A UAE company pays an overseas consultant AED 100,000. Should it deduct tax before sending the money?

Under the current UAE Corporate Tax system, the answer will generally be no. The withholding tax rate in the UAE is currently 0% for relevant UAE-sourced income earned by non-residents. Because the rate is zero, the Federal Tax Authority, or FTA, confirms that no withholding tax is payable in practice and there are currently no related registration or filing obligations.

That sounds straightforward, but cross-border payments still need attention. You may need to consider where the income is sourced, whether the overseas recipient has a UAE Permanent Establishment, whether transfer pricing rules apply and whether another country deducts tax before paying your UAE business.

What Is Withholding Tax in the UAE?

Withholding tax is collected at the time a payment is made. The payer deducts part of the payment and remits it to the tax authority on behalf of the person receiving the income.

In many countries, withholding tax commonly applies to:

• Dividends

• Interest

• Royalties

• Technical fees

• Management or professional service fees

• Other payments made to non-residents

The UAE Corporate Tax framework also contains withholding tax provisions.

According to the UAE Ministry of Finance, non-residents that do not have a UAE Permanent Establishment, or that earn UAE-sourced income not connected with their UAE Permanent Establishment, may be subject to withholding tax at 0%.

If you need the broader tax rules first, Nexture's UAE Corporate Tax Guide explains the main rates, registration requirements and filing process.

What Is the Withholding Tax Rate in the UAE?

The current UAE withholding tax rate is 0%.

The FTA states that a 0% rate may apply to certain UAE-sourced income paid to non-residents. Since the rate is zero:

• No withholding tax is payable in practice

• UAE businesses do not currently have withholding-tax-related registration obligations

• Foreign recipients do not currently have withholding-tax-related filing obligations solely because of these payments

• Withholding tax does not apply to transactions between UAE resident persons

Simple Example

A Dubai business pays AED 80,000 to a foreign service provider.

Assume the payment is within the relevant UAE-sourced income rules and the overseas supplier has no UAE Permanent Establishment.

Payment: AED 80,000
Current withholding tax rate: 0%
UAE withholding tax deducted: AED 0

The supplier can therefore receive the full contractual amount, apart from normal bank charges or other agreed deductions.

The 0% rate should still be checked when rules change. Businesses should not treat it as a permanent guarantee for every future tax period.

Which Income Falls Within the Scope of UAE Withholding Tax?

A payment does not become subject to UAE withholding rules simply because money is transferred overseas.

The important question is whether the non-resident earns State Sourced Income, often described more generally as UAE-sourced income.

FTA guidance says income can be considered sourced from the UAE where it is:

• Derived from a UAE resident

• Attributable to a UAE Permanent Establishment of a non-resident

• Derived from activities performed in the UAE

• Derived from assets located in the UAE

• Connected with capital invested in the UAE

• Connected with rights used in the UAE

• Derived from services performed or benefited from in the UAE

You can check the FTA's Basis of Taxation for Non-Residents for the current treatment.

The sourcing rules matter because a UAE company may pay an overseas business for work performed abroad while the income still has a sufficient UAE connection to require analysis.

How Does Withholding Tax Apply to Cross-Border Payments?

Different payments raise different tax questions.

Payments to Foreign Consultants

Suppose an Abu Dhabi company hires a consulting business based in the UK.

The consultant operates from the UK and has no office, employees or taxable Permanent Establishment in the UAE.

Even where the fee falls within the applicable UAE-sourced income framework, the current withholding tax rate is 0%.

Your company should still keep:

• The consulting agreement

• Invoices

• Proof of payment

• Description of the services

• Evidence showing where the work was performed

These records may be useful when preparing your Corporate Tax return or responding to an FTA review.

Interest Paid to an Overseas Lender

A UAE company may borrow from a foreign bank, shareholder, parent company or another group business.

The current withholding tax position may still result in a 0% deduction, but related-party loans require another check: transfer pricing.

The FTA Transfer Pricing Guide confirms that controlled financial transactions, including intra-group lending, need to follow the arm's length principle. Factors such as currency, loan term, borrower creditworthiness and other commercial conditions can affect the appropriate price.

In simple terms, your UAE company should be able to explain why the interest rate would make commercial sense between independent parties.

Royalty and Software Payments

A UAE company may pay a foreign business for the use of:

• Software

• Trademarks

• Patents

• Copyright

• Technology

• Other intellectual property

The current 0% withholding tax position may apply to relevant income, but that is not the end of the tax review.

If the recipient is a related company, the royalty should be commercially supportable under UAE transfer pricing rules. The contract should also make clear what intellectual property is being licensed, who owns it and how the payment was calculated.

Dividends Paid to Foreign Shareholders

Dividends are a common withholding-tax category internationally.

For relevant UAE payments to non-residents, however, the domestic withholding rate is currently 0%. The shareholder's country of residence may still tax the dividend under its own rules.

No UAE withholding deduction does not automatically mean the recipient has no tax liability elsewhere.

What If the Foreign Company Has a UAE Permanent Establishment?

This can change the position significantly.

A non-resident juridical person with UAE-sourced income that is not attributable to a UAE Permanent Establishment can fall within the 0% withholding tax treatment. Income attributable to a UAE Permanent Establishment can instead become subject to Corporate Tax under the normal rules.

