Withholding Tax Hike for Foreign Contractors to Support Local Maldivian Firms

The Maldivian government is moving to increase the withholding tax rate for foreign contractors from 5 percent to 10 percent, a move designed to eliminate unfair advantages and support local businesses. Minister of Infrastructure, Housing and Urban Development Dr. Abdulla Muththalib stated that the adjustment is essential to create a level playing field for Maldivian contractors. According to the Minister, the current imbalance stems from a July 2021 decision under the administration of former President Ibrahim Mohamed Solih, which reduced the tax rate from 10 percent to 5 percent. Dr. Muththalib explained that this reduction disproportionately benefited foreign entities, allowing them to operate with a lower tax burden than their local counterparts, thereby undermining the competitiveness of domestic firms. To rectify this, an amendment to the Income Tax Act has been proposed. If passed, the legislation will ensure that all non-resident and foreign contractors receiving payments in the Maldives are subject to the reinstated 10 percent withholding tax. This shift aims to ensure that foreign companies contribute a fairer share toward the national economy while reducing the systemic disadvantage faced by local contractors. Beyond the goal of industrial equity, the move is expected to provide a significant boost to the state treasury. The Maldives Inland Revenue Authority (MIRA) estimates that the tax increase could generate an average of USD 16.2 million in additional government revenue annually. The legislative amendment was formally introduced to the Majlis, the Maldivian Parliament, by Member of Parliament Hassan Zareer on behalf of the government. The proposal now awaits further deliberation as the administration seeks to balance foreign investment with the growth and sustainability of the local construction and infrastructure sector.