Corporate Tax 2024 Comparisons

Business entities are subject to taxation based on their legal structure, with taxes typically levied at the entity level. Companies and partnerships are taxed independently, while sole proprietorships are taxed under the name of the sole proprietor. Apart from their legal structure, the tax residency status has an impact in deriving their tax base.

While no corporate structure is inherently preferred, when establishing a business entity, careful consideration is given to factors such as revenue base, business structure and the extent of cross-border transactions among other key business factors. These considerations are pivotal as tax implications differ based on the tax residency of the business entity.

Goods and Service Tax

Goods and Services Tax (GST) are generally collected and remitted by the business entity, but in the case of sole proprietorships, the sole proprietor assumes personal responsibility for tax obligations.

GST rates differ for businesses operating in the tourism sector compared to those in other sectors. Consequently, for entities engaged in both tourism and non-tourism activities, taxes are assessed separately for each business sector based on the applicable GST rates.

Income Tax

While there is no preferred corporate structure for tax purposes, tax implications, including the tax base, rates and broader tax considerations, are contingent upon factors such as the corporate structure, tax residency status and the organisation’s operational setup.

The Maldives does not have a regulatory framework for “transparent entities”.

Tax residency is determined based on the form of the business entity registration.

In the case of an individual, any person:

• whose permanent place of living is in the Maldives;
• who is present in the Maldives or intends to be present in the Maldives for an aggregate of 183 days or more in any 12 month period commencing or ending during a tax year; or
• who is an employee or official of the Government of the Maldives and is posted overseas during a tax year.

In the case of a company, a company:

• that is incorporated in the Maldives;
• that has its head office in the Maldives; or
• the control and management of which is in the Maldives.

In the case of a partnership, a partnership:

• that is formed in the Maldives; or
• the control and management of which is in the Maldives.

Goods and Service Tax:

GST rates are sector-specific and apply regardless of the business entity’s form. For businesses in the tourism sector, the standard GST rate of 16% is imposed on all goods and services not falling under zero-rated or exempt categories. Conversely, entities in non-tourism sectors are subject to a standard GST rate of 8% on all goods and services not falling under zero-rated or exempt categories.

Income Tax:

Unlike GST, under income taxes, the rates are dependent on the business form.

Income tax rate for incorporated businesses including companies and partnerships is:

• 0% on taxable income not exceeding MUR500,000 (tax-free threshold).
• 15% on taxable income exceeding MUR500,000.

The income tax rate for individuals is a progressive tax rate as follows:

• Income not exceeding MUR720,000 at 0%.
• More than MUR720,000 but not exceeding MUR1.2 million at 5.5%.
• More than MUR1.2 million but not exceeding MUR1.8 million at 8%.
• More than MUR1.8 million but not exceeding MUR2.4 million at 12%.
• Any income exceeding MUR 2.4 million at 15%.

For commercial banks operating in the Maldives, a flat tax rate of 25% is applicable on their whole taxable income for the tax year. Furthermore, businesses operating in international transport are taxed at 2% on their gross income sourced from the Maldives.

Goods and Service Tax

The Goods and Service Tax Act (GSTA) provides flexibility in computation methods for GST payable, allowing both invoice and payment approaches. However, GST calculation fundamentally hinges on the concept of “time of supply”. This entails GST being applicable at the earlier point of either invoice issuance or receipt of payment for goods or services rendered.

Businesses with monthly income surpassing MUR1 million are mandated to collect and remit GST on a monthly basis. Conversely, those below this threshold have the option to remit GST either monthly or quarterly. In determining the periodic GST payable, businesses can deduct input GST, provided they possess valid tax invoices.

Special rules govern the deduction of input GST incurred on various scenarios such as capital projects, computation of the value of services for transactions with related parties, loyalty programmes, and goods and services provided over time on an instalment basis.

Income Tax

The taxable period is set as a calendar year, spanning from January to December. All business entities are required to prepare financial statements according to an acceptable international accounting standards using the accrual basis. However, businesses with annual revenue below MUR10 million are granted leniency to use cash basis accounting for their books.