A Permanent Establishment may arise through a fixed place of business in the UAE or, in some cases, through a dependent agent.

The FTA lists examples such as an office, branch, factory or qualifying building site. A person who habitually concludes or negotiates contracts for the foreign business can also create Permanent Establishment exposure in certain circumstances.

You can review the FTA's Permanent Establishment guidance for the current rules.

A foreign supplier putting a Dubai address on an invoice does not by itself settle this question. The actual business activities matter.

How Do Double Tax Treaties Affect Cross-Border Payments?

The UAE has an extensive network of Double Taxation Agreements, or DTAs.

These treaties can determine which country has the right to tax a particular type of income and may reduce tax imposed in the source country.

A DTA commonly covers areas such as:

• Business profits

• Dividends

• Interest

• Royalties

• Permanent Establishments

• Capital gains

• Relief from double taxation

The Ministry of Finance explains that UAE DTAs are intended to reduce double taxation and support cross-border trade and investment. You can check the current treaty network on the Ministry of Finance DTA page.

For payments leaving the UAE, a treaty may not reduce the UAE withholding rate any further because the domestic rate is already 0%.

Treaties can become much more important when a UAE company receives income from another country.

What Happens When a UAE Company Receives Money From Abroad?

This is where withholding tax can become a real cost.

Imagine a UAE company receives AED 250,000 in royalty income from a customer overseas.

The foreign country deducts 10% withholding tax.

That AED 25,000 is foreign withholding tax, not UAE withholding tax.

Where the foreign income is also taxable under UAE Corporate Tax, the UAE business may be able to claim a Foreign Tax Credit.

FTA guidance states that the credit cannot exceed the UAE Corporate Tax due on the relevant foreign income. Any unused credit generally cannot be carried forward or carried back.

For example, if AED 15,000 of UAE Corporate Tax is attributable to the relevant foreign income but AED 25,000 was paid abroad, the available credit is generally capped at AED 15,000, subject to the applicable rules.

No Foreign Tax Credit is available where there is no UAE Corporate Tax payable on the relevant foreign income, such as certain exempt income or qualifying income taxed at 0%.

Do Transfer Pricing Rules Still Apply at a 0% Withholding Rate?

Yes, UAE transfer pricing requirements are separate from the amount deducted as withholding tax.

They can apply when your business enters into transactions with Related Parties or Connected Persons, including:

• Intercompany loans

• Management fees

• Royalties

• Shared-service charges

• Financial guarantees

• Group financing arrangements

A 0% withholding tax rate does not mean you can choose any price for a related-party payment.

If your UAE subsidiary pays its overseas parent AED 500,000 for management services, you should be able to explain what was provided and how the charge was calculated.

Businesses with several related entities can also read Nexture's Corporate Tax Grouping Guide.

Documents to Keep for Cross-Border Payments

For significant international transactions, keep:

• Contracts and amendments

• Supplier invoices

• Bank payment records

• Loan agreements

• Royalty or licensing agreements

• Description of services

• Evidence of where services were performed

• Recipient company details

• Tax residency documents where relevant

• Foreign withholding tax certificates

• Transfer pricing calculations

• Permanent Establishment assessments where necessary

Corporate Tax records generally need to be retained for seven years.

Nexture's Tax Audit UAE Guide explains the types of records that can be reviewed during an FTA audit.

Common Withholding Tax Mistakes

One mistake is assuming that 0% means cross-border payments need no tax review. Source rules, Permanent Establishment rules and transfer pricing can still matter.

Another is looking only at the UAE side. Your business may deduct nothing when paying an overseas supplier but lose 5%, 10% or another amount when a foreign customer pays you.

Businesses also sometimes overlook treaty requirements. A reduced foreign withholding rate may depend on tax residency evidence and the wording of the specific DTA.

Finally, keep withholding tax separate from Corporate Tax. They are connected parts of the tax framework but they are not the same tax calculation.

For additional official guidance, businesses can read the FTA Corporate Tax FAQs.

Conclusion

The withholding tax rate in UAE is currently 0% for relevant UAE-sourced income paid to non-residents under the Corporate Tax framework. As a result, businesses generally do not have a UAE withholding tax payment, registration or filing burden under the present rules.

Cross-border transactions still need proper tax checks.

Before making a significant overseas payment, confirm the source of the income, check whether the recipient has a UAE Permanent Establishment and review any related-party pricing.

FAQs 

What is the withholding tax rate in the UAE?

The current UAE withholding tax rate is 0% for relevant UAE-sourced income paid to non-residents.

Does a UAE company need to deduct tax when paying a foreign supplier?

Generally, no. Withholding tax is currently charged at 0%, though other Corporate Tax rules may still apply.

Does withholding tax apply to dividends, interest and royalties in the UAE?

Relevant payments to non-residents may fall within the withholding tax framework, but the current rate is 0%.

Can a UAE company face withholding tax when receiving money from abroad?

Yes. The foreign country may deduct tax before paying the UAE company, depending on its local laws and applicable tax treaty.

Do double tax treaties affect withholding tax?

Yes. A DTA can reduce or limit withholding tax imposed by another country and help prevent the same income from being taxed twice.