Key Takeaways
- The Marshall Islands applies no general withholding tax, and outbound interest, royalties, and dividends are not subject to withholding.
- A 10% non-resident tax on services provided to RMI clients is the main exception, calculated on a gross income base.
- Clients in the Marshall Islands carry liability for withholding, remittance, and related compliance, with penalties and interest for failures.
- International pressure may shape the future of withholding tax in the RMI, so non-resident businesses should monitor how the position evolves.
Understanding Withholding Tax in the Marshall Islands
The Marshall Islands does not levy a general withholding tax on payments crossing its borders. Under the Income Tax Act 1989, codified as Chapter 1 of Title 48 of the Marshall Islands Revised Code, dividends, interest, and royalties paid to non-residents leave the country untaxed.
This position follows from a territorial tax system that exempts foreign income earned by non-resident entities. It sits beside the absence of corporate income tax, capital gains tax, and estate or inheritance duties.
One narrow exception exists. Income that a non-resident earns from services rendered to a client located in the country is subject to a 10% charge.
This article explains both halves of that picture: the nil-rate treatment of passive cross-border payments and the single service-based levy that does apply. It is most relevant to foreign business owners and their advisers weighing an offshore structure, a holding company, or a shipping registration in the jurisdiction.
The Legal Basis: The Income Tax Act 1989 and the Absence of General Withholding Tax
The governing statute is the Income Tax Act 1989, enacted as P.L. 1989-50. Its provisions on entity tax liability sit in Parts III, IV, and VII.
A second law shapes the outcome for foreign owners: the Business Corporations Act 1990. Companies formed under it as Non-Resident Domestic Corporations pay nothing on income earned outside the country.
That zero-rate band is wide. Such entities face no corporate income tax, no capital gains tax, and no withholding on dividends, interest, or royalties paid abroad, and they fall outside estate, gift, and stamp duties on international transactions.
The exemption attaches to foreign-source income only. A non-resident domestic entity that does no local business is also free of gross revenue tax, wage tax, and import duties on that foreign income.
The Act has been revised more than once. P.L. 1998-67 rewrote the employer withholding section, and a further measure, the Income Tax (Amendment) Act 2025 (P.L. 2025-0034), has been introduced in the Nitijela, though its detailed provisions are not yet public.
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No Withholding on Outbound Interest, Royalties, and Dividends
No tax is deducted when a company sends dividends, interest, or royalties to a non-resident. The rate on all three categories is zero.
This lets a firm distribute profit to shareholders or service a loan without any deduction at source. The result is a structure well suited to international holding and financing arrangements.
The same treatment reaches foreign companies operating through a local entity, and it pairs with the absence of capital gains tax and stamp duty. Shipping operators and holding vehicles draw on this combination.
There is also no value-added tax. The nil position on passive income is not the product of a specific rate-imposing section; it exists because no such section was ever enacted.
The zero outcome on dividends, interest, and royalties is structural. You will not find a section setting a rate of nil, because the legislation simply never imposes one on these payments.
The One Exception: The 10% Non-Resident Tax on Services Provided to RMI Clients
A single withholding charge applies to cross-border payments. Where a non-resident earns income from services provided to a client situated within the country, that income is taxed at 10%.
This is the operative non-resident services rate. Section 17 of the Act addresses the situation in which the client is located in the jurisdiction, and a related sub-provision deals with the client's own liability.
It is the only withholding tax in the code that touches outbound or cross-border flows. Its reach is narrow, confined to services with a domestic nexus through the client's location.
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How the Service Withholding Mechanism Works: Scope, Sourcing, and the Gross Income Base
The charge falls on gross income earned from rendering services in the country. No deduction for costs is allowed before the rate is applied, so the base is gross rather than net.
Collection runs through the recipient. The domestic client withholds the 10% and accounts for it, rather than the tax being assessed on the non-resident provider directly.
Sourcing turns on where the client sits, not on where the work is physically done. Income is treated as arising in the jurisdiction when the client receiving the service is located there.
