This content is from: Local Insights


The government of Dubai recently issued Regulation No. 2 of 1997, setting forth guidelines to be used by branches of foreign banks in calculating income tax due to the government of Dubai from taxable income arising from the conduct of business in the Emirate of Dubai.

Foreign banks operate in the Emirate of Dubai without local equity participation under special arrangements with the government. Generally, foreign banks must pay 20% of their net profits to the government of Dubai as an income tax. The new law lists the permissible deductions foreign banks may make in determining taxable income. For example, a foreign bank cannot deduct more than 2.5% of its total revenue in any year for head office charges and regional management expenses combined. Furthermore, centralized or shared expenses (including regional management expenses) of foreign branches of banks operating in Dubai can be deducted on a pro-rata basis. Head office expenses must be reflected in the Dubai branch's books and certified by the external auditors of the bank's head office.

The guidelines also set forth acceptable methods for calculating 'doubtful debts', losses, amortization of assets and capital expenditures. Losses can be carried forward and set off against taxable profits in the next tax year. Losses, however, cannot be deducted from a previous year's tax obligation.

Branches must file an annual tax declaration together with audited financial statements. The financial year for foreign banks operating in Dubai must be January 1 to December 31. Taxes are due no later than March 31 of the following year. The penalty for late payment is 1% for each 30-day period of arrears.

In addition, the Financial Audit Department of the Dubai Ruler's Court shall have the right to inspect the books and records of foreign banks operating in Dubai and issue a report stating any such bank's tax liability. A bank may object to the report by filing an objection with the director of the Ruler's Court. The director will then render a final ruling on the taxes owed by the foreign bank.

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