(MENAFN) Dubai recently introduced a new tax law mandating a 20 percent annual tax on foreign banks operating within the emirate, a move experts believe will have positive implications for lenders and facilitate the avoidance of double taxation. The law, announced last week, stipulates that foreign banks are liable to pay the tax on their annual taxable income. However, these banks can offset the tax amount if they have already paid corporate tax, deducting that rate from the 20 percent tax.
The application of this law extends to all foreign banks operating in Dubai, including those within special development zones and free zones, with the exception of lenders licensed to operate within the Dubai International Financial Centre (DIFC). Vishal Sharma, Managing Director with Alvarez & Marsal Tax in Dubai, highlighted that there may be misconceptions in the market regarding the announcement. Specifically, concerns have arisen regarding whether foreign banks will incur an additional 20 percent emirate-level corporate tax in addition to the recently implemented 9 percent federal-level corporate tax regime.
Sharma clarified that an emirate-level corporate tax regime has existed for foreign banks operating in the mainland of the United Arab Emirates for several years. Consequently, foreign banks conducting operations in this manner have been subject to a 20 percent corporate tax on their profits within the respective emirate. The new law aims to formalize and standardize taxation processes for foreign banks operating in Dubai, providing clarity and transparency while mitigating concerns related to potential double taxation.
Overall, the introduction of Dubai's new tax law for foreign banks reflects a proactive approach towards enhancing regulatory frameworks and fostering a conducive business environment. By aligning taxation policies with international standards and streamlining procedures, the emirate seeks to bolster investor confidence, promote economic growth, and ensure equitable treatment for all entities operating within its jurisdiction.
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