Parliament Doubles Tax on Foreign Contractors to Boost Local Competition and Revenue

The Maldivian Parliament has passed an amendment to the Income Tax Act, doubling the withholding tax on payments made to non-resident construction contractors from 5 percent to 10 percent. The legislative change aims to protect domestic businesses and increase state earnings. Submitted by Mathiveri MP Hassan Zareer on behalf of the government, the bill was approved during the August 23 parliamentary sitting. The amendment passed with an overwhelming majority, securing 54 votes in favor with only two members opposing the measure. Under the new regulations, any entity conducting business in the Maldives that makes payments to a non-resident contractor is now required to deduct and remit 10 percent of that payment as withholding tax. This significant increase from the previous 5 percent rate targets foreign firms heavily involved in the nation's infrastructure and development sectors. The government stated that the primary objective of the tax hike is to foster a fairer and more competitive market. By increasing the cost for foreign entities, the amendment seeks to level the playing field for local Maldivian construction firms competing for domestic contracts. Beyond the strategic push for local industry growth, the move is expected to provide a substantial windfall for the national treasury. The government estimates that the adjusted tax rate will generate an average of USD 16.3 million in additional annual state revenue. This policy shift reflects a broader effort to balance the influx of foreign expertise in the construction sector with the need to sustain and grow homegrown enterprises, ensuring that a larger share of development spending benefits the local economy.