Doing business in the Maldives

Are there any specific industry-specific regulations or restrictions that global general counsels should be aware of when considering investments or partnerships in the Maldives?

The Maldives government implements a transparent and relatively straightforward regime on regulating inward investment into the country.

All foreign investments into the country are subject to the Foreign Investment Act 1979 (Law No. 25/79), the Foreign Direct Investment Policy 2020 (as amended) and the Business Registration Act 2014 (Law No. 18/2014).

The policy sets forth a ‘positive list’ of activities foreign investors are permitted to undertake, with clear thresholds on sector-specific shareholding limits (if any) and minimum investment requirements. Most applications are processed on a guaranteed ‘automatic’ route; where all the application requirements are complied with, a foreign investment approval is automatically issued.

Generally, key areas of tourism and hospitality are fully open to foreign investment. Sector-specific restrictions apply for ‘sensitive’ industries such as construction. Such applications are subject to case-by-case review by the government.

Industry specific ‘pre-approvals’ are required for foreign investments into banking and financial services sector (under the requirements of the Banking Act 2010 (Law No. 24/2010)), and the establishment/operation of ‘special economic zones’ within the Maldives jurisdiction (under the requirements of the Special Economic Zones Act 2014 (Law No. 24/2014)), however the process and procedures are relatively straightforward.

How does taxation work in the Maldives, and what are the key considerations for global companies to optimise their tax position while remaining compliant with local tax laws?

Any person conducting a business in the Maldives who meets the registration threshold is required to register as a taxpayer with the Maldives Inland Revenue Authority and pay taxes including income tax, pursuant to the Income Tax Act (Law No. 25/2019).

Tax residents of Maldives are taxed on their worldwide income, whereas non-residents are taxed on the income derived from Maldives. Taxes applicable to foreign investors include:

  1. Income tax is payable at the rate of 15% (the tax-free threshold for companies, partnership and other such corporate entities is approximately $32,000 (at prevailing exchange rates)).
  2. Non-resident withholding tax is withheld at the rate of 10% on income derived from the Maldives, such as rent from immovable property, fees for technical services, dividends, interest, royalties etc, by a non-resident.
  3. Capital gains taxes apply at the rate of 10% in connection with a disposal of certain assets.
  4. Maldives has a Goods and Services Tax (GST) regime in place as well. GST applies to goods and services supplied by a person engaged in the tourism sector at the rate of 16% and all other sectors at the rate of 8%.

Foreign investors interested in conducting business in the Maldives may be able to take advantage of certain tax treaties and double tax avoidance agreements (DTA) to optimise their tax position in the Maldives. Maldives currently has tax treaties in force with the United Arab Emirates and the People’s Republic of Bangladesh which will allow investors based in these jurisdictions to reduce the taxes payable and support tax planning to optimise tax position for foreign investors.

Investors in relevant sectors will also be able to take advantage of the reciprocal tax exemptions to non-resident aircraft or ship owners, charterers or lessors of ships and aircrafts in international transportation.

Our in-house tax advisory department has extensive experience on these matters and regularly advise foreign investors on optimal tax planning and structuring in the Maldives.

What is the status of data protection and privacy laws in the Maldives, and what measures should be taken to ensure compliance with these regulations, especially considering the evolving global landscape?

No specific data protection and privacy laws have been adopted in the Maldives as of date. The Maldives Constitution 2008 guarantees a ‘right to private and family life, home and private communications.’

The government had in May 2023 published a draft of its Privacy and Data Protection Bill for public comments.

As of date, this bill has not been submitted to the Maldives parliament, however the introduction of data protection and privacy legislation has been expressed as a priority for the government.

How does the Maldivian government approach foreign investment, and are there any incentives or restrictions that global companies should be aware of when planning their business activities in the country?

All inward foreign investment is subject to the Foreign Investment Act 1979, being the umbrella legislation for all investments into the jurisdiction.

There are no regulatory restrictions on outward remittance/repatriation of funds for foreign investors (subject to applicable taxes).

Foreign investments into large-scale projects (including real estate, hospitality, and infrastructure) are incentivised with tax/duty waivers at government discretion. Investments into and development of special economic zones are also incentivised with duty exemptions, tax exemptions and relaxed rules for expatriate employment under the provisions of the Special Economic Zones Act 2014.

What are the potential legal risks and challenges that global general counsels might face when doing business in the Maldives, and what strategies can be employed to mitigate these risks?

Structuring risks:

  1. Global general counsels should be aware of industry-specific restrictions on foreign shareholding in specific sectors, as per the Foreign Direct Investment Policy 2020.
  2. Furthermore, in determining structuring and shareholding of local companies, care should be taken to consider tax implications, utilisation of DTAs and their benefits to achieve optimal structuring.
  3. Certain acquisitions and other transactions may also trigger tax liabilities (particularly non-resident withholding tax). Engaging in proper tax evaluation and assessment prior to acquisition can help mitigate such risks.

Compliance risk:

  1. Every foreign investor is required to enter into a specific standard form investment agreement with the government under the Foreign Investment Act 1979 and will be required to ensure continuing compliance with its terms and conditions.
  2. Awareness of tax rules is vital for ongoing compliance while doing business in the Maldives, particularly tax impact from related party transactions and capital gains liabilities on certain transactions.
  3. Regulatory compliance requirements in the Maldives arise from acts of parliament, subordinate regulations, and also legally binding ‘policies’ published by relevant government authorities. All laws and regulations are published in the local language (Dhivehi) and are not often released with accompanying English-language ‘official’ translations.
  4. We assist global counsel in identifying risks and planning for local-law compliance based on our in-depth knowledge and extensive experience in local law compliance matters.

How does the Maldives handle corporate governance, and what are the best practices that global companies should follow to ensure transparency and compliance with local standards?

The Companies Act 2023 provides basic principles of corporate governance for private companies (including foreign investment companies). The act sets certain minimum standards for directors in discharging their duties and managing the company, defining their roles and responsibilities.

Global companies, in respect of their Maldives registered entities must ensure shareholder participation and certain disclosures for compliance with the act. Annual general meetings of shareholders are mandatory for all companies (except for single shareholder companies). Companies must prepare and disclose annual accounts, audit reports (where applicable) and directors’ annual reports to shareholders during such general meetings.

Sector-specific corporate governance principles are broadly captured in the following:

  1. the Capital Market Development Authority’s Corporate Governance Code for public companies listed on the Maldives Stock Exchange;
  2. the Privatisation and Corporatisation Board’s Corporate Governance Code for state-owned enterprises; and
  3. the Maldives Monetary Authority’s Corporate Governance Code for banks, insurance companies and finance companies.

These codes set sector-specific additional standards for board composition and recruitment, mandatory board sub-committees, risk management and additional reporting (including on CSR and ESG).