UAE applies 0% withholding tax on domestic and cross‑border payments under Federal Decree‑Law No.47 of 2022, effective for financial years starting on or after 1 June 2023. In practice, no tax is withheld on dividends, interest, royalties, or service fees payable from the UAE, though treaty and foreign counterparty rules still matter.
Facts Table About Withholding Tax in the UAE
|
Topic |
UAE Position |
| Statutory WHT rate |
0% on domestic and cross‑border payments; in practice, no deduction at source |
| CT go‑live |
Financial years started on/after 1 June 2023 |
| Dividends/Interest/Royalties paid from UAE |
No UAE WHT deducted |
| Treaties |
Large network; apply abroad to reduce foreign WHT on payments to UAE residents |
What “Withholding Tax” Means in the UAE Right Now
The statutory UAE withholding tax rate is 0% on UAE‑sourced payments to non‑residents, so payers do not deduct any amount at source in practice. The corporate tax in UAE took effect for financial years beginning on or after 1 June 2023, without introducing any domestic withholding on routine payments. Ministry of Finance guidance states a 0% withholding may apply to certain UAE‑sourced income paid to non‑residents; operationally this results in no deduction at payment.
Payments Typically Affected (But taxed at 0%)
- Dividends paid by UAE companies to foreign shareholders: 0% WHT.
- Interest paid to foreign lenders: 0% WHT.
- Royalties paid to foreign IP owners: 0% WHT.
- Service fees and other cross‑border payments: 0% WHT.
UAE’s Federal Tax Authority confirms the CT regime start date and framework, with no domestic WHT introduced. Corporate tax applies at 9% above AED375,000 taxable profits, but that is a net income tax at entity level, not a withholding at payment source.
What Does 0% WHT Not Change?
UAE corporate tax may still apply at the recipient entity level if the income is UAE‑sourced and a permanent establishment or other nexus exists; however, the act of paying itself does not trigger WHT. Foreign jurisdictions may impose their own withholding on payments going into the UAE; UAE’s 0% does not override a foreign payer’s domestic or treaty‑based WHT. In addition, transfer pricing, deductibility, and anti‑avoidance rules still apply under CT law even without WHT.
Why Double Tax Treaties Still Matter with a 0% Domestic Rate?
UAE has an extensive treaty network that can reduce foreign countries’ WHT on outbound payments to UAE residents and clarify taxing rights. Many counterpart countries still levy treaty‑reduced rates on dividends, interest, and royalties paid to UAE residents; treaty relief depends on beneficial ownership and limitation‑on‑benefits conditions.
Practical takeaway: obtain residency/tax certificates and apply treaty procedures abroad to cut foreign WHT on inbound receipts to UAE entities.
Effective Date and Legal Anchors
- Corporate tax regime effective for financial years had started after 1 June 2023.
- Ministry of Finance corporate tax page confirms 0% WHT may apply to certain UAE‑sourced payments to non‑residents, with no actual deduction in practice.
- FTA corporate tax guide reiterates the current UAE withholding tax rate is 0%.
Free Zones and Distributions
UAE free zone companies that meet qualifying conditions benefit from 0% corporate tax on qualifying income; distributions such as dividends remain free of UAE WHT to mainland or foreign shareholders. Conditions and “qualifying income” tests are separate from WHT; failure to meet free zone conditions impacts corporate tax status but does not introduce WHT.
Also Read: Are Free Zone Companies Exempted from Corporate Tax in UAE
How the 0% WHT Interacts with Common Structures
- Holding companies: Dividend flows from UAE subsidiaries to offshore parents occur with 0% UAE WHT; consider foreign parent jurisdiction’s participation exemptions and CFC rules.
- IP and royalties: UAE payers remit royalties with 0% UAE WHT; ensure arm’s‑length pricing and substance for the IP owner to avoid foreign jurisdiction challenges.
- Intercompany loans: Interest to foreign group finance entities is paid gross in the UAE; deductibility depends on UAE CT rules (interest limitation, TP), not WHT.
- Services procurement: Cross‑border service fees are paid without UAE WHT; permanent establishment exposures for foreign providers remain a separate analysis.
What Can Still Go Wrong?
- Treaty misuse or lack of beneficial ownership proof may cause foreign WHT to apply at higher rates on payments into the UAE.
- Documentation gaps (residency certificates, TRCs) can block treaty relief abroad.
- Substance and transfer pricing audits under UAE CT may deny deductions or adjust profits even though WHT is 0%.
- Contracts that “gross‑up” for foreign WHT can raise total costs if the counterparty’s jurisdiction imposes WHT despite UAE’s 0%.
Practical Checklist for CFOs and Tax Leads
- Add a “no UAE WHT” clause and specify gross payments under UAE law; handle foreign WHT via treaty representations and gross‑up mechanics if needed.
- Collect and renew UAE Tax Residency Certificates for treaty claims abroad; align fiscal year dates with foreign forms.
- Map counterpart jurisdictions’ statutory and treaty WHT rates for dividends, interest, royalties, and services; maintain a live matrix for treasury.
- Test intercompany pricing, interest limitations, and deductibility under UAE CT; keep master/local files and intercompany agreements updated.
- For free zone entities, monitor qualifying income and “no mainland” rules separately from WHT; maintain board minutes and operational substance.
Insider Caution on Withholding Tax in the UAE
Bank on 0% domestic withholding, but do not assume zero friction. Treaty mechanics, foreign WHT, and documentation win or lose cash. Build a standing treaty/WHT matrix by counterparty country, refresh residency proofs every year, and hard‑code gross‑up language in key contracts. That quiet admin work preserves margins more than any tax headline.
FAQs About Withholding Tax in the UAE
Does the UAE withhold tax on dividends, interest, or royalties paid overseas?
No. UAE law sets withholding at 0%, so payers do not deduct tax on these payments in practice; confirm treaty and foreign country rules where the recipient is resident.
Did the new UAE corporate tax introduce withholding?
No. Corporate tax applies on profits from 1 June 2023 financial years, but it did not add domestic WHT on payments; the WHT rate remains 0%.
Do free zone dividends to mainland or foreign owners face WHT?
No. UAE does not impose WHT on such distributions; free zone conditions affect corporate tax status, not withholding.
Why do I still need a UAE Tax Residency Certificate?
Treaties reduce foreign WHT on payments into the UAE; tax residency proof is often required by foreign tax authorities to apply treaty rates.
Can a foreign country withhold tax on payments to my UAE company?
Yes. Foreign WHT may apply under that country’s law unless reduced by treaty; UAE’s 0% does not control foreign WHT.
Are service fees to non‑residents subject to UAE WHT?
No. UAE applies 0% WHT; ensure transfer pricing and PE analyses are addressed separately under corporate tax rules.
Citations and References
Abrar Ahmad holds a Master’s as well as an MPhil in Finance and has an extensive experience of 10+ years in managing all aspects of Taxation, VAT Consulting and Accounting. He also carries with him a working knowledge of corporate tax and has helped drive value and growth to the businesses of numerous clients.
