arab Emirates to operate in the Emirate of Dubai, including in special development zones and free zones, excluding foreign banks licensed to operate in the Dubai International Financial Centre on the income they achieve from conducting their business within or through the Centre.
The Law stipulates that the annual tax shall be 20% on taxable income. The percentage of corporate tax applied in accordance with the Federal Decree Law No. (47) of 2022 on Corporate and Business Tax (“Corporate Tax Law”) shall be deducted from the aforesaid percentage in case the foreign bank pays tax in accordance with Corporate Tax Law.
The Law observes rules and controls for calculating taxable income such as those adopted by the Director General of the Finance Department in Dubai on how to calculate joint revenues and expenses, losses and gains unrealized from taxable income and profits which are not included in the statement of income.
The taxable person must submit to the Department of Finance (“Department”) the tax return related to the ended tax period, in the form approved by the Department, financial statements and clarifications of the taxable person, amount of tax due against the ended tax period, percentage of tax imposed on it and the amount of tax it paid under the Corporate Tax Law, that without such information the tax return shall not be accepted. However, those financial statements and clarifications of the foreign bank must be approved by a certified external auditor.
If it becomes evident to the taxpayer that the tax return submitted to the Department or that the tax assessment received from the Department is incorrect, i.e. less or more than it should be, the taxpayer should correct the tax return or tax assessment via submitting a voluntary declaration and paying the difference within 30 days from the date of its awareness of that, or submitting a voluntary declaration within 30 days from the date of its awareness of that along with notifying the Department of the appropriate recovery mechanism, such as a transfer to its bank account or allocating that excess as an advance payment against the tax due for the subsequent tax period. It is worth mentioning that those voluntary declarations will be referred to the Financial Control Authority (“Authority”) for verification.
The Authority’s auditor (“Auditor”) shall conduct a tax audit on the taxable person to ensure the extent of compliance with the provisions herein. The Auditor may conduct the audit at the Authority’s headquarter or at the premise of the taxable person, in such case the latter has to be notified 5 days at least prior to the date scheduled for the tax audit visit. Nevertheless, the Auditor may access the premise and records of the taxable person without a prior notification of the audit process, if suspicions aroused over tax manipulation or evasion. The Department shall, within 10 days from the date of its approval of the results of the tax audit, issue the tax assessment and notify the taxable person of the amount of the tax payable.
The taxable person has the right to object to the Department on the amount of the tax or the fine imposed, provided that the objection should be in writing and supported by documents and to be filed within 20 days from the date of being notified of the payable tax amount or the fine imposed. In all cases, the taxable person must pay 20% at least the amount of due tax or fine imposed. The Department shall notify the taxable person of the decision within 5 days from the date of its issuance. The decision shall be final and may not be appealed save before the competent court.
The Law also emphasises that, without prejudice to any more severe penalty in any other legislations, anyone evades the payment of tax or tampers with submitted tax returns and information shall be punished with a fine twice the amount of the tax evaded, with fining any other entity proven to have taken part in that tampering, by imposing a separate fine on that entity equal to the same fine amount imposed on the taxable person. Furthermore, delaying the payment of the tax due or the fine imposed beyond the due date will result in a fine of 2% of the value of the unpaid tax or the fine on the taxable person, for each month of delay.
The Law points out that a decision shall be issued by the Chairman of the Executive Council to determine the acts that constitute an administrative violation of this law and their counter fines, provided that the value of the fine imposed for each violation should not exceed AED 500,000. This fine will be doubled if the violation reoccurred within two years from the date of committing the previous administrative violation, yet the fine will not exceed AED 1,000,000.
The Law affirms the obligation to maintain confidentiality of information provided to the Department and its affiliates, and such obligation shall survive even when they complete their duties.
The Law also referred to the statute of limitations to claim the tax, as it clarified that the Department may not conduct tax assessment after 5 years from the end of the relevant tax period, except in cases where tax evasion is proven, then the Department may conduct a tax assessment within 15 years from the end of the tax period during which such tax evasion happened. As for the due tax and fines imposed under this law and were notified to the taxable person, they shall not be waived with the lapse of time and may be claimed at any time.
This Law applies to tax periods beginning after the coming into force of its provisions. As for the tax periods which began before this Law, they are subject to the rules, procedures, and periods stipulated in Regulation No. 2 of 1996. The Director General of the Department shall determine any other transitional provisions related to the application of the provisions of this Law, in accordance with a decision he shall issue in this regard.
This Law came into force from the date of its publication in the Official Gazette, on 8 March 2024.
Author: Naji Khairallah