- The rate is 10%, applied from the first dollar of qualifying service income.
- No monetary threshold or de minimis exemption has been identified in the legislation.
- The client-location test governs; physical performance inside or outside the country is not decisive.
Digital and remote services occupy an uncertain area. The client-location rule could, on its face, capture a service supplied remotely by a non-resident to a domestic client, but confirmation from the revenue authority would be needed before relying on a position either way.
Client Liability, Remittance, and Compliance Obligations
The withholding duty rests with the domestic client, the party paying for the service. The Act expressly frames this as a "liability of the client", placing the primary payment obligation on the local payer rather than the foreign provider.
Amounts withheld are not the client's money. They are held in trust for the Government of the Marshall Islands and must reach the Secretary of Finance in the manner and at the time the Act requires.
The general payment cycle for withholdings in the jurisdiction is quarterly, with remittance due within ten days after each quarter-end on 31 March, 30 June, 30 September, and 31 December. No separate public deadline specific to the services withholding has been located, so the quarterly pattern is the working assumption pending official guidance.
A client that fails to deduct, withhold, or pay over the tax becomes liable to the government for the full amount itself. The obligation does not disappear because the deduction was overlooked.
No dedicated return name or filing identifier for the non-resident services withholding has been found in the public record. Confirm the correct form with the Ministry of Finance before the first remittance.
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What the Withholding Tax Position Means for Companies and Investors
For most foreign-owned structures, the practical takeaway is straightforward: profits, interest, and royalties leave the entity without any source deduction. That is the core appeal for international holding and financing use.
The jurisdiction also hosts the world's second-largest shipping registry, and the tax treatment is part of why operators register tonnage there. Offshore companies stay outside corporate income tax on foreign-source earnings under the 1990 corporations law.
The picture changes the moment a non-resident domestic entity touches the local economy. Employing resident staff, leasing premises, or earning domestic revenue brings it within a 3% gross revenue tax, wage and salary withholding, and social security contributions.
| Activity | Tax exposure |
|---|---|
| Foreign-source income only | 0% corporate, 0% capital gains, 0% withholding on dividends/interest/royalties |
| Services to a domestic client | 10% withholding on gross, collected by the client |
| Local operations (staff, premises, domestic revenue) | 3% gross revenue tax (USD 80 flat on the first USD 10,000, then 3% above), wage tax, MISSA contributions |
On the treaty front, the jurisdiction has not signed the OECD Multilateral Instrument. It holds 13 Tax Information Exchange Agreements, including one with Australia.
Penalties, Interest, and Enforcement for Withholding Failures
Failing to comply with the withholding provisions is an offense. Because withheld sums are trust money, a party that does not deduct, withhold, or pay over is personally liable to the government for the whole amount.
The consequences extend beyond money for a defaulting non-resident. Such a person may be barred from practising or appearing before any court, tribunal, or government agency in the jurisdiction, and any professional licence held there may be cancelled by the issuing authority under Section 19 of the Act.
The statute also reaches enforcement tools outside its own text. Levy, distraint, and the Enforcement of Judgment Act (30 MIRC 1) are available to recover unpaid amounts; specific monetary penalties for a services-withholding failure beyond trust-fund liability are not set out in the public text.
A separate but adjacent regime governs economic substance. Non-compliance there can draw penalties up to USD 50,000 for a first offense and up to USD 100,000 for continued default, alongside possible dissolution and exchange of information with foreign authorities.
- A late economic substance filing carries a USD 500 penalty, effective 1 November 2023.
Outlook: International Pressure and the Future of Withholding Tax in the RMI
External scrutiny has grown without dislodging the tax model. The jurisdiction was added to the EU list of non-cooperative jurisdictions in February 2023, alongside the British Virgin Islands, Costa Rica, and Russia.
The response has been adaptation rather than reversal. Economic-substance requirements were introduced under EU and OECD pressure, yet zero taxation of foreign income stayed intact.