Taxable profit is determined by adjusting accounting profit in accordance with provisions outlined in the Income Tax Act and the Income Tax Regulation. Notable adjustments include limitations on deductibility of interest expenses and head office expenses. Interest expenses towards non-banks or non-bank financial institutions are capped at an annual rate of 6%, with further application of thin-capitalisation rules for all interest expenses except those to local banks and local non-bank financial institutions. Head office expenses are restricted to a maximum of 3% of revenue.

Specific conditions must be met when claiming deductions for pension expenses, employee welfare expenses, donations, bad debts and provisions for bad debts. No deduction is permitted for accounting depreciation or amortisation; instead, a specified deduction called “capital allowance” is allowed against qualifying capital expenditure.

Additionally, no deduction is allowed for any expenditure incurred to generate exempt income, bribes, fines incurred on breach of any law or regulation and the following expenditure incurred by a Permanent Establishment in the Maldives to its head office or an associated party of the head office.

• Fees paid as royalty in respect of a patent or right.
• Commission paid for a specific services performed for, or for management services provided.

There is no special incentive tax system for businesses involved in technology investments.

No industry- or transaction-specific incentive tax systems are in place for business entities. However, certain high-value infrastructure projects may be eligible for income tax exemption, usually reserved for projects funded by the government. To qualify for this exemption, businesses must submit an application for approval by the government.

Losses incurred in taxable periods can be carried forward for up to five years from the end of the taxable period in which the loss was incurred. Preceding losses must be deducted before subsequent losses. Furthermore, for a loss to be carried forward, 50% or more of the ordinary shares must remain unchanged during the year in which the loss was incurred and the year in which the loss is claimed. Additionally, the company should continue the same nature of business during both the year of loss and the claiming year.

The tax laws do not permit losses to be carried back to previous taxable periods.

Under the Income Tax Regulation, there is a restriction on offsetting capital losses against business losses. Specifically, a capital loss can only be offset against a capital gain. Any remaining unutilised capital loss can be carried forward for a maximum of five years from the year in which it was incurred.

Interest expenses accrued to an approved bank, or an approved non-bank financial institution are allowed fully in the computation of taxable income. However, interest accrued to a non-bank or non-bank financial institution is capped at an annual rate of 6%. Total interest expenses (except those to local banks and local non-bank financial institutions) are further subject to of thin-capitalisation rules (capped to 30% of Tax-EBITDA) for all interest expenses.

Companies required to prepare consolidated accounts under the accounting standard are obligated to prepare consolidated accounts, and these must be declared along with their annual income tax declaration.

The tax-free threshold of MUR500,000 is distributed among all group companies, and no company is permitted to offset business losses at the group level. Instead, losses are only utilised at the individual company level.

Companies required to prepare consolidated accounts under the accounting standard are obligated to prepare consolidated accounts and these must be declared along with their annual income tax declaration.

The tax-free threshold of MUR500,000 is distributed among all group companies, and no company is permitted to offset business losses at the group level. Instead, losses are only utilised at the individual company level.

Apart from income taxes, the following taxes are currently payable by businesses operating in the Maldives or generating income from the Maldives:

• Withholding Taxes (taxed under the Income Tax Act on specific payments made to non-residents by a business operating in the Maldives).
• Employee Withholding Taxes (taxed under the Income Tax Act on remuneration paid to employees).
• Goods and Services Tax.
• Green Tax (only payable by businesses operating in the tourism sector such as tourist resorts, hotels, guest houses and tourist vessels).
• Departure Tax (only payable by airline operators and agents of airline operators).

Apart from the listed tax types under 2.8 Other Taxes Payable by an Incorporated Business, there are currently no additional taxes levied on businesses operating in the Maldives.

Closely held businesses commonly opt for corporate structures to leverage the benefits of separate legal entity status and to mitigate personal liability concerning business obligations.

Companies and partnerships are subject to a flat tax rate of 15% on taxable income exceeding MUR500,000 annually. Conversely, individuals and sole proprietorships face a progressive tax structure ranging from 5.5% to 15%, with the highest bracket applied to income surpassing MUR2.4 million. Hence, the effective tax rates applicable to corporates is expected to be higher than those that are applicable to individuals.

However, certain professionals, like lawyers and auditors, are regulated by distinct laws, mandating the provision of services solely through a sole proprietorship or registered partnership, prohibiting service delivery through a company.

