The Maze of Withholding Tax

by Husam Shareef, Tax Advisor

As you may notice from the heading, the rules on payment of Withholding Tax (WHT) have become rather complex – creating a maze that you need to carefully navigate. Finding out about compliance issues during a tax audit is one of the last things you need. In this post, I am going to talk briefly about when to account for WHT on transactions that fall within the ambit of Section 6(a) of the BPT Act. This is an issue that we come across just too often.

To start with, let’s look at Section 6 of the BPT Act. Section 6(a) states that if a payment specified in that Section is “paid or payable … to a Person who is not resident in Maldives”, such a payment would be subject to WHT. To put this into practice, we have two questions to answer: 1) is the payment paid or payable? 2) is the payment paid/payable to a not resident in the Maldives? The answer to the second question (whether or not a person is resident in the Maldives) is in Section 46 of the BPT Act. To answer the first question, we turn to two Tax Rulings issued by the MIRA: Tax Ruling TR-2014/B37 and Tax Ruling TR-2017/B60.

The answer to the first question can be summarised to say that , the payment becomes subject to WHT earlier of when it is paid or becomes payable.


Tax Ruling B37: Date of payment

This Ruling sets the dates on which a payment is said to be made. That is:

  1. Cash payments – date on which the cash is received
  2. Cheque payments – date on which the cheque is issued
  3. Telegraphic transfer – date on which the amount is debited
  4. Adjusted from accounts – date of the accounting entry


Tax Ruling B60: Date on which the payment becomes payable

Here, the test is an “earlier of”. That is, the earlier of:

  1. Date on which invoice is received (physically, electronically, or otherwise).
  2. Date on which the payment is accrued (for accounting purposes)
  3. Date on which the obligation arises (as a result of a past event).

From the above rulings, we can see that the rule actually is that a payment becomes subject to WHT earlier of when it is paid, or any of the events described above occurs. From the cases we’ve come across so far, this is where it gets the most confusing.


A few points to keep an eye out for

Perhaps the reason for this confusion is because WHT is applicable neither on cash basis nor the accrual basis. Here are some of the possible cases that may put you in a difficult (or should I say confusing?) position:


  • Invoice received, but for a later period

As mentioned above, Tax Ruling B60 requires WHT to be accounted for when an invoice is received regardless of the period to which the invoice relates. For instance you might receive an invoice in January 2018 for a service you are receiving in February 2018. Although not so common, this is a scenario that we have seen in practice. In this case, the payment becomes ‘payable’ in January 2018 for WHT purposes and must be included in the WHT return to be filed by 15 February 2018. However, for your accounting purposes, it will not be recorded as payable. If particular care is not given, the payment then becomes likely to be missed in the computation of your  WHT liability.


  • Invoice received at a (much) later date

These are cases where you might not be aware of a payment obligation and therefore might not have accrued it in your books and thus, not having accounted for WHT either. However, if you receive an invoice, say in June 2018, which relates to the period of March 2018, you would accrue the payment for March 2018 but the deadline for filing of the WHT Return for March 2018 (the deadline of which is 15 April 2018) would have already passed – meaning that a Return filed then would attract late-filing and late payment penalties as well.

We have also come across this scenario where invoices are sent via post and the mail delivery is delayed, resulting in a penalty being imposed for (arguably) no fault of yours.


  • Payments based on estimates

Tax Ruling B60 requires WHT to be paid even if the payment amount to be made to the non-resident is not finalised (but if you know that some amount has to be paid). One of the most common examples of this is where management fees are paid by tourist resorts and the amount payable depends on the monthly/quarterly income statements. In such cases, the amounts are finalised after both parties agree on the figures and in several cases, this is done after the deadline for WHT payments has passed.

The Ruling requires that WHT be paid in such cases based on the estimated amount of the payment and, an amended tax return be submitted after the finalisation of the amount. Obviously, that attracts fines/penalties.

So, where does this leave you in terms of practically applying the rules?