In order to have consistent flow of revenue from income taxation, many countries in the world have a concept of withholding tax, wherein, every time a payment is made which is taxable under the corporate tax law, the payor of such money is required to withhold some part of such payments, as tax, and deposit the same with the Government. However, there is no withholding tax under UAE Corporate tax law, i.e the rate of withholding is 0%.
The rate of 0% withholding tax, shall apply to all the local, and foreign payments which may be made by UAE businesses. This would be specifically applicable to payments of following nature : –
- Dividend
- Interest on loan
- Professional fees
- Business income
However, in case later on there is a provision introduced for collection of taxes, which may be payable by the non resident in the UAE, the same shall be required to be considered in advance.
In addition to this, the draft public consultation document specifically provides that the Withholding tax under UAE Corporate tax law shall be 0% for the following income : –
- Income earned by a foreign company , which is sourced in the UAE, but such income is not attributable to a PE of the foreign company in the UAE ;
- Income earned by a Free Zone Person which is liable to a 0% CT regime from Mainland UAE , unless such income is attributable to a Mainland branch of Free Zone Person; and
- Dividends and other profit distributions made by a Free Zone Person which is liable to a 0% CT regime to it mainland UAE shareholder.
Compliances in respect of Withholding tax under UAE Corporate tax law
Given that the rate of withholding tax is proposed to be 0%, this would result in UAE businesses , not deducting any taxes from any payment made to a resident of a non-resident . Accordingly, there would be no obligation to find any withholding tax return for the UAE businesses.
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