There are no rules preventing closely held corporations from accumulating earnings for investment purposes.

The Income Tax Act stipulates that transactions between associated entities or individuals must adhere to arm’s length terms.

While dividends received by a tax resident of the Maldives from a tax resident entity are exempt from income taxes, dividends obtained through other means are considered taxable income at the shareholder level. For non-resident recipients, however, a flat withholding tax rate of 10% applies to dividends.

Regarding share sales, transactions must also comply with arm’s length terms, with resulting gains or losses triggering capital gains or losses. These capital gains are taxable and must be reported on annual tax returns, except for those falling under the definition of “offshore indirect transfer”, as previously discussed under 2.7 Capital Gains Taxation.

There are no differences in the tax computation where dividend is received through shares held in a publicly traded corporation or a privately held company.

The tax base and tax rates are only dependent on the tax residency status of the shareholder and the corporation itself as discussed in detail under 3.4 Sales of Shares by Individuals in Closely Held Corporations.

A flat rate of 10% withholding tax applies to designated payments made by businesses operating in the Maldives to non-residents. These encompass interest (when payable to an unapproved bank or unapproved financial institution), dividends and royalty payments. Further, a reduced rate of 5% is applied to non-resident contractors providing any services in the Maldives. The law does not outline relief for withholding tax obligations; however, concessions and reliefs provided under double tax avoidance treaties are factored into the analysis of withholding implications on such payments.

From the tax authorities’ current approach to tax audits and investigations, no specific area of focus is identified, and audits are conducted based on risk factors inherent to the industry in which the business operates.

The Maldives currently does not have an extensive treaty network; however the double tax avoidance agreement with the United Arab Emirates is widely used by investors as a tax planning tool.

While many treaties grant concessions and benefits based on the place of incorporation as stated within the treaty, the Tax Administration Regulation specifies that treaty benefits are solely applicable when the ultimate beneficial owner of the entity is also a resident of the treaty country. Although the treaty may not explicitly limit the ultimate beneficial owner to be a resident of the treaty partners, it is inferred from this provision in the Tax Administration Regulation that the tax authorities only grant treaty benefits when the ultimate beneficial owner is also a resident of the treaty countries.

For transfer pricing issues in domestic transactions, the tax authority tends to contest or challenge less compared to cross-border transactions. This is primarily because any transfer pricing adjustment made by the tax authority during an audit or investigation can be offset by the other party to the transaction, nullifying its impact on aggregate tax revenue.

However, it is worth noting that the tax authorities have contested benefits provided to company directors and related parties in previous instances.

As mentioned in 4.4 Transfer Pricing Issues, the tax authority tends to contest less where the transaction is wholly carried out locally. As for transfer pricing risk associated with related party limited risk distribution arrangements, there have not been any known cases of dispute.

In 2020, the tax authority introduced regulations mandating the preparation and maintenance of transfer pricing documentation for transactions among associated entities. These regulations align with the OECD’s three-tier approach and recommend transfer pricing methods akin to those outlined in the OECD transfer pricing guidelines. Entities are required to maintain a master file, a local file and adhere to country-by-country reporting, as specified in regulations issued in 2021. Additionally, the regulations outline exceptions to the requirement for transfer price analysis in certain circumstances. However, transactions falling under these exceptions must still adhere to arm’s length terms as per the Income Tax Act.

The tax authority has intensified its scrutiny on transactions among associated entities, particularly cross-border transactions. A significant area of contention involves loan transactions between associated entities, leading to ongoing litigation where the tax authority challenges the substance of such transactions between local entities and their parent or associated subsidiaries.

Instances exist where the tax authority has reopened prior tax years based on findings from ongoing audits. However, this approach is now less pursued by the tax authority, given recent precedents in similar cases where the practice of reopening concluded audits solely due to transfer pricing disputes has been disregarded.

Amid ongoing disputes at various stages of the litigation process, a recent High Court decision mandates the tax authority to conduct a thorough comparability analysis before disregarding or adjusting transactions based on transfer pricing.

Despite lacking an extensive treaty network, the Maldives has yet to utilise existing treaties to resolve transfer pricing issues through mutual agreement procedures.

