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A proposed amendment would increase withholding tax on payments to non-resident contractors from five to 10 percent, with MIRA forecasting MVR 251 million in additional annual revenue.
Mariyam Adheela
MALE’— The government has proposed raising the withholding tax imposed on payments to foreign contractors from five percent to 10 percent, citing the need to ensure a more competitive environment for local businesses.
The amendment to the Income Tax Act was submitted to the People’s Majlis by Mathiveri MP Hassan Zareer.
If approved, businesses making payments to non-resident contractors would be required to deduct 10 percent of the total payment as withholding tax, doubling the current rate.
The proposed amendment would also change how the withheld amount is treated for tax purposes. Under the existing system, tax withheld from income earned through a permanent establishment in the Maldives can be deducted when calculating the contractor’s taxable income.
Under the new proposal, the amount withheld would instead be considered the full tax payable by the non-resident contractor. The income subject to the withholding tax would consequently be excluded when calculating taxable income.
The government has submitted a revenue impact assessment together with the bill, with the Maldives Inland Revenue Authority (MIRA) estimating an average annual increase of MVR 251 million in state revenue if the amendment is implemented.
The proposed change is therefore expected to both strengthen government revenue collection and address differences in the tax treatment of foreign and local businesses.
