UAE banks now able to charge VAT on fees

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Banks have started charging VAT on various services offered, following a June circular from the Central Bank of UAE, which rescinded a previous notice to the contrary.

In December, the Central Bank issued a notice informing banks that they should absorb VAT charges until they received further instructions.

In June last month, an amendment was issued, detailing 43 new caps on fees and commission charged on consumer-related banking services. The circular specified that “all fees set out in this amendment are exclusive of VAT charges.”

Tina Hsieh, senior manager for indirect tax at global consultancy PricewaterhouseCoopers, said banks will now revise their fees and commissions, publishing any revisions in their schedule of charges.

“To that end, retail customers, for example, will be paying VAT in addition to the fees or commissions charged by banks,” she added.

The December notice seemed to oppose the understanding of many banks at the time, according to PwC, “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”.

However, the Central Bank clarified the issue in the circular issued last month, giving banks the go-ahead to charge VAT on fees to individuals and companies.

“The new amendment which is effective as of July 1 includes both individuals and entities. Both will be charged a 5 per cent VAT on all fees and bank services with no exception,” said Abdul Aziz Al Ghurair, chairman of UAE Banks Federation in an interview with Al Bayan Economic.