The current dispute resolution mechanism involves challenging the conclusions of the tax authority audits or investigations through an “objection” stage. A dedicated division of the tax authority then reviews the auditors’ work and issues their decisions based on arguments presented by the taxpayer and their own findings. Changes to audit conclusions by the tax authority are rare, prompting taxpayers to appeal cases to the Tax Appeal Tribunal, and subsequently to the High Court and the Supreme Court of the Maldives, depending on the case outcome.

Where a taxpayer is awarded a tax refund due to a transfer pricing adjustment at any stage of an appeal, they have the option to receive the refund in cash, offset it against future tax liabilities or transfer it to a third party’s tax liability. Refunds are typically required to be issued within 60 calendar days, although delays in processing refunds have been observed in practice.

The refund is allowed only to the party who filed the dispute at the relevant Tribunal or the Court and the tax authority makes no compensating adjustments to the second party of the transaction. The only mechanism to claim the compensating adjustment by the second party of the transaction is through amendment of their tax returns within the amendment window allowed in the tax law (12 months from the due date of the tax return).

The taxation of local branches and subsidiaries of non-local corporations in the Maldives hinges on their registration status. Under the Companies Act, foreign entities can incorporate local subsidiaries or re-register local branches.

A re-registered local branch is considered part of the non-local corporation, constituting a permanent establishment subject to taxation only on income sourced within the Maldives. Conversely, a locally incorporated subsidiary is taxed akin to any other local entity, with its worldwide income subject to taxation and a tax credit provided for foreign income tax paid.

Additionally, since a permanent establishment is a non-resident for local taxation purposes, a permanent establishment is subject to local withholding taxes on applicable income. However, local branches have the option to file tax returns using either the net income or gross income method to prevent local double taxation on the same income.

The sale of movable, immovable, intellectual or intangible assets is subject to taxation in the Maldives. Shares, categorised as movable assets, trigger capital gains or losses upon sale if any of the following conditions are met:

• Income from the disposal of movable property or interests situated or registered in the Maldives, or under agreements made in the Maldives for their disposal.
• Profit derived from the disposal of a share or any interest in a company, partnership or trust, where at the time of disposal of such share or interest, at any time during the past 365 days, more than 50% of the value of company, partnership or trust is directly or indirectly related to an immovable property situated in the Maldives.
• Profits from the disposal of shares or interests in Maldives-resident entity.

Whether shares are held by residents or non-residents, transactions meeting either of these criteria incur local taxation on gains or losses. Where the seller is a non-resident, taxes are primarily collected via a withholding tax mechanism and the buyer is required to remit the relevant taxes to the tax authority on behalf of the foreign shareholder.

Where 50% of more of the value of an entity is derived through an immovable property located in the Maldives and there is a disposal of shares or interest of such entity, the transaction may be subjected to local taxes by way of capital gains.

The foreign entity need not have a physical presence in the Maldives for such transactions to be taxed in the Maldives.

Apart from the rules prescribed to calculate the taxable income of controlled foreign entities, the law prescribes a simplified approach to tax international airline and shipping operations which is calculated on the basis of their total revenue generated by such operators from the Maldives. 

International shipping and airline operators are required to pay taxes at a flat rate of 2% on their gross income of that accounting period.

As previously discussed, the tax deductibility of management and administrative expenses for local affiliates hinges on their registration status in the Maldives.

Where the local affiliate is re-registered in the Maldives (a permanent establishment), the local affiliate is allowed a deduction to a ceiling of 3% of the total income generated from the general course of business of that permanent establishment, as head-office expenses. No deduction is allowed for fees paid as royalty in respect of a patent or right, and for commissions paid for specific or management services provided to the permanent establishment.

This restriction does not apply when the local affiliate is incorporated in the Maldives.

Related party borrowings are frequently disputed in transfer pricing, with the tax authority often challenging the nature of the borrowing, alleging it to be an equity transaction disguised as a debt transaction.

In support of their arguments, the tax authority typically rely on the 13 factors outlined in the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations, which are as follows:

• the name given to the transaction;
• the presence or absence of a maturity date;
• loan repayment is dependent on the borrower’s income;
• the right to enforce repayment;
• an increase in participation in management;
• the status of the contribution in relation to regular corporate creditors;
• the intent of the parties;
• level of loan disbursements;
• the “thinness” of the capital structure;
• the ability of the corporation to obtain loans from outside lending institutions;
• how the loan was utilised;
• how the loan was repaid;
• the amount of loan repayment assurance.

