Can you claim VAT on bank charges in the UAE? Fees, margins and records

Article 42 of the VAT Executive Regulation draws the line. Financial services are generally exempt when they are not charged for through an explicit fee, and taxable when the consideration is an explicit fee, commission, discount, rebate or similar. Interest on a loan, or the margin a bank earns on deposits, has no explicit fee and is exempt. A AED 50 charge for an international transfer is an explicit fee and is standard-rated.

In practice, most charges you see as separate lines on a business bank statement are explicit fees and carry 5% VAT.

• Usually taxable: account maintenance fees, transfer fees, cheque book and returned cheque charges, card fees, trade finance commissions, loan processing fees
• Usually exempt: interest on loans and overdrafts, the margin built into exchange rates, interest on deposits

To recover input tax, you need documentation that meets the tax invoice requirements. Most UAE banks issue a monthly or periodic tax invoice listing fees and VAT, separate from the statement. Download it from online banking or ask your relationship manager. Our view: set a monthly reminder to collect bank tax invoices for every account; banks rarely send them unprompted.

If your business makes exempt supplies as well as taxable ones, input tax recovery may need apportionment. That is a question for your tax agent.

A Dubai trading company’s October statement shows: account maintenance AED 105 including AED 5 VAT; 14 local transfers at AED 10.50 each including AED 0.50 VAT (AED 147 total, AED 7 VAT); 3 international transfers at AED 78.75 each including AED 3.75 VAT (AED 236.25 total, AED 11.25 VAT); one returned cheque charge AED 315 including AED 15 VAT; overdraft interest AED 1,240 with no VAT.

Total charges: AED 2,043.25. Recoverable input VAT: AED 38.25. Bank charges expense: AED 765. Interest expense: AED 1,240. Over a year, recovering AED 38 each month is about AED 460 of VAT that would otherwise be lost, and the interest is correctly separated for the corporate tax interest calculation.

Separate interest from bank fees in the chart of accounts. Interest is a finance cost; bank fees are an operating expense. Record the VAT on fees as input tax, matched to the bank’s tax invoice. Recharge returned cheque fees to customers only if your terms allow it.

For corporate tax, interest feeds into net interest expenditure under Article 30 of the Corporate Tax Law, while bank fees are ordinary deductible expenses where incurred for the business. Keeping them apart from the start avoids an awkward analysis at year end.

When you upload a statement from Emirates NBD, ADCB, FAB or any other UAE bank, the AI agent recognises fee lines, splits out the VAT at 5%, and posts them to bank charges with input tax. Interest lines go to finance costs with no VAT. You attach the bank’s monthly tax invoice, and the agent checks that its VAT total agrees with what was posted.

Ask “how much VAT did we pay on bank charges this quarter, and do we have tax invoices for all of it?” and you get the answer before the VAT 201 draft is finalised for your review.