- The Maldivian government has proposed doubling the withholding tax on foreign contractors from five to 10 per cent, via an amendment to the Income Tax Act submitted by Mathiveri MP Hassan Zareer.
- The amendment, passed by Parliament on Sunday and referred to the Public Accounts Committee, would require Maldivian businesses to withhold 10 per cent of payments to non-resident contractors and remit it to the state.
- The bill is part of wider tax reforms, including a separate proposal to impose GST on foreign tour operators and offshore booking platforms, projected to generate around MVR 1.61 billion annually.
The Maldivian government has proposed doubling the withholding tax imposed on foreign contractors working on construction projects in the Maldives, increasing the rate from five per cent to 10 per cent.
The proposed change is contained in an amendment to the Income Tax Act submitted to the People’s Majlis by Mathiveri MP Hassan Zareer, a member of the ruling People’s National Congress (PNC). The amendment seeks to revise provisions of the Income Tax Act governing payments made to non-resident contractors.
Under the proposed amendment, a Maldivian business making payments to a foreign contractor would be required to withhold 10 per cent of the payment and remit the amount to the state, compared with the current five per cent rate.
The bill is intended to create what Zareer described as a fairer and more competitive environment for foreign contractors bidding for construction projects in the Maldives.
The accompanying amendment document sets out changes to the Income Tax Act, including revisions to provisions relating to payments to non-resident persons. The document specifies the proposed increase in the withholding tax rate from five per cent to 10 per cent.
Withholding tax is deducted by the party making a payment and paid to the state before the recipient receives the remaining amount. It applies to certain income earned in the Maldives by non-resident persons and is intended to ensure that tax is collected from foreign entities earning income through activities in the country.
The tax can apply to payments including royalties, technical service fees, dividends and contract payments.
The proposed increase would therefore raise the amount withheld from payments made by Maldivian businesses to foreign contractors, although the final tax liability would depend on the applicable tax provisions and the contractor’s circumstances.
The amendment was passed by Parliament on Sunday and referred to the Public Accounts Committee for further review.
The bill forms part of a wider set of proposed changes to the country’s tax framework.
Separately, the government has proposed imposing Goods and Services Tax (GST) on services provided by foreign tour operators and offshore booking platforms. The proposed changes seek to bring inbound tourism services provided by persons without a permanent place of business in the Maldives within the country’s tax framework.
The government estimates that implementing the offshore tourism taxation system would require MVR 2.8 million in one-time expenditure and MVR 5.1 million in annual recurrent costs. Once implemented, the system is expected to generate approximately MVR 1.61 billion in annual revenue.
The proposed changes to withholding tax will now be subject to the parliamentary review process before any amendment to the existing five per cent rate takes effect.