Transparency commitments continue to develop. The third-round APG Mutual Evaluation Report was adopted in September 2024, and the Ministry of Finance issued a statement dated 7 August 2025 on engaging the OECD on tax transparency, though the detailed commitments are not yet public.
Domestic reform is on the agenda too. An IMF Technical Assistance Report on consumption and income tax reform appeared in February 2025, building on the earlier drafted Consumption Tax Act 2012, and the government had planned a first phase of domestic reform from 1 October 2024 with a second phase to follow two years later.
On information exchange, the jurisdiction signed the CRS Multilateral Competent Authority Agreement on 29 October 2015 and began automatic exchange in September 2018. It has not signed the OECD Multilateral Instrument, and no public data confirms adoption of a Qualified Domestic Minimum Top-Up Tax or other Pillar Two measure.
Conclusion
For a non-resident business owner, the withholding position in the Marshall Islands is unusually clean: passive income flows out untaxed, and the single live exposure sits with the local client rather than the foreign service provider. That allocation of liability is what makes the jurisdiction structurally attractive, but it is also where complacency tends to create risk, because a client's failure to withhold and remit can still generate compliance problems that reach back to the underlying transaction.
The factor that should govern the next decision is not the current rules but their durability. International pressure on the RMI's tax framework is the one variable the existing rules cannot resolve, and staying informed about how that pressure translates into legislative change is the practical work that protects any structure built on today's position.
How Expanship Can Help Your Business in the Marshall Islands
Expanship advises foreign owners on the withholding question directly, including whether the 10% service charge applies to a given arrangement and how a domestic client should withhold and remit, and supports the full life cycle of a Non-Resident Domestic Corporation. The same team handles the structural and compliance work that surrounds any foreign-owned entity in the jurisdiction.
- Company formation and Non-Resident Domestic Corporation setup
- Registered agent and registered office services
- Tax registration and preparation of required filings
- Ongoing compliance and economic substance management
- Accounting and bookkeeping support
- Introductions to banking partners
To discuss your structure or a specific withholding position, contact Expanship Marshall Islands.
Frequently Asked Questions
No. Dividends, along with interest and royalties, paid to non-residents leave the country at a zero rate, a result that flows from the territorial system rather than any rate-setting section. A Non-Resident Domestic Corporation can distribute profit abroad without deduction at source.
It applies when a non-resident earns income from services provided to a client located in the jurisdiction. The 10% is charged on gross income, with no deduction for expenses, and applies from the first dollar without any identified threshold.
The domestic client receiving the service carries the obligation, not the foreign provider. The withheld sum is held in trust for the government and must be paid to the Secretary of Finance; a client that fails to withhold or remit becomes personally liable for the full amount.
The position is unsettled. Sourcing follows the client's location under the Income Tax Act 1989, which could capture a remotely supplied service, but no public guidance confirms the treatment, so confirmation from the revenue authority is advisable before relying on either outcome.
Non-compliance is an offense, and the defaulting party is personally liable to the government for the unpaid tax. A non-resident in default may also be barred from appearing before local courts or agencies and can have any professional licence in the jurisdiction cancelled under Section 19 of the Act.
Not the core position. Despite the February 2023 EU listing and the introduction of economic-substance requirements, zero taxation of foreign income and the nil rate on outbound dividends, interest, and royalties remain in force.
Legal Disclaimer
The information provided in this article is for general informational purposes only and does not constitute legal, tax, or professional advice. While we strive to ensure the accuracy and timeliness of the content, laws and regulations are subject to change, and the application of laws can vary widely based on specific facts and circumstances.
Readers should not act upon this information without seeking professional counsel tailored to their individual situation. Expanship and its authors disclaim any liability for actions taken or not taken based on the content of this article.
For specific advice regarding your business setup, compliance requirements, or any legal matters, please consult with qualified legal and tax professionals in the relevant jurisdiction.
