If you are making payments to foreign suppliers, consultants, or shareholders, you are probably wondering whether withholding tax in UAE applies in 2026. With the introduction of Corporate Tax, many business owners are asking if cross-border payments will now attract WHT tax. As of 2025, the UAE withholding tax rate remains 0%.
What is Withholding Tax?
Withholding tax is a tax deducted at source when you make certain payments, usually to a non-resident. So instead of paying the full amount to the foreign party, you deduct a percentage and pay that portion directly to the government.
It typically applies to:
- Dividends
- Interest
- Royalties
- Certain service payments
For example, if you pay AED 100,000 in royalties to a company abroad and the withholding tax rate is 10%, you would deduct AED 10,000 and remit it to the tax authority. The foreign company receives AED 90,000.
Is There a Withholding Tax in the UAE?
There is a 0% withholding tax in the UAE according to the Corporate Tax law. This applies to:
1. Dividends Paid to Foreign Shareholders
If your UAE company distributes profits to overseas shareholders, you do not deduct any tax at source. The shareholder receives the full dividend amount.
2. Royalties Paid to Foreign Entities
Payments for intellectual property such as trademarks, patents, and licensing fees are not subject to withholding tax UAE rules.
3. Service Fees Paid to Non-Residents
If you pay a consultant or service provider located outside the UAE, you are not required to deduct WHT tax from that payment.
There is also no separate registration or filing requirement specifically for withholding tax because the rate is zero.
Benefits of Using Reverse Charge Mechanism
For businesses, using the RCM in UAE offers several advantages:
- Cash flow management: Since you’re able to claim back input VAT in the same return period, reverse charge can help maintain cash flow.
- Simplified VAT reporting: Reverse charge simplifies VAT reporting for certain transactions, reducing the burden of having to collect VAT from suppliers and then pay it to the FTA.
- Avoiding double taxation: By applying reverse charge, VAT on imports and certain supplies is only reported once, preventing double taxation. Working with VAT consultants in UAE can make it easier to stay compliant.
Withholding Tax in UAE Under Corporate Tax Law
Even though the rate is currently 0%, withholding tax is still officially part of the Corporate Tax law. This means the government can change the rate through a Cabinet Decision without rewriting the law, and businesses are already covered under the existing framework. So while no tax is being charged right now, the system is fully in place if the policy changes in the future.
Why is the UAE Withholding Tax Rate 0%?
The UAE has adopted a 0% withholding tax rate for the following reasons:
1. Attract foreign investment: When you do not deduct tax from dividends or royalties, foreign investors receive higher net returns. This makes the UAE more attractive as a holding and investment destination.
2. Support cross-border cash flow: Since you are not withholding any amount, the full payment reaches the foreign recipient. This reduces friction in international business transactions.
3. Strengthen the UAE as a global business hub: Many multinational groups use the UAE as their regional headquarters. A zero withholding tax environment simplifies group structuring and profit distribution.
For entrepreneurs with a business setup in Dubai, it makes the country an attractive place to grow your operations.
Withholding Tax vs VAT in UAE
In the UAE, Withholding Tax (WHT) and Value Added Tax (VAT) serve different purposes. Payments to foreign consultants fall under withholding tax rules, while selling goods or services locally in the UAE falls under VAT.
Withholding Tax applies to cross-border payments such as dividends, interest, and royalties, and it is deducted at source from the payment made to a foreign party; however, the current UAE withholding tax rate is 0%.
VAT, by contrast, applies to goods and services supplied within the UAE and is charged at 5% on invoices, with mandatory VAT registration required when taxable turnover exceeds AED 375,000.
What Businesses Can Do to Stay Compliant
Even though withholding tax in UAE is 0%, UAE businesses should still:
- Maintain clear contracts and invoices for cross-border payments
- Review group structures involving foreign entities
- Get a Tax Residency Certificate if you claim treaty benefits
- Monitor Cabinet updates related to Corporate Tax
Get Expert Tax Advice from A&A Associate
A&A Associate’s tax experts assist businesses across industries with UAE tax compliance. We can advise you on both Corporate Tax and VAT requirements and keep you informed of the latest tax regulations.
