Withholding tax: what it means in UAE tax.

What withholding tax means

Also called: WHT.

Withholding tax is Corporate Tax that the payer deducts from a payment and sends to the Federal Tax Authority, instead of the recipient paying it later. In the UAE it applies to State Sourced Income of a Non-Resident Person that is not linked to a UAE Permanent Establishment or nexus. The rule is Article 45 of the Corporate Tax Law, as replaced by Federal Decree-Law No. 40 of 2024 with effect from 1 June 2023.

The rate in the law is 0%. The Cabinet has power to set other rates for particular categories of income, so the rule exists on paper even though, at 0%, nothing is withheld today. A UAE business paying a foreign supplier for services, royalties or interest therefore does not need to deduct Corporate Tax from the payment.

This is different from many other countries, where the UAE business may itself suffer withholding tax on income it earns abroad. That foreign tax is a separate matter, sometimes eased by a tax treaty or a foreign tax credit. It is also separate from VAT on imported services, which follows the reverse charge rules.

How it works

• Scope: State Sourced Income of a Non-Resident Person not attributable to a UAE Permanent Establishment or nexus (Article 45(1)).
• Rate: 0%, or another rate set by Cabinet decision for specified categories or other income (Article 45(1) to (3)).
• Any withholding tax due is deducted from the gross payment and remitted in the form and timeline the Authority sets (Article 45(4)).
• A person who later becomes a Taxable Person can credit withholding tax against Corporate Tax due, with any excess refunded (Article 46).
• Withholding Tax Credit is used first when Corporate Tax due is settled, before Foreign Tax Credit (Article 44, as replaced by Federal Decree-Law No. 28 of 2025).

Worked example

An Abu Dhabi engineering firm pays a software licence royalty to a foreign developer with no office or other presence in the UAE. The royalty is UAE-sourced income of a Non-Resident Person.

Royalty invoiced by the foreign developer	AED 200,000
Withholding tax at 0%	AED 0
Amount paid to the developer	AED 200,000
Amount remitted to the Federal Tax Authority	AED 0

At the current 0% rate no Corporate Tax is withheld, but the VAT reverse charge on the imported service must still be checked separately.

Common mistakes

• Deducting 5% or 10% from foreign supplier payments by copying another country's practice.
• Confusing withholding tax with the VAT reverse charge on imported services.
• Assuming the 0% rate is permanent; the Cabinet can set a different rate by decision.

The law

• Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses, Article 45 (Withholding Tax), as replaced by Federal Decree-Law No. 40 of 2024
• Federal Decree-Law No. 47 of 2022, Article 46 (Withholding Tax Credit), as replaced by Federal Decree-Law No. 40 of 2024
• Federal Decree-Law No. 47 of 2022, Article 44, as replaced by Federal Decree-Law No. 28 of 2025

Frequently asked questions

Do I deduct tax when paying a foreign consultant from my UAE company?

Not for Corporate Tax. The withholding tax rate is 0%, so the full fee is paid. VAT on the imported service is a separate question.

Does the UAE charge withholding tax on dividends paid to foreign shareholders?

Dividends from a UAE company to a non-resident are covered by the same rule, and the rate is 0%, so no Corporate Tax is withheld.

Related terms

Resident person · Taxable person · Permanent establishment · Reverse charge mechanism. See every term in the UAE tax glossary.

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