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Dubai ends double taxation for foreign banks

HSBC Dubai bank taxation Reuters/Nikhil Monteiro
HSBC is one of the banks operating in Dubai that will no longer be subject to double taxation
  • Corporate tax absorbed into banking tax
  • Banks in DIFC unaffected
  • Net tax liability ‘should not increase’

Foreign banks including HSBC, Banque Misr and Arab Bank operating in Dubai will no longer face double taxation after a change in the emirate’s banking laws.

A 9 percent corporate tax, introduced in June last year for corporations and businesses that have a taxable profit above AED375,000 ($100,000) was being applied on top of the 20 percent tax on foreign banks that was introduced in 1996.

Now foreign banks operating in the mainland and special development zones will be able to absorb their corporate tax payments into the annual 20 percent banking tax charge.

Foreign banks licensed in the Dubai International Financial Centre (DIFC) free zone are exempt from the 20 percent tax.

Thomas Vanhee, a partner at Aurifer Middle East Tax Consutancy, said the change in the law was intended to ensure foreign banks avoid double taxation.

“It’s good news for the banks because their net tax liability overall should not increase. It’s definitely not something that will add to the consumers’ burden. It should be neutral in the end,” he said.

There are more than 150 banks and financial institutions based in Dubai that are licensed by the Central Bank of the UAE. 

The introduction of corporate tax was intended to bring the UAE in line with international tax standards. It was in response to the Organisation for Economic Co-operation and Development’s global drive to implement a minimum tax level  of 15 percent for companies with revenues over $804 million, to discourage tax-motivated profit shifting and tax avoidance.

Last month the UAE was removed from the Financial Action Task Force grey list in recognition of its efforts to curb illicit financial flows.

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