[Based on the Public Consultation Document released by the Ministry of Finance, UAE on 28 April 2022.]
At present, it is proposed to apply a 0% withholding tax on domestic and cross-border payments made by the UAE business.
Therefore UAE businesses would not be under any obligation to make deductions from the payment made to anyone nor will they be under an obligation to file withholding tax returns.
Further, clarification on the type of transactions eligible for 0% withholding tax has been given.
This indicates that if there is any intention to introduce withholding taxes in the future, considering the OECD Pillar Two approaches, the following transactions may be Impacted:
| Taxable Income |
|---|
| UAE Sourced income earned by foreign Companies (not attributable to PE in the UAE) |
| Mainland sourced income earned by free zone person |
| Income attributable to the mainland branch of the free zone |
| Dividend/profit distribution by the free zone person to a mainland UAE shareholder |
Though at present the UAE Corporate Tax regime does not intend to bring in withholding tax provisions, but by inserting such regulations, it has kept the option open to levy withholding taxes on certain transactions.
This may come into force once the UTPR (Under-Taxed Payment Rule) provisions of OECD Pillar Two become active.
