Bill proposes raising non-resident contractor tax rate to 10%

The government has submitted legislation to parliament seeking to increase the withholding tax rate applied to non-resident contractors from 5 per cent to 10 per cent.

The proposed amendment to the Income Tax Act was introduced in the People's Majlis on Monday by Mathiveri MP Hassan Zareer on behalf of the government.

According to the bill, the amendment is intended to create a more equal tax framework between local businesses and foreign contractors undertaking construction and other projects in the Maldives. The proposal would also establish the revised withholding tax rate as the final tax liability for non-resident contractors.

Under the current Income Tax Act, withholding tax is divided into two categories: employee withholding tax and non-resident withholding tax.

Employee withholding tax is deducted by employers from the salaries of individuals earning more than MVR 60,000 per month. The tax is applied at progressive rates ranging from 5.5 per cent to 15 per cent.

Non-resident withholding tax applies to certain payments made to entities and individuals who are not resident in the Maldives.

Existing legislation already imposes a 10 per cent withholding tax on several types of payments made to non-residents, including rent from real estate, royalties, dividends and technical service fees.

However, payments made to non-resident contractors are currently subject to a lower rate of 5 per cent.

The proposed amendment seeks to increase that rate to 10 per cent, bringing it into line with other categories of non-resident withholding tax.

According to estimates included in the bill, the measure is expected to generate an additional MVR 251 million in government revenue each year, equivalent to approximately US$16 million.

Payments to non-resident contractors are generally made in foreign currency. Under amendments enacted in 2024, taxpayers earning income in foreign currency are required to settle their tax obligations in US dollars.

The bill also proposes expanding the legal definition of a non-resident contractor.

Under current law, a non-resident contractor is defined as a non-resident individual or entity providing services in the Maldives under a contract, agreement or arrangement, or authorising another party to provide such services.

The proposed amendment would extend the definition to include non-resident entities supplying goods to the Maldives under contractual arrangements.

The tax proposal follows another legislative amendment introduced by the government on Sunday to apply Goods and Services Tax (GST) to goods and services supplied to the tourism sector by foreign vendors.

The government has estimated that the GST measure could generate approximately MVR 1.6 billion in annual revenue.