Therefore, it is advisable to incorporate these 13 factors into the borrowing arrangement and ensure periodic repayments align with the agreement to demonstrate that the transaction adheres to arm’s length terms.

A locally incorporated entity, as a tax resident, is subject to taxation on its worldwide income, encompassing both locally sourced and foreign sourced income. It must report all income earned during the tax year and is entitled to deductions for expenses incurred in accordance with the Income Tax Act and regulations.

To mitigate double taxation on foreign income, the locally incorporated entity can claim a foreign tax credit, equivalent to the lower of the taxes paid on the foreign income in the Maldives or the actual foreign taxes paid in the foreign jurisdiction.

The Income Tax Act specifically states that no deduction is allowed for any expenses incurred to generate exempt income irrespective of whether the income is locally-sourced or foreign-sourced.

This expense includes those that are incurred locally and those that are incurred outside of the Maldives.

Dividend income is generally taxable, with exemptions and deductions outlined in the Income Tax Act. Dividends earned by a tax resident from another resident entity of the Maldives are exempt from taxation, with no deductions permitted against any related expenditure.

However, dividends received from entities which are non-residents are taxable as regular income. Therefore, dividends received by a local corporation from its foreign subsidiary are taxable, as the foreign subsidiary is considered a non-resident for income tax purposes.

Since transaction between associated entities are to be carried out on arm’s length terms, where an intangible asset developed by a local corporation is used by a non-local subsidiary, an arm’s length price must be agreed between the parties and the local corporation must reflect a fair compensation as revenue from transfer/use of such intangible assets.

The local corporation shall account for income taxes and any goods and services taxes payable on such income irrespective of whether a cash compensation is received or not.

If a non-resident company, partnership, trust or similar entity is controlled by five or fewer Maldives residents, each individual holding 10% or more of the share capital must include their portion of taxable income when determining their annual tax liability. The calculation follows guidelines outlined in the Maldives Income Tax Act and Regulation, proportionate to the resident shareholders' interests. Furthermore, as an anti-tax avoidance measure, associated persons are treated as a single entity under the law.

Given that the Maldives has a world-wide tax system which taxes entities/persons based on their tax residency status, where a non-local affiliated entity supplies goods or services and any income is sourced from the Maldives, the non-local affiliated entity may be subject to taxes on income sourced from the Maldives, and the rules applicable to non-residents deriving income from the Maldives will be applicable to these entities.

However, this is subject to whether said non-local affiliate has any physical presence in the Maldives via an agent or through a Permanent Establishment.

As discussed in detail in 5.3 Capital Gains of Non-residents, gains arising from the sale of shares by a local corporation is taxed as capital gains and is included in their annual income tax declaration.

Pursuant to the Income Tax Act, the Commissioner General of Taxation has the power to invalidate arrangements or transactions if there are reasonable grounds to believe that tax avoidance or reduction of tax liability was one of the purposes of the arrangement or transaction. The law outlines specific rules targeting common tax avoidance practices, including transactions between associated entities, mandatory preparation of transfer price documentation for qualifying controlled transactions, taxation of controlled foreign transactions (as discussed in 6.5 Taxation of Income of Non-local Subsidiaries Under Controlled Foreign Corporation-Type Rules), and limitations on interest deductibility through a thin-capitalisation mechanism linked to the tax-EBITDA (Earnings before Interest, Tax, Depreciation and Amortisation) of the entity.

Until recently, the tax authority conducted annual audits of high-revenue taxpayers. However, in 2021, a new audit approach was introduced and incorporated into the Tax Administration Regulation. This approach replaced the previous practice with a more risk-based method. The relevant department now identifies “risk batches”, selecting high-risk cases based on predetermined factors. These cases undergo verification through sampling of documents rather than a full 100% verification process.

The Maldives joined the OECD BEPs project in November 2017, prompting the tax authority and Ministry of Finance to enact several regulatory changes to comply with the project’s four minimum standards. This includes the introduction of mandatory Country-by-Country Reporting requirements through regulations issued in January 2021. A mechanism for Mutual Agreement Procedures has been established, with procedures outlined for cases where tax treaties allow such procedures.

