Primarily, withholding tax is the federal income tax withheld from an employee’s paycheck; it is often imposed on royalties, interests and dividends. Since the UAE announced a 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.
In the UAE, the withholding tax rate is 0% for both domestic and cross-border payments under the current tax framework. This favorable policy is designed to attract global businesses by minimizing tax liabilities on various payments, including dividends, royalties, and interest. For personalized advice on how this could benefit your business, consulting experts like Creation Business Consultants can be highly beneficial.
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:
Also read this: What are the Corporation Tax Implications of the Transfer Pricing Rules?
In the GCC, withholding tax is not charged in the UAE and Bahrain. In the UAE, the new corporate tax rules ensure no withholding tax applies to domestic or cross-border payments. However, withholding tax is applied in other GCC countries like Saudi Arabia, Qatar, Kuwait, and Oman.The Scope and the Applicability of the UAE Corporate Tax. (Is your business subject or not?)
| Country | Withholding Tax Rate |
|---|---|
| UAE | 0% on domestic and cross-border payments |
| Saudi Arabia | - 5% on technical fees, interest, and dividends - 15% on royalties, commissions, related party payments, and other services - 20% on management fees |
| Qatar | 5% on fees, interest, royalties, commissions, and other services |
| Kuwait | 5% on all payments |
| Oman | 10% on gross payments |
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?
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.
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.