UAE Corporate Tax for Banks and Insurance Providers: What You Need to Know

June 28, 2025

Minimalist flat illustration with a bank icon labeled BANKS, an insurance shield labeled INSURANCE, and a corporate tax document at the center for UAE tax rules.

Are Financial Institutions Exempt From Corporate Tax?

No, they are not. Under Federal Decree Law No. 47 of 2022, banks and insurance providers are considered taxable. This includes entities operating in the mainland and Free Zones.

Unless a rare exception applies, like being taxed at the Emirate level as an extractive or non-extractive business, these businesses are fully subject to the federal Corporate Tax rules. This new framework puts financial institutions in the same regulatory category as most other sectors when it comes to tax obligations, filing requirements, and reporting duties.

Understanding this distinction is key. Misinterpreting exemption status can lead to unexpected liabilities and penalties.

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Which Entities Does This Apply To?

The following institutions fall under the scope of UAE Corporate Tax and must comply with all standard requirements:

Commercial banks, whether operating in the mainland or Free Zones

Investment banks, both local and international branches operating within UAE jurisdiction

Insurance companies, including life, general, and composite insurers

Reinsurance providers offering services to UAE or international markets

Takaful operators and Islamic finance institutions

Asset financing and lending firms tied to regulated financial services

If your business is in any of these categories, Corporate Tax registration is not optional. You are expected to:

Submit your Corporate Tax return annually

Pay 9 percent tax on profits above AED 375,000

Maintain proper records and audited financial statements

This applies even if you currently operate at a loss or are in your early years of business development.

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Why Is There Confusion About Taxability?

There are a few reasons many financial service providers misunderstood the law at first:

Licensing Confusion: Some institutions believed that being licensed by the Central Bank or the Insurance Authority made them exempt. But regulatory licensing has no bearing on tax status.

Free Zone Misunderstanding: Others assumed that being located in a Free Zone meant automatic tax exemption. This is no longer true. Certain sectors, like finance and insurance, are excluded activities under the Free Zone Corporate Tax framework.

Legacy Assumptions: Many businesses operated for years under a tax-free assumption and simply assumed the same would apply with the Corporate Tax regime.

Lack of Clarity in Early Guidance: Early communications were more focused on standard trade and service companies, leaving many finance-specific questions unanswered.

However, Cabinet Decision No. 100 of 2023 and Ministerial Decision No. 265 of 2023 make it clear: financial services are taxable.

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Financial Services and the QFZP Rule

Let’s break it down simply:

If your business is a commercial bank on the mainland, you are taxed.

If you are providing insurance or reinsurance services, you are taxed.

If you are a Free Zone-based bank but serving clients in the mainland, you are taxed.

If you only offer investment advisory and don’t handle or manage funds, your eligibility depends on the specific services offered.

That means Free Zone status does not protect banks or insurers from paying Corporate Tax. You must operate under the assumption that the nine percent rate applies.

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Are There Any Exceptions or Exemptions?

Yes, but they are extremely limited.

Some businesses may fall under exemptions if:

They are government-controlled entities and are listed by Cabinet Decision

They operate in the extractive sector (e.g., oil, gas, or mining), and are already taxed at the Emirate level

They manage charitable or public benefit services (non-commercial)

However, your average commercial financial institution, whether bank, reinsurer, or asset manager, is not exempt.

If you are uncertain about your classification, a professional tax advisor or the FTA’s online portal can help you verify your status.

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Special Treatment: No Interest Deduction Cap for Financial Institutions

Here’s some good news for the sector.

Most companies in the UAE must limit their interest deductions. The cap is either:

AED 12 million, or

Thirty percent of adjusted EBITDA (whichever is higher)

This rule exists to prevent businesses from using excessive debt to reduce their tax liability. But this cap does not apply to banks and insurance companies.

Why? Because interest expense is a central part of how these businesses operate. For banks and insurers, interest paid to depositors, policyholders, or investors is a core cost of doing business.

That means:

You can deduct all business-related interest expenses

There is no fixed limit as long as they are genuinely part of your financial operations

The same goes for Islamic financing alternatives

This exception provides much-needed breathing room for financial institutions operating in a heavily capital-dependent environment.

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You Must Still Follow Transfer Pricing Rules

Even though banks and insurance providers get some relief with interest deductions, they are still fully subject to transfer pricing regulations.

That means:

Every transaction with related parties must follow the arm’s length principle

You must maintain proper documentation

You may need to submit:
- A Transfer Pricing Disclosure Form
- A Master File (if part of a large group)
- A Local File detailing UAE-based related party transactions

This documentation ensures your pricing practices are fair, globally consistent, and not designed to shift profits unfairly between jurisdictions.

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Compliance Obligations for Banks and Insurers

To stay fully compliant, financial institutions need to complete the following every year:

Keep full, audited financial statements available

File a Corporate Tax return within nine months after your tax period ends

Ensure interest deductions are correctly reported (even without a cap)

Submit all relevant transfer pricing documents if thresholds are met

You do not get:

De minimis exemption benefits

Qualifying Free Zone Person status

Relief from basic reporting or filing duties

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A Closer Look: Why the Exclusion From QFZP Matters

QFZP status comes with benefits like the zero percent tax rate but banks and insurers cannot qualify.

Why? Because financial services, by nature, involve cross-border flows, public trust, and risk exposure. The law views this sector as one where tighter regulation and consistent taxation are essential.

So even if you are operating within a Free Zone, your business must:

Track all income carefully

Segregate qualifying vs. non-qualifying revenue (if applicable)

Plan for the nine percent tax rate as your baseline

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Final Thoughts

The Corporate Tax framework is designed to bring long-term clarity and predictability to business operations in the UAE. Banks and insurance providers are not exempt from these rules.

They must register, calculate taxable income properly, comply with reporting obligations, and plan for tax payments like any other taxable sector.

The only carve-out is that they can deduct all business-related interest expenses. That’s helpful—but it does not change the bigger picture.

The financial industry plays a key role in the UAE’s economy. Being compliant with Corporate Tax is not just about avoiding penalties, it’s about staying ready for future growth, investment, and cross-border collaboration.

If you are unsure about what applies to your financial business, Tax Star can help. From onboarding and registration to tax filing and compliance tracking, our system is designed to make complex tax requirements simple and manageable.

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