Administrative
Resolution No. (107) of 2024
Concerning
the
Application
of Tax to Foreign Banks Operating in the Emirate of Dubai[1]
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The
Director General of the Department of Finance,
After
perusal of:
Law
No. (5) of 1995 Establishing the Department of Finance;
Law
No. (4) of 2018 Establishing the Financial Audit Authority and its amendments;
and
Law
No. (1) of 2024 Concerning Tax on Foreign Banks Operating in the Emirate of
Dubai,
Does hereby issue this
Resolution.
The
words and expressions mentioned in this Resolution will have the same meaning
assigned to them in the above-mentioned Law No. (1) of 2024. For purposes of
this Resolution, the following words, and expressions, wherever mentioned in
this Resolution, will have the meaning indicated opposite each of them unless
the context implies otherwise:
|
Financial Year: |
The year commencing on 1 January and ending on 31
December of the same year. |
|
Capital Expenditure: |
Expenses of a capital nature, as opposed to operating
expenses, that provide benefits to a Foreign Bank during subsequent Financial
Years. |
|
Centralised Management Expenses: |
The supervisory expenses incurred by the head office
in managing international branches, including the Taxable Person. |
|
Regional Management Expenses: |
The supervisory expenses incurred by the regional
management in overseeing the Taxable Person and other branches operating
within and outside of the UAE. |
|
Shared Expenses: |
The shared operating expenses of all branches of a
Foreign Bank operating within and outside of the Emirate. |
|
Shared Revenues: |
The revenues generated from the shared investments
and activities of the branches of a Foreign Bank operating within and outside
of the Emirate. |
|
Interest in Suspense |
Interest which is due on slow-moving and doubtful debts,
and which is set aside from the revenues account. |
|
Assets: |
The total Assets of a Foreign Bank before deducting
the allowance for doubtful debts, Interest in Suspense related to these
debts, and any other allowances. |
a. The Tax Period, in respect of which
a Taxable Person must submit a Tax Return and calculate the relevant due Tax,
is the Financial Year of the relevant Foreign Bank.
b. Notwithstanding the provisions of
paragraph (a) of this Article, the Department of Finance may, upon the request
of the Foreign Bank, amend its Tax Period, in accordance with the relevant
conditions approved by the Department of Finance.
c. The first Tax Period for the purpose
of calculating the Tax prescribed by the above-mentioned Law No. (1) of 2024
commences on 1 January 2024.
a. The Tax due on the Taxable Income
will be calculated using the following formula:
(20% × Taxable Income) – (the
equivalent amount of the Corporate Tax paid under the Corporate Tax Law)
b. For the purpose of calculating the
Tax deduction in accordance with paragraph (a) of this Article, the Taxable
Person must provide documentation evidencing payment of the Corporate Tax due
under the Corporate Tax Law. This documentation must also include the amount of
the Taxable Person’s share of this Tax in cases where Corporate Tax applies to
the branches of the Foreign Bank operating within the UAE.
a. For purposes of determining Taxable Income, Shared Revenue will be calculated as
follows:
1.
The Taxable Person’s
share of the net Shared Revenue related to treasury department operations after
deducting the Centralised Expenses will be calculated using the following
formula:
(Net Centralised Revenue from treasury
department operations) × (Monthly average of liquidity transferred by the
Taxable Person ÷ Monthly average of liquidity transferred to the centralised
treasury from the branches of the Foreign Bank operating within or outside of
the UAE)
2.
The Taxable
Person’s share of the other net Shared Revenue will be calculated using the
following formula:
b. For the purpose of determining Taxable
Income, Shared Expenses will be calculated based on the Taxable Person’s share of these expenses, using the
following formula:
c. The results of the calculations for Shared
Revenue and Shared Expenses referred to in paragraphs (a) and (b) of this Article must be audited
by a certified external auditor for the Foreign Bank. These results must be
recorded in the notes accompanying the financial statements, which the Taxable
Person must provide to the Department of Finance and the Financial Audit Authority.
Regional
Management Expenses charged to the Taxable Person will be calculated as
follows:
1.
The Foreign Bank's regional management must
calculate the percentage of the supervisory Regional Management Expenses that
will be charged to the regional branches. This calculation must be based on the
total interest revenue recorded by the regional branches during the Financial
Year, using the following formula:
(Total Regional Expenses ÷ Total interest revenue of regional branches)
2.
The Taxable Person must calculate the percentage of Regional Management Expenses
charged to it based on the total interest revenue
recorded during the Financial Year, using the following formula:
(Regional Management Expenses charged to the Taxable Person ÷ Total
interest revenue of the Taxable Person)
3.
The amount of Regional Management Expenses charged to
the Taxable Person will be deductible if the percentage calculated using the
formula in paragraph (2) of this Article is equal to or less than the
percentage determined by the formula in paragraph (1) of this Article. If the percentage exceeds that of paragraph
(1), the excess amount will be disallowed.