To prevent treaty shopping and abuse, a provision has been incorporated into the Tax Administration Regulation, restricting treaty benefits or concessions to entities whose ultimate beneficial owner is a resident of either treaty country.

The tax authority demonstrates a strong commitment to aligning local tax regulations with global standards, evident in the structured transfer pricing documentation regulations, country-by-country reporting requirements and standardised Mutual Agreement Procedure. These measures closely follow OECD recommendations.

The Maldives, being a low-tax jurisdiction with a corporate income tax rate of 15%, has not formally indicated its adoption of Pillar 1 and Pillar 2 initiatives.

As stated in 9.2 Government Attitudes, the tax authority has a strong commitment to align local tax codes to those that are recommended by global platforms such as the OECD and the UN.

The tax authority has also shown its keenness to implement the OECD’s BEPs and Inclusive Framework in the Maldives in order to mitigate domestic tax loss avenues.

Since the Maldives is highly reliant on foreign investments for much needed public infrastructure developments, the current tax codes allow an exemption mechanism for qualifying major infrastructure projects.

Tax exemptions are also further granted through other special statutes, such as the Special Economic Zones Act. These measures are placed to ensure that the publicly funded projects are attractive to foreign investors and is balanced against any negative impact on the investor’s incentive to invest in the Maldives.

The Maldives, compared to other jurisdictions, is still in the early stages of implementation of tax laws since its initial introduction in 2011. While the tax laws have seen major reforms within the past 14 years, there are still areas which need further improvements, such as the dispute resolution process and arrangements for advance pricing agreements for major transfer pricing disputes.

The delays in resolving tax disputes within the court system continues to be a vulnerable area, with cases being held at the initial stage for over five years or more without a decision on the dispute.

There has not been a known legislative proposal for the tax treatment of hybrid instruments.

The Maldives has a world-wide tax system.

The Maldives has a world-wide tax system.

Apart from the anti-avoidance rules detailed in 7.1 Overarching Anti-avoidance Provisions, there are no other statute imposing anti-avoidance rules in the Maldives.

In 2011, when the Maldives first started taxing business income via the Business Profit Tax Act, the Act included a provision which required all transactions between associated entities to be at arm’s length terms. The transfer pricing method, however, was not prescribed in the Act or the Regulation made pursuant to the Act.

It was the practice of the tax authority to rely on the guidelines issued by the OECD in application of this provision to transactions between associated entities. Additionally, the Transfer Pricing Documentation Regulation issued under the Income Tax Act follows the Guidelines issued by the OECD on the same subject.

The most common transaction which is contested by the tax authority on the subject of transfer pricing is the loan/debt transactions between local entities and their foreign shareholders or subsidiary entities. There has not been a known dispute on the transfer price of intellectual property as of the date of this guide.

The Maldives is relatively new to Country-by-Country Reporting (CbCR). Although the CbCR regulation was introduced in 2021, the filing requirement was suspended until recently. The fiscal year 2024 marks the first instance where Multinational Enterprises (MNEs) operating in the Maldives will be mandated to submit their CbCR to the tax authority.

Taxation of digital economy businesses is a prominent topic of discussion among policy makers, tax administrations and private tax advisors. However, to date, the government has not published a framework or articulated its stance on the mechanisms for taxing digital economy businesses.

Please refer to the comments in 9.12 Taxation of Digital Economy Businesses.

Fees paid for the use of, or right to use intellectual property falls within the definition of “royalty” for the purpose of income tax. These include copyright, patent, trademark, design or model, secret formula or process or other such similar property or its rights. A flat rate of 10% withholding tax is applied on such payments made by a business operating in the Maldives to an offshore or non-resident entity.

The business operator in the Maldives is required to withhold the relevant taxes from such payments and remit it to the tax authority on a monthly basis. The law does not make a distinction where the owner of the IP is located in a tax haven or a country with whom a double tax avoidance treaty is agreed with.

However, the treaty may allow a concessional rate or full exemption from such payments such as the one included in the Maldives and the United Arab Emirates tax treaty, which allows a reduced rate of 7% on royalty payments to a UAE resident on condition that such UAE entity does not have a Permanent Establishment in the Maldives.