A UAE resident company pays interest to a non-resident lender that has no Permanent Establishment in the UAE and earns no UAE-sourced income other than this interest payment. Under Articles 45 and 46 of Federal Decree-Law No. 47 of 2022, at what rate is UAE Withholding Tax currently applied to this payment?
- 0%, because the Cabinet has not yet prescribed a positive Withholding Tax rate under Article 46, even though the mechanism itself exists in the law
- 9%, the same flat rate applied to Corporate Tax on taxable income above the AED 375,000 threshold
- 5%, matching the standard VAT rate, since Withholding Tax piggybacks on the VAT rate schedule
- 20%, matching the rate commonly applied to non-resident payments in comparable jurisdictions
Why A? And why not the others?
Correct answer: A. 0%, because the Cabinet has not yet prescribed a positive Withholding Tax rate under Article 46, even though the mechanism itself exists in the law
Article 46 establishes a Withholding Tax on certain State Sourced Income earned by non-residents, such as this interest payment, but the rate the Cabinet has set for that Withholding Tax is 0%, meaning the mechanism exists in the legislation without currently imposing any actual tax or registration burden on the payment. The option applying the 9% Corporate Tax rate is wrong because Withholding Tax under Article 46 is a distinct charge from the Corporate Tax rate schedule in Article 3, and the two are not linked at the same percentage. The option applying the 5% VAT rate is wrong because it confuses Withholding Tax, a Corporate Tax Law mechanism aimed at non-resident income, with Value Added Tax, an entirely separate tax on supplies of goods and services under a different decree-law. The option citing a 20% rate is wrong because no such rate has been prescribed by the UAE Cabinet; the current and only operative Withholding Tax rate remains 0% unless and until the Cabinet decides otherwise.
Source: UAE Federal Decree-Law No. 47 of 2022, Articles 45 and 46 (Withholding Tax)