4.
The Taxable Person must provide a statement certified by
the regional management’s auditor. The statement must state the following:
a. the total amount and nature of
Regional Management Expenses charged to the Taxable Person;
b. the basis upon which the Regional
Management Expenses have been allocated to the branches; and
c. evidence of the audit conducted on
the formula stated in sub-paragraph (1) of this Article.
Centralised Management Expenses charged to the Taxable
Person will be calculated as follows:
1.
The head office of a Foreign
Bank must calculate the proportion of Centralised Management Expenses to
be charged to its international branches, based on the total interest revenue
recorded by those branches during the Financial Year, using the following
formula:
(Centralised Management Expenses charged to
international branches ÷ Total interest revenue of international branches)
2.
The Taxable Person must calculate the proportion of expenses charged to
it by the head office based on the total interest revenue recorded by
the Taxable Person during the Financial Year, using the following formula:
(Centralised Management Expenses charged to the Taxable Person ÷ Total
interest revenue of the Taxable Person)
3.
The amount of Centralised Management Expenses charged to the Taxable
Person will be deductible if the percentage determined from the formula in
sub-paragraph (2) of this Article is equal to or less than the percentage
calculated using the formula in sub-paragraph (1) of this Article. If the
percentage exceeds that of paragraph (1), the excess amount will be disallowed.
4.
The Taxable Person must submit a certified statement from the auditor of
the head office, stating the following:
a. the total amount and nature of the Centralised
Management Expenses charged to the Taxable Person;
b. the basis upon which Centralised
Management Expenses have been allocated to international branches; and
c. evidence of the audit conducted on
the formula stated in sub-paragraph (1) of this Article.
a.
Tax may not be calculated on unrealised gains or profits recorded in the
financial statements of the Taxable Person until such gains or profits are
realised.
b.
The Taxable Person may not deduct from the Tax Base any unrealised
losses recorded in the financial statements of the Taxable Person until such losses are realised.
Expected
credit losses during Stage 1 and Stage 2, as defined in International Financial
Reporting Standard 9 (IFRS9), are not deductible from the Taxable Income until
the balance of these losses is reduced.
Allowances
for doubtful debts and Interest in Suspense during Stage 3, as defined in
International Financial Reporting Standard 9 (IFRS9), whether related to loans
granted to natural or legal persons, will be calculated as follows:
I. Loans Granted to
Natural Persons:
a.
Allowances for doubtful debts and Interest in Suspense may not be
deducted if there is any evidence or indication that the debt amount or Interest in Suspense is recoverable.
b.
The Taxable Person may deduct allowances for doubtful debts and Interest
in Suspense, for which Tax was paid in previous Tax Periods, from
subsequent Tax Returns if the debt or Interest in Suspense is proven to be
written off, whether wholly or partially.
II. Loans Granted to
Legal Persons:
a.
Allowances for doubtful debts and Interest in Suspense may not be
deducted if any of the following conditions apply:
1.
A settlement agreement, debt rescheduling arrangement, and/or
Interest in Suspense arrangement exists between the Taxable Person and the
legal person.
2.
Any
type or form of security or guarantee exists that ensures the repayment of
doubtful debts or Interest in Suspense.
3.
The
Taxable Person has not taken the necessary legal and judicial action to recover
the doubtful debt and/or Interest in Suspense.
4.
Significant
credit movements are recorded in the accounts of the defaulting legal person,
pertaining to the doubtful debt and/or Interest in Suspense.
b.
The Taxable Person may deduct allowances for doubtful debts and Interest
in Suspense from subsequent Tax Returns, in respect of which Tax was
paid in previous Tax Periods, where it is proven that the debt or Interest in
Suspense has been written off, whether wholly or partially.
The Taxable Person may deduct from the Tax Base any other
allowance amounts that are unrelated to the allowances stipulated in this
Resolution. These may include allowances for employee bonuses or for amounts
payable by the Taxable Person under a judgment, provided that it is proven that
the Taxable Person has utilised these allowances.
a.
For Tax purposes, interest from banking transactions between the Taxable
Person and its head office, regional management, or other branches
within or outside of the Emirate will be calculated as follows:
1.
Where a current account is maintained for such transactions,
interest revenue and expenses will be calculated using the following formula:
(Annual average daily balance of the current account × Annual average of
the one-day reference rates)
2.
Where lending and borrowing transactions occur over multiple periods,
interest on such transactions will be calculated based on the reference rate
applicable to each transaction as of the date of the transaction and for the
corresponding loan period.
b. The
net difference in the calculated interest under sub-paragraphs (a)(1) and
(a)(2) of this Article will be added to the Tax Base. In any event, calculating
the interest due on banking transactions between the Taxable Person and the
head office, regional management, or other branches must not result in a
reduction of the Tax Base.
c. Commissions
on banking transactions will be calculated based on prevailing banking practices.
a.
