Maldives gov't moves to double withholding tax on foreign contractors

The government has proposed doubling the withholding tax imposed on foreign contractors working on construction projects in the Maldives.

The amendment to the Income Tax Act was submitted by PNC MP Hassan Zareer, who said the change is intended to create a fair and competitive environment between foreign contractors bidding for Maldivian construction projects.

Withholding tax is deducted by the payer and remitted to the state before the payment is made to the recipient. It applies to income earned in the Maldives by non-resident persons, ensuring that the state receives tax revenue from foreign entities operating in the country. The tax is typically charged on royalties, technical service fees, dividends and contract payments, preventing tax-free outflows and protecting state revenue.

Zareer has proposed increasing the withholding tax rate for foreign contractors from 5 percent to 10 percent when a Maldivian business makes payments to a foreign contractor.

The government has also proposed imposing GST on services provided by foreign tour operators and offshore booking platforms. The amendment, submitted separately by PNC MP Mohamed Dawood, seeks to define the services and procedures applicable to offshore booking platforms, foreign tour operators and travel agents in order to implement the destination principle within the Maldives’ tax framework.

The bill proposes including inbound tourism services provided by persons who do not have a permanent place of business in the Maldives.

According to the government’s cost estimate, implementing the system will require MVR 2.8 million in one-time expenditure and MVR 5.1 million in annual recurrent costs. Once in effect, the government expects to generate MVR 1.61 billion in annual revenue.

Parliament passed the amendment on Sunday and referred it to the Public Accounts Committee for review.