President Dr Mohamed Muizzu has ratified amendments to the Income Tax Act increasing the withholding tax imposed on payments to non-resident contractors carrying out construction projects in the Maldives from five percent to 10 percent.
The amendment was signed into law during a special ceremony held at the President’s Office as part of a broader package of tax reforms introduced by the government.
According to estimates from the Maldives Inland Revenue Authority (MIRA), the higher withholding tax rate is expected to generate an additional MVR 251 million in state revenue annually.
The government said one of the main objectives of the change is to create a more level competitive environment for Maldivian companies bidding against foreign contractors for construction projects in the country.
Under the revised law, businesses operating in the Maldives that make qualifying payments to non-resident contractors will be required to deduct 10 percent of the payment as withholding tax, double the previous rate of five percent.
The amendment also changes how income earned by non-resident entities through a permanent establishment in the Maldives is treated for tax purposes.
Under the previous framework, when withholding tax had been paid on income earned through a permanent establishment, the taxpayer could elect to deduct that income when determining its final taxable income. If that option was exercised, additional deductions connected to the same income could not be claimed.
The amended provision changes this arrangement by treating withholding tax deducted from such income as the final tax payable on that income.
As a result, income for which the applicable withholding tax has been deducted will no longer be included when calculating the entity’s overall taxable income.
The change is particularly relevant to the construction industry, where overseas contractors have been involved in major infrastructure and development projects across the Maldives.
The government has said the revised tax treatment is intended to reduce disparities between resident businesses and non-resident contractors competing for projects, while also increasing the amount of revenue collected from economic activity carried out within the country.
The amendment comes alongside several other changes to the Maldives’ tax framework ratified by President Muizzu.
These include amendments expanding the GST regime to cover qualifying foreign tour operators, travel agents and offshore booking platforms selling Maldives tourism products. The government estimates those changes will generate approximately MVR 1.6 billion in additional annual revenue.
Changes have also been made to the Tax Administration Act, expanding MIRA’s powers relating to tax assessments, audits, investigations and recovery of unpaid state revenue, while revising offences and penalties for non-compliance.
Together, the measures form part of the government’s wider effort to strengthen domestic revenue collection and address gaps in the existing tax system.
For the Income Tax Act amendment specifically, MIRA projects the increase in withholding tax on payments to non-resident construction contractors will bring the state an average of MVR 251 million in additional revenue each year.