The full value of Capital Expenditures may not be
deducted in the same year in which the Assets, for which such expenditures are
allocated, were purchased.
b.
Depreciation or Amortisation of Capital Expenditures may
be deducted in accordance with International Financial Reporting Standards 9
(IFRS9), subject to the following rates:
1.
three
(3) years for computers, similar equipment, and peripherals;
2.
five
(5) years for vehicles;
3.
seven
(7) years for furniture and decoration works;
4.
twenty-five
(25) years for buildings;
5.
fifteen
(15) years for substantial improvements to buildings; and
6.
fifteen
(15) years for intangible assets, which are Assets that lack physical substance
but have a determinable value.
The
Taxable Person must add the amount of accrued expenses to the Tax Base if such
expenses are not paid or reversed as part of Other Revenues within nine (9)
months from the end of the Financial Year. These accrued expenses must be
substantiated by relevant documents.
The Taxable Person must maintain a dedicated register for Deferred
Tax Assets, in accordance with the form approved by the Department of Finance.
This register must be provided to the Department of Finance and the Financial Audit
Authority during a Tax Audit, and must be certified by the officer in charge at
the Foreign Bank.
Interest
revenues generated from financial transactions between the Taxable Person and
the Foreign Bank branch operating in the Dubai International Financial Centre
will be treated as Loan Transactions. These transactions will be subject to the
prevailing market interest rate applicable to the Loan term.
a.
The Taxable Person must pay the amount determined by the Tax Audit
within twenty (20) days from the date of being notified of the Tax Audit
results.
b.
If the Tax Audit results indicate an amount less than the Tax
amount paid by the Taxable Person, the Taxable Person may request a refund of
the excess or apply the difference as a deduction from subsequent Tax Audit
results.
a.
The Taxable Person must pay
to the Department of Finance the amount of Tax due calculated in accordance
with the Tax rules
and procedures stipulated in Law No. (1) of 2024 and this Resolution. The Tax
amount must be paid within three (3) months from the end of the Tax Period,
assuming that the Tax is paid under the Corporate Tax Law.
b.
The Taxable Person must submit the Tax Return, Tax Forms, and supporting
documents as specified in the list attached hereto, within nine (9) months from
the end of the Tax Period. The Tax Return must be certified by the officer in
charge at the Taxable Person and by an external auditor.
c.
The Taxable Person is responsible for the accuracy of the data
set forth in the Tax Return, Tax Forms, and supporting documents specified in
the list attached hereto.
This
Resolution will be published in the Official Gazette and will come into force
on the day on which it is published.
Abdulrahman Saleh Al
Saleh
Director General
Department of Finance
Issued on 4 December
2024
List of Financial Data, Financial Documents, and Tax
Forms
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|
1 |
Audited Tax Return of
the Taxable Person, including the Tax rate applicable to the Taxable Person
and the amount of Tax paid under the Corporate Tax Law |
|
2 |
Audited financial
statements and disclosures of the Taxable Person |
|
3 |
Certified statement of
the Taxable Person’s share of Centralised Management Expenses and/or Regional
Management Expenses, audited by the external auditor of the head office |
|
4 |
Voluntary Disclosure |
|
5 |
Form No. 1 - Centralised
Management Expenses |
|
6 |
Form No. 2 - Regional
Management Expenses |
|
7 |
Form No. 3 - Shared
Expenses |
|
8 |
Form No. 4 - Shared
Revenues |
|
9 |
Form No. 5 - Allowances for Retail Loans
and Interest in Suspense |
|
10 |
Form No. 6 - Allowances for Corporate Loans
|
|
11 |
Form No. 7 - Interest in Suspense on
Corporate Loans |
|
12 |
Form No. 8 - General Allowances |
|
13 |
Form No. 9 - Other Allowances |
|
14 |
Form No. 10 - Capital Expenditures,
Depreciation and Amortisation Allowances |
|
15 |
Form No. 11 - Interests and Commissions
from Current Accounts of Branches |
|
16 |
Form No. 12 - Interests and Commissions
from Transactions with the Head Office and Other Branches |
|
17 |
Form No. 13 - Lending and Deposit
Transactions with the Foreign Bank Branch Operating in the Dubai
International Financial Centre |
|
18 |
Form No. 14 - Transactions with Related
Parties |
|
19 |
Form No. 15 - Accrued Expenses |
|
20 |
Form No. 16 - Disallowed Expenses |
|
21 |
Form No. 17 - Violations and Penalties |
|
22 |
Form No. 18 - Register of Deferred Tax
Assets |
©2024 The Supreme
Legislation Committee in the Emirate of Dubai
[1]Every effort
has been made to produce an accurate and complete English version of this
legislation. However, for the purpose of its interpretation and application,
reference must be made to the original Arabic text. In case of conflict, the
Arabic text will prevail.