The legal law that regulates the taxation of foreign banks in the Emirate of Ajman is the Ajman Law no 3 issued on 13th June 2024. The purpose of this law shall be to improve the transparency and fairness of the tax system for the development of the regional economy. This article will discuss the major provisions of this law, its impact on the foreign banks in the country, and the general compliance measures for taxable entities.
Scope of Application
This particular law is applicable to foreign banks that are operating in Ajman irrespective of the free zone license that is issued to them. It is important that these foreign banks acquaint themselves with this law and how it may affect their business in the emirate.
Tax Rate
Pursuant to this law, it is required that a foreign bank pay an amount of 20% of the taxable income earned by it in this country. But for the first-time foreign banks in the market, they are allowed to be tax-free up to two years of their operation provided they meet all the conditions under this law.
Avoidance of Double Taxation
In an effort to accomplish the objective of non-duplication of tax, the corporate tax rate that has been imposed in line with the provisions of the Corporate Tax Law shall be subtracted from the annual tax rate of 20% in the event the foreign bank pays tax under the Corporate Tax Law.
Tax Registration
Foreign banks wishing to operate within the territory of Ajman must apply for registration with the Department of Finance within a period of not more than ninety days since the passing of this law if they already exist within the Emirate. New foreign banks have to be registered with the commission within a time frame of three months from the issuance of the commercial license.
Calculation of Taxable Income
The taxable income is determined by taking into account the accounting standards of the foreign bank in accordance with the Federal legislation and rules and controls adopted by the Department of Finance. The following factors is considered when computing taxable income:
- The method of calculating joint revenues and joint expenses
- Headquarter’s expenses and regional administration’s expenses
- Losses and other unrecognized gains from taxable income
- Gross profit and operating profit not reflected in the income statement
- Any other matters which is deemed necessary to compute the taxable income.
Submission of Tax Returns and Payment of Tax
The taxable person is obliged to file the following with the Department within nine months from the end of the tax period:
- The financial statement of the ending tax period
- Financial statements and legal justifications of the taxable person
- The due tax amount for the final tax period and all supporting records
- The rate of tax which have been levied and the actual tax paid in accordance with the Corporate Tax Law
Voluntary Declaration
In the event that the taxable person realizes that an error has been made in the tax return, they must make the correction and pay the outstanding balance according to the amount in the corrected tax return, within 30 working days of realizing that an error has been made. It means that it has to be filed voluntarily following the forms and mechanisms prescribed by the Department.
Tax Audit
The auditor may perform a tax audit with the purpose of assessing the level of compliance with the provisions of this law by the taxable person. The tax audit can be conducted at the offices of the Authority, at the business premises of the taxable person or at any other place where the taxable person conducts business or keeps records and documents. According to the legal requirements, the taxable person must be given at least five days of prior notice of the intended tax audit.
Rights of the Person Subject to Tax Audit
The law accords the following rights to a person subject to tax audit:
- Ask the auditor to present an identification card
- After having your tax audit done, get a copy of the report once it is ready
- Participate in the process of the tax audit through an authorized person
- Request for copies of records or documents taken or obtained in connection with a tax audit
- The Authority shall notify the taxable person of the Tax Assessment within ten working days from the date of termination of Tax Assessment.
Table: Penalty for Tax Evasion
If the Taxable Person commits any of the listed actions they will be deemed to have evaded taxes:
| Acts Considered Tax Evasion | Penalty |
| Submitting an incorrect Tax Return and failing to submit a Voluntary Declaration | Fine equal to twice the amount of evaded tax |
| Refraining from paying the payable Tax or differences resulting from the tax audit process | Same as above |
| Reducing the actual value of the Taxable Income intentionally | Same as above |
| Manipulating accounting data or submitting incorrect, incomplete or falsified information | Same as above |
| Destroying or hiding documents, data or information | Same as above |
| Preventing or hampering the auditor from carrying out his duties | Same as above |
| Assuming or refraining from any other act that leads to evading Tax | Same as above |
FAQs
1. What is the tax rate for foreign banks operating in Ajman under Ajman Law No. 3/2024?
Foreign banks are subject to a 20% tax on their income.
2. Are new foreign banks entering the market exempted from tax under this law?
Foreign banks are subject to a 20% tax on their income. Established foreign banks are exempt from taxation, during their two years of operation if they fulfill all obligations specified in this law pertaining to taxable entities.
3. What is the penalty for tax evasion under this law?
Any individual evading tax payment by engaging in acts as listed in the table above will face a penalty equivalent, to twice the tax amount.
In summary, Ajman Law No. 3/2024 introduces the Taxation of Foreign Banks Operating in the Emirate of Ajman, setting the tax rate at 20% of their income. The law provides guidelines for filing tax returns calculating taxes and penalties for infractions such as tax evasion, delayed payments and administrative breaches. It is advised for foreign banks to consult to Tax consultants in UAE in order to adhere to the law to avoid fines and sustain their business activities in Ajman.
Read More: Qualifying Activities for Free Zone Persons in the UAE