What is the UAE Withholding Tax?

Primarily, withholding tax is the amount of federal income tax withheld from an employee’s paycheck; it is often imposed on royalties, interests and dividends. Subsequent to the UAE announcement of setting forth corporate tax on business conduct, the enforceability of withholding tax has been ambiguous to businesses. Top corporate tax advisors in the UAE can effectively advise businesses on the scope and the applicability of the upcoming corporate tax, notwithstanding the pertinence of withholding tax respectively. 

The Types of Payments Subject to Withholding Tax in the UAE 

The types of payments that are subject to withholding tax encompass business income, professional fees, interests on loans, dividends and royalties to mention a few. Further, the following types of income are set to have a withholding tax rate of 0 percent, this includes:

  • Income sourced in UAE and obtained by a foreign firm that is not due to the foreign company's permanent establishment in the UAE.
  • Income sourced in the UAE mainland and obtained by a Free zone business that is benefited from the zero percent corporate tax rate, except if the income is due to a subsidiary of that Free zone business in the UAE mainland.
  • Dividend income or similar profit distribution patterns produced by a Free zone business that has 0 percent corporate tax rate to a shareholder in UAE mainland in the Free zone business.

Also read this: What are the Corporation Tax Implications of the Transfer Pricing Rules?

The Scope and the Applicability of the UAE Corporate Tax. (Is your business subject or not?)

The UAE corporate tax is set to be enforceable to all UAE businesses and commercial activities alike, except for the extraction of natural resources, which is regarded to prevail subject to emirate-level corporate taxation. Moreover, activities carried out by a business (a deemed legal entity) will be assumed as viable business activities, therefore, falling under the cognizance / the scope of the UAE corporate tax. Nevertheless, the corporate tax will not apply to a private person’s salary and other employment income, regardless of being received from any public or private sector. Still more, dividends and capital gains earned by a UAE business from its condoning shareholdings will be exempt from UAE corporate tax. Overall, the corporate tax rate will be 9% for taxable income above AED 375,000.  

Also read this: Will foreign companies be subject to the UAE corporate tax?

An Alert for UAE Businesses to Outset Formal Accounting and Auditing Procedures to Meet the Corporate Tax Standards  

Essentially, it is highly advisable for businesses to pre-avail formal accounting and auditing procedures from approved Auditing Firms in the UAE. Noncompliance to the set Corporate Tax statutes and standards is an ingredient for accrued Federal Tax Authority fines and penalties on businesses in the UAE, thus is imperative to seek expert tax consultation to avert any probable risk of noncompliance. So, contact us today and we shall be happy to assist you.


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