Maldives Doubles Withholding Tax on Foreign Contractors to Level Playing Field

President Dr Mohamed Muizzu has ratified a significant legislative amendment doubling the withholding tax levied on payments made by Maldivian businesses to non-resident contractors from 5 percent to 10 percent. 

The move is designed to eliminate unfair advantages held by overseas firms and foster a balanced market for domestic companies.

The bill was signed into law during a ceremony at the President’s Office alongside six other legislative pieces. Following the ratification, President Muizzu detailed the economic rationale behind the reform, emphasising that the increased tax rate will deliver a direct, positive impact to the nation's construction sector.

The reason I say this is that with this amendment and the change brought to the withholding tax, foreign companies will no longer have a special added advantage in securing contracts. Maldivian companies and foreign companies will now be competitive, President Muizzu said. 

He noted that prior to this change, systemic advantages made it significantly easier for foreign contractors to win lucrative projects over local rivals.

The government-sponsored legislation to amend the Income Tax Act was introduced to the Parliament by Mathiveri constituency MP Hassan Zareer. It successfully cleared the parliament with strong backing, passing with 54 votes in favour and just two votes against.

The primary purpose of the amendment, as outlined in the bill, is to create a level playing field for local contractors competing against foreign firms for construction contracts across the Maldives. The policy specifically amends Section 55 of the Income Tax Act, alongside consequential updates to related legal provisions.

In addition to supporting local enterprises, the legislative update provides a significant boost to public finances. State projections estimate that doubling the withholding tax will generate an additional MVR 251 million in annual state revenue.

Under the Maldives' tax framework, withholding tax is directly deducted by Maldivian entities from payments due to foreign contractors. The local business then remits these withheld tax funds straight to the Maldives Inland Revenue Authority (MIRA).