UAE Banks Should Review the FTA’s New Additional Tier 1 Tax Guidance
# UAE Banks Should Review the FTA’s New Additional Tier 1 Tax Guidance
**Category:** Corporate Tax
**Author:** Shahaab Ikram
**Read Time:** 4 min
**Published:** 11 August 2026
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The Federal Tax Authority has issued new Public Clarification CPT012 on the Corporate Tax treatment of payments made in respect of Additional Tier 1 instruments by banks. Issued on 30 July 2026, the clarification is a useful reminder that the tax treatment of capital instruments cannot be separated from their legal terms, accounting classification, and regulatory purpose.
Additional Tier 1, or AT1, instruments are designed to absorb losses and support a bank’s capital position. They may look similar to debt from an investor’s perspective because they involve periodic payments, but their terms can include features such as discretionary distributions, loss absorption, and conversion or write-down mechanisms. Those features matter when determining the Corporate Tax treatment.
For banks, the first practical step is to create an instrument-by-instrument inventory. The review should capture the issuer, issue date, governing documents, accounting classification, payment terms, redemption rights, and any amendments. A generic label such as “interest expense” is not enough evidence for a tax position when the instrument’s contractual substance is more complex.
The tax review should then connect three questions. First, what exactly is the payment under the legal terms? Second, how has the instrument been classified and recorded in the financial statements? Third, does the payment satisfy the applicable Corporate Tax rules for deductibility? The accounting entry may be the starting point, but it should not replace a documented tax analysis.
This is especially important where payments are discretionary or depend on regulatory conditions. Finance teams should confirm whether the amount is treated as interest, a distribution, or another form of return under the relevant rules. They should also document how withholding, related-party, connected-person, and transfer-pricing considerations were assessed where applicable.
The clarification is not only a technical issue for the tax return. It can affect the effective tax rate, deferred tax analysis, financial statement disclosures, and the evidence available during an FTA review. If a bank has historically applied one treatment across several AT1 instruments, a fresh review may identify differences between instruments that were previously grouped together.
A sensible control for the 2026 close is a tax-accounting reconciliation for AT1 payments. The reconciliation should begin with the general ledger, agree amounts to the instrument documentation, identify any items adjusted in the Corporate Tax computation, and record the conclusion and supporting authority. Any judgment should be approved by the tax and financial reporting owners rather than left as an unexplained year-end adjustment.
The broader lesson applies beyond banks. UAE Corporate Tax positions involving financial instruments should be built from the contract, the economic substance, the accounting treatment, and the legislation together. A payment classification that is convenient for bookkeeping may not be sufficient for tax purposes.
Bank finance teams should therefore add CPT012 to their technical-accounting review agenda, identify affected instruments, and confirm whether their current tax return position and supporting documentation remain appropriate. Early review is usually less expensive than reconstructing the analysis during an audit.
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*Editorial note: This article is for general information only and does not constitute tax, accounting, regulatory, or legal advice. Banks and other taxpayers should review the FTA clarification and obtain advice based on their specific instruments and facts.*
**Sources:** Federal Tax Authority, “CPT012 | Corporate Tax treatment of payments made in respect of Additional Tier 1 instruments by banks,” issued 30 July 2026; Federal Tax Authority Corporate Tax Guides, References and Public Clarifications page, accessed 11 August 2026.
