Withholding Tax in UAE (2025): Rate, How It Works, & Double Entry

Withholding tax is a common practice that governments use to collect tax on cross-border payments. Withholding tax involves deducting tax from a payment before making it to the recipient. It guarantees that earnings from a country, even if remitted to one who is not resident in the country, will be taxed at source.

The United Arab Emirates works differently. Federal Decree-Law No. 47 of 2022 states that the UAE maintains a zero percent UAE withholding tax rate that currently applies. It is one of the tools that the nation is trying to use to attract business and investments.

This guide outlines how withholding tax in the UAE operates, what the UAE has decided, and what companies should keep in mind for 2025. 

What is Withholding Tax (WHT) in UAE?

Withholding Tax is a system where the person making a payment keeps back part of the money and sends it to the tax authority. It’s most often used in payments that cross borders.

Governments apply WHT to:

• Collect tax from income earned within their borders
• Stop tax avoidance by non-residents
• Reduce the burden of tax collection by assigning the task to the payer

The process is simple. The tax is deducted from the payment at source and remitted to the tax authority directly.

WHT is imposed by most nations on remittances such as royalties, service charges, or interest to another nation. Withholding tax UAE does not apply to such remittances. This is an indication of its attempt to make it open and welcoming for business. Still, UAE firms are free to deal with counterparties in nations that, in practice, impose WHT. 

Example:

If a firm in Country A employs a consultant in Country B, the work will be worth $10,000. That Country A has a 10% WHT means that $1,000 is paid to the tax authority of Country A, and the consultant gets $9,000.

While this setup is common globally, the UAE does not apply WHT on such payments. But UAE-based businesses might still have to deal with WHT when paying entities in other countries, depending on tax agreements.

Withholding Tax Rate in the UAE

As of June 1, 2023, the UAE charges 0% withholding tax on most payments to non-residents. This is part of its Corporate Tax Law issued under Federal Decree-Law No. 47.

The 0% rate shows the country’s commitment to staying competitive. It removes tax barriers, encourages trade, and makes it easier for foreign businesses to work with or invest in the UAE.

0% Withholding Tax Rate

In many countries, certain cross-border payments are taxed at the source. But in the UAE, the following income types are currently exempt from UAE withholding tax:

• Dividends:
  When UAE companies distribute dividends to foreign shareholders, there is no tax deduction. Investors receive the full amount, boosting return on investment.
• Royalties:
  Payments for intellectual property, like patents, trademarks, or licensing fees, are often taxed elsewhere. In the UAE, these remain untaxed, encouraging innovation and international IP use.
• Service Fees:
  Whether it’s technical consulting, management services, or professional expertise, payments made to foreign service providers are not subject to WHT. This makes it easier for UAE companies to engage international talent and services.

Why It Matters

The 0% withholding tax rate has several key advantages for businesses:

• Improved profitability: Foreign investors and companies retain full earnings from UAE sources.
• Easier cash flow management: No tax deduction means smoother fund transfers and better financial control.
• Greater appeal to foreign entities: The exemption removes a major barrier for companies looking to expand into or work with the UAE.

Who Is Affected by Withholding Tax?

Even with the current 0% rate, it’s useful to understand who might be affected, especially if laws change.

According to the UAE’s Corporate Tax Law, “taxable persons” include both residents and non-residents earning income from UAE sources. So, even foreign companies could be impacted if new rules come in later.

UAE-Based Taxable Persons

These include:

• Companies incorporated in the UAE
• Branches or subsidiaries of foreign firms
• Partnerships and sole proprietorships operating within the country

These entities are generally governed by the corporate tax system but are not directly affected by withholding tax when making payments within the UAE.

Non-Resident Entities

The concept of withholding tax mainly concerns non-residents, businesses or individuals who don’t have a permanent setup in the UAE but still earn income from it. While they currently enjoy the 0% rate, they need to be aware of how the system works in case of future changes.

Here are some examples of non-residents who may be affected:

• Foreign shareholders receiving dividends from UAE companies
• Overseas consultants or service providers offering legal, technical, or professional services to UAE clients
• IP holders (like companies that license patents or trademarks to UAE firms and earn royalties)

UAE Double Tax Treaties: Withholding Tax Rates

The UAE has signed over 140 Double Taxation Treaties (DTTs) with countries around the world. These agreements help avoid taxing the same income twice and may reduce or eliminate WHT on payments like dividends, interest, and royalties.

Below is a summary of the highest withholding tax rates under selected DTTs that the UAE has signed. These rates apply to payments such as dividends, interest, and royalties:

Withholding Tax vs VAT in UAE: What’s the Difference?

Withholding Tax (WHT) and Value-Added Tax (VAT) are two very different tax types. While WHT is linked to cross-border income, VAT applies to goods and services sold within the UAE.

Conclusion

Withholding tax in the UAE is part of the country’s approach to managing income from international transactions. It supports fair taxation and limits the risk of double taxation by using agreements known as Double Taxation Treaties (DTTs). The current rate of withholding tax in the UAE is set at 0%.

These treaties are made with many countries and allow foreign companies to lower or remove their withholding tax burden. As a result, cross-border trade becomes easier and more cost-effective.