Non-resident contractor withholding tax rises from 5% to 10%

President Mohamed Muizzu on Monday ratified an amendment to the Income Tax Act increasing the withholding tax imposed on non-resident contractors from 5 per cent to 10 per cent.

The amendment was among seven bills signed into law at a ceremony held at the President's Office on Monday and takes effect upon ratification.

The change raises the withholding tax on payments made to non-resident contractors carrying out projects in the Maldives to 10 per cent, with the amount treated as their full and final tax liability.

The government proposed the amendment on the grounds that differences in the tax treatment of local businesses and non-resident contractors created disparities when competing for construction contracts in the Maldives.

Under Section 53 of the Income Tax Act, withholding tax applies to employee remuneration and certain payments made to non-residents.

Employee withholding tax is deducted by employers from remuneration paid to employees whose income exceeds the applicable threshold. Rates range from 5.5 per cent to 15 per cent for monthly remuneration above MVR 60,000.

Non-resident withholding tax applies to specified payments made to non-residents for services, transactions and other activities in the Maldives.

Several categories of payments to non-residents are already subject to a 10 per cent withholding tax, including payments relating to rent from immovable property, royalties, dividends and technical services.

Non-resident contractors, however, were previously subject to a withholding tax rate of 5 per cent.

The amendment submitted by the government and passed by Parliament increases the rate to 10 per cent, bringing the tax treatment of non-resident contractors in line with the rate applied to several other categories of payments to non-residents.

According to estimates presented with the amendment, doubling the withholding tax rate for non-resident contractors is expected to increase state revenue by an average of MVR 251 million annually, equivalent to about USD 16 million.