On the 28 December 2017, the United Arab Emirates (“UAE”) Central Bank issued “Notice No. 421/2017” to Head Offices of National Banks, Main Branches of Foreign Banks and Finance Companies Operating in the UAE with a subject title “Clarification of VAT Application” (“Notice”). This notice clarified the UAE Central Bank’s position regarding the levy of Value Added Tax (“VAT”) on certain fees charged by banks and finance companies.
“Banks and finance companies should comply with Central Bank’s Regulations 29/2011 regarding Bank Loans & Other Services Offered to Individual customers, and service charges collected from customers shall be within the limits specified in Annexure 2 of the said Regulations. Banks and finance companies will not be permitted to exceed the fees structure for individual customers because of VAT. Similarly, banks are required to maintain and not increase their existing fees structure and levels for non-individual customers as a result of VAT.
Therefore, the banks and finance companies shall absorb the applicable VAT until further instructions from the Central Bank. Similarly, any applicable VAT on the services provided by the Central Bank shall be absorbed by the Central Bank.”
This Notice was not aligned with the understanding of many financial services providers, where the interpretation is that charging VAT on their (maximum) fees and commissions is not an increase in fee but rather is a levy of tax on behalf of the Federal Tax Authority in accordance with the Federal Decree – Law No. (8) of 2017 on Value Added Tax (“ VAT Law”) and had announced a VAT levy would apply.
Some areas remain uncertain under the Notice, notably with regards to the application of the restriction to existing fees structure and levels for non-individual customers, as the maximum limits for fees and commissions listed in Appendix 2 of the Central Bank Regulations 29/2011 are applicable to retail customer service only.
As indicated in the Notice, a further review in consultation with relevant stakeholders will be undertaken.
see for example https://www.khaleejtimes.com/business/local//will-uae-banks-increase-their-fees-due-to-vat-find-out
