Arriving during a period of overall economic optimism for the emirate, new tax legislation signifies a shift in Dubai’s approach to foreign banks, potentially impacting their profitability.

The new law enacted by Dubai mandates a 20% annual tax on foreign banks operating within the emirate. This levy excludes banks licensed in the Dubai International Financial Centre (DIFC), which maintains its tax-exempt status.

The law establishes guidelines for calculating taxable income and filing tax returns. It also outlines procedures for auditing tax filings, handling voluntary disclosures, and conducting tax audits, according to a statement from the Dubai Media Office.

The new regulation applies to all foreign banks operating in Dubai, including those within special development and free zones. The 9% corporate tax implemented in the UAE last year will be deducted from the 20% levy if a foreign bank has already paid it.

The law empowers the chairman of Dubai’s Executive Council to define and penalize violations, with maximum fines not exceeding $136,147 for a first offense. Repeat offenses within two years can incur doubled fines, capped at $272,264. The Department of Finance will issue specific directives for implementing the law, which will be published in the official government gazette.

This development comes amidst a positive outlook for UAE banks. S&P Global Ratings anticipates continued strong earnings for the sector in 2024, citing an improving economic climate and favorable interest rates that bolster profit margins. The agency also points to the increased business activity observed last year as another factor driving profitability.

Dubai’s economy has seen solid growth, expanding by 3.3% in the first nine months of 2023, fueled primarily by the tourism and transport sectors. The UAE Central Bank recently revised its 2024 growth forecast for the country upwards to 5.7%, driven by anticipated increases in oil production.

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