This ruling is issued pursuant to the authority granted under section 84 of the Tax Administration Act (Law Number 3/2010) as amended by Law Number 14/2011. Unless otherwise stated, all legislative references are to the Business Profit Tax Act (Law Number 5/2011). This ruling is legally binding.

Introduction

1. This ruling explains the business profit tax treatment of accrued income which is subject to business profit tax and withholding tax.

2. This ruling also explains the circumstance where a non-resident is not required to deduct withholding tax from payments made to other non-residents.

3. This ruling further explains the business profit tax treatment of expenses incurred by a non-resident Person that derives amounts subject to withholding tax.

Ruling

Accrued income subject to withholding tax

4. Where–

(a) A non-resident Person is liable to tax in the Maldives under Section 3(c) of the Act; and

(b) The profits for an accounting period include an amount of accrued income, which will be subject to withholding tax under section 6 of the Act when it is paid to the

Person after the end of the accounting period in which the amount is accrued; and

(c) A written contract between that Person and the payer of the accrued amount specifies that the amount of the payment is to be calculated by reference to revenue, expenditure, or profits of the payer; and

(d) The amount is paid to the Person within five (5) months from the end of the accounting period in which it is accrued; and

(e) The correct amount of withholding tax is deducted from the gross amount of the payment at the time that it is paid to the Person; and

(f) The amount of withholding tax referred to in paragraph ‎4‎(e) of this ruling is paid to the MIRA in accordance with section 25 of the Act,

a deduction may be made for the amount so accrued in the financial statements for the accounting period in the calculation of the taxable profits of the Person for that period.

5. Notwithstanding paragraph ‎4 of this ruling, any amount paid on account of an accrued amount before the end of the accounting period in which the accrual referred to in paragraph ‎4 occurs shall be subject to withholding tax under section 6 of the Act.

Withholding tax on amounts paid to non-resident Persons

6. Where–

(a) a non-resident Person (Non-resident 1) has received income in respect of which the payer has paid the correct amount of withholding tax to the MIRA under sections 6 and 25 of the Act; and

(b) Non-resident 1 pays the whole or part of that income to another non-resident Person (Non-resident 2); and

(c) the payment referred to in paragraph ‎6‎(b) would, but for this ruling, be subject to withholding tax,

Non-resident 1 is not required to deduct withholding tax from the payment to Non-resident 2.

7. Where–

(a) paragraphs ‎6‎(a) and ‎6‎(b) of this ruling apply; and

(b) Non-resident 1 also derives income that is not subject to withholding tax,

any payment made by Non-resident 1 to Non-resident 2 shall be deemed to be paid first from the income that was not subject to withholding tax, and to that extent withholding tax shall be deducted from the payment made by Non-resident 1.

Expenses incurred by a non-resident Person that derives amounts subject to withholding tax

8. Where section 10(d)(8) of the Act applies in the calculation of a Person’s taxable profits, no deduction shall be allowed for any head office or other expense to the extent that the expense is incurred for the purpose of deriving the receipt referred to in section 10(d)(8).

Date of Effect

9. This ruling shall take effect from its date of issue and apply to income and payments that relate to the 2011 and subsequent tax years