Central Bank issues new notice on the application of VAT

The Central Bank of the United Arab Emirates (“Central Bank”) has recently issued a notice to UAE banks and finance companies on the application of VAT to the capped fees charged in respect of loans and other services offered to individual customers.

The newly issued Notice No.157/2018 (“Notice”) replaces a previous notice issued by the Central Bank (Notice No. 421/2017 dated 28 December 2017) which restricted banks and finance companies from increasing their existing fee structures for individual and non-individual customers and instructed them to absorb any applicable VAT until further notice.

Key Takeaways of the Notice:

• Appendix 2 of the Regulations Regarding Bank Loans and Other Services Offered to Individual Customers (Circular 29/2011) has been amended;
• Fee caps are exclusive of UAE VAT;
• Banks and finance companies will need to notify and seek approval from the Central Bank ex-ante for any planned introduction of a new fee or a change in existing fee levels (which exceeds 5%) for fees which are not capped;
• The Notice is applicable prospectively with effect from 19 June 2018; and
• Banks and finance companies need to provide the Central Bank with a full list of fees charged within 30 days from the effective date of the Notice.

What should you do next?

Banks and finance companies should consider the impact of the new Notice on their existing fee structures, ensure compliance with the VAT legislation if they decide to pass on the VAT to their customers and communicate with their customers on any changes to their existing fee structures.

How can we help?

Al Tamimi can assist you to assess the impact of this new Notice and advise you on the compliance requirements from a VAT perspective, as well as draft communication on any changes to your existing fee structures. Please do not hesitate to contact Al Tamimi’s Tax Team if you require any assistance.