The purpose of this guide is to provide a brief outline about the current Maldivian tax rules. This guide will prove to be useful for any foreign investor pursuing investment opportunities in the Maldives. The rules governing taxes are still in its infancy stage in the Maldives with various updates being developed.

• Step 1 for any foreign investor choosing to set up a business in the Maldives is business registration.
• Step 2 for any foreign investor as well as local business is to register the business with the Maldives Inland Revenue Authority (MIRA) for tax purposes.

The initial application (Step 1) to the Ministry of Economic Development (MED) for the business registration creates the registration with MIRA for Income Tax purposes. This is because MED will communicate with MIRA to start this process. Once the registration is processed by MIRA, MIRA will issue the Taxpayer Identification Number (TIN) which is a unique number to be cited in all future transactions.

Additionally, depending on revenue, the type of business, and the industry the business is operating in, it may have to register for Goods and Services Tax or Green tax.

1. Income Tax

The Income Tax Act (Law Number 25/2019) was enacted in December 2019. The introduction of the Income Tax replaced the Business Profit Tax.

1.1 Scope

The persons who come within the scope of this act are:

• Any persons who is resident of the Maldives, who derives income from the Maldives or elsewhere;
• Any person who derives income from the Maldives, whether or not that person is a resident of the Maldives.

In this way, the Maldives Income Tax Act makes a resident as well as a source claim. This means that foreign investors will be taxed to the extent the income is sourced in the Maldives.

Some examples of taxable income under the Income Tax Act are:

1. Remuneration
2. Income derived from any business
3. Income derived from the rental of movable or immovable property
4. Dividends
5. Interests
6. Fees for technical services
7. Commission
8. Royalty

1.2 Tax Rates for individuals

The following table shows the progressive rates of taxes applicable for tax residents in the Maldives. Despite having a progressive system, the tax rates in the Maldives are significantly low when compared to OECD countries. This makes the Maldives a tax friendly environment for many investors.

1.3 Tax Rate for Companies, Partnerships, and other Corporates other than Banks

Corporations have a tax-free threshold until they earn a taxable income of MVR 500,000 (USD 32,425.42) per year. Once this threshold is met, a flat tax is levied on 15% of taxable income per year.

1.4 Foreign Employee withholding tax

Foreign employees that earn in the Maldives are subject to employee withholding tax as outlined in the table below.

1.5 Residency

1.5.1  Non-residents.

Non-residents must only pay taxes on income that is sourced from the Maldives. This is captured using the withholding system at 10%. Some of the types of income that are subject to non-resident withholding tax include;

1. Rent from immovable property;
2. Royalty;
3. Interest (except interest paid or payable to a bank or non-banking financial institution approved by MIRA);
4. Dividend;
5. Fees for technical services;
6. Payments made to a contractor.

Residency is determined pursuant to internationally accepted tax rules. In this way, an individual is considered a resident for tax purposes if he/she stays in the country for more than 183 days, arrives in the Maldives in that year with the intention of establishing his residence in the Maldives, or is ordinarily resident in the Maldives but leaves before the end of the year.

A company is resident in the Maldives if it is incorporated in the Maldives or if its central management and control is located in the Maldives (even though it is incorporated outside the Maldives) or if its head office is in the Maldives.

1.6 Permanent Establishment

Another way that a foreign investor may be subject to tax in the Maldives is if the activity of the operations results in a permanent establishment (PE). A PE arises by virtue of actual business operations which takes place as a management of business, branch, office, factory, warehouse, workshop, or any other fixed place in the Maldives. Tax will have to be paid on the profits that are made via these PEs.

1.7 Returns and Payments

The Income Tax return has to be filed and paid in three phases. For the first interim payment, taxpayer has to pay a reasonable estimate of the interim or pay tax worth half of the previous year by 31^st of July. The second interim requires to pay an estimate of the same or pay the second half by 31^st January of the following year. The final payment settles any variance after deducting the interim payments by 30^th June of the same year. This payment structure could be summarised as two main half payments to be paid and the final payment to be settled for any variances.

2. Goods and Services Tax

The GST has been one of the strongest tools for the Maldivian revenue. In this way, it is strictly administered and one that any investor should be aware of. This tax is levied on consumption and is split into two categories in the Maldives.

1. Tourism goods and services (TGST) at 16 percent
2. General sector goods and services (GGST) at 8 percent

Once registered, GST has to be charged on sales and the GST on expenses can be claimed back as input tax.

2.1 TGST

For the purposes of categorisation, the Goods and Services Tax Act goes on to cover what constitutes tourism sector goods and services which includes tourist resorts, tourist hotels, tourist guesthouses, tourist vessels, picnic islands and yacht marinas which all have to be authorised by the Ministry of Tourism. Its scope also covers establishments in resorts such as diving schools, shops, spas and water sports.

2.2 GGST

Any goods and services that do not fall within the scope of TGST referred to above is considered to fall within the scope of GGST.

2.3 GST Registration

A business must register for GST if it intends to provide tourism related goods and services or imported goods into the Maldives. Additionally, if the total taxable sales for a year exceeds MVR 1 million, then regardless of the above conditions, the investor must register for GST.

2.4 Payments

Payment and return filing depend on the taxable period which is based on the amount of earnings. If the sales are below MVR 1 million per month on average, then filing can be made based on calendar quarters Jan-March, Apri-Jun, Jul-Sept, Oct-Dec.

If the average taxable sales are beyond MVR 1 million per month, the taxable period will be each calendar month.

For those registered in the general sector the payments are due in MVR while for those in the tourism sector the payments must be made in USD.

3. Green Tax

When foreign investors plan their investments, they should also be aware of the Green Tax which is further added onto the sale price. This tax is levied on tourists who visit resorts, hotels and vessels. The Green Tax is 6 USD per day for any tourist staying at a tourist resort or tourist vessel. However, the Green Tax is collected at 3 USD per day from any tourist staying at a tourist guesthouse if the island has less than or equal to 50 registered rooms.

Our role

At AWG we understand that navigating through the intricacies surrounding any tax system is no easy task. Furthermore, the task becomes even more complex when companies have to consider tax implications arising from more than one jurisdiction. AWG offers support from lawyers specialising in international tax law as well as Maldivian tax law. Our tax advisory services include aiding with;

• Tax planning by helping clients understand potential tax burdens in advance.
• Advising clients on tax implications arising from international transactions.
• Advising clients on cross-border payments.
• Advising clients on tax implications arising from local transactions.
• Assisting clients with communicating with MIRA.

Updating clients about the latest updates in Maldivian tax law and its implications.