There is a new tax law in town – but it is probably not what you think

On 7 March 2024 the government of Dubai issued Law No. (1) of 2024 on taxation of foreign banks operating in Dubai (New Tax Law). The New Tax Law imposes a 20% tax on the annual taxable income of foreign banks operating in Dubai, with the exception of foreign banks licensed in the Dubai International Financial Centre (DIFC). 

The news of a 20% tax on foreign banks caused a stir with discussions about market shifts from onshore to the DIFC, competitive advantages for local banks, increased consumer charges and other speculations about potential impacts on Dubai’s banking sector and possible ripple effects across related industries. 

The reality however is that while the law is new, the tax charge is not. The New Tax Law repeals Regulation No. 2 of 1996 which already introduced a 20% tax on foreign banks licensed in Dubai in 1996. Following the UAE's introduction of a corporate tax regime in 2022, foreign banks in Dubai now faced the prospect of an even higher tax bill with an additional 9% in corporate income tax on top of the 20% that they were already paying on annual income. The New Tax Law addresses this double tax burden by allowing foreign banks to deduct their corporate tax from the 20% tax charge.

Consequently, the New Tax Law is a positive development for foreign banks in Dubai and is unlikely to cause any significant market shifts or increase consumer burden.

In short, the New Tax Law does not increase the tax burden on foreign banks in Dubai, in fact it does the opposite by ending double taxation for foreign banks in Dubai by allowing them to absorb their corporate tax payments into the annual 20 percent banking tax charge.