The legal system of the Maldives is a unique blend of civil and common law traditions established within the boundaries of Islamic law principles, as required by the Constitution of the Maldives. This hybrid system underpins the legal framework for businesses, ensuring alignment with Islamic values while accommodating modern statutory and regulatory requirements.
The Maldivian judiciary is organised into a three-tier structure, with the Supreme Court of the Maldives as the highest court, below it the High Court, which serves as an appellate body, hearing appeals from superior and lower courts as well as tribunals. The High Court’s dual original and appellate jurisdiction ensures comprehensive resolution of disputes, including those impacting businesses. The first-instance courts and tribunals form the third tier of the judicial system. These include the Civil Court, Criminal Court, Family Court, Juvenile Court, Magistrate Courts, Employment Tribunal, and Tax Appeal Tribunal. Specialised courts and tribunals, such as the Civil Court and Employment and Tax Appeal Tribunals, are aimed at providing an efficient mechanism for resolving commercial, labour and tax disputes.
In addition to its judicial structure, the Maldives has a well-defined regulatory framework designed to oversee business activities and ensure compliance. The Ministry of Economic Development (MED)is the primary regulator overseeing business registration and licensing of foreign investments. Businesses in key industries, such as tourism, fisheries, construction/real estate and banking, must comply with sector-specific regulatory requirements enforced by the relevant authorities. These include the ministry mandated for key sectors and the Maldives Monetary Authority. Each authority ensures compliance with laws and standards tailored to their respective sectors.
The Maldives Inland Revenue Authority (MIRA), established under the Tax Administration Act (Law No 3/2010) is responsible for the collection of key taxes, including Income Tax, and Goods and Services Tax (GST). As the tax regulator, MIRA is also responsible for the enforcement of tax laws, conducting risk-based audits and investigations.
The new Foreign Investment Act (Law No 11/2024), which has repealed the former 1979 law, now regulates foreign investments. The new Act came into force on 3 December 2024, and the MED is the main regulator under the new Act controlling Foreign Direct Investment (FDI) approvals and ongoing regulatory compliance.
The regulatory framework separates foreign investments into three categories:
On 3 December 2024, the MED published detailed guidelines specifying permissible foreign ownership percentages, minimum investment requirements and maximum durations for FDIs. For instance, in the manufacturing sector, foreign investors may hold up to 75% ownership in the manufacture of fish products, with a minimum initial investment of USD1 million over five years. In contrast, sectors such as retail trade are entirely closed to foreign investment.
The FDI approval process emphasises the alignment of proposed projects with national interests, focusing on factors such as the investor’s financial capability, potential for job creation, technological transfer, environmental impact, and overall contribution to the Maldivian economy. The MED is also obliged to monitor and enforce post-approval compliance, ensuring that foreign investments meet all agreed terms, which crucially entails confirmation of the incoming agreed minimum capital investment under the foreign investment agreement.
Economic Environment
Based on reports by the Maldives Bureau of Statistics, the monthly real GDP of the Maldives was MVR8,593 million in October 2024, up 10.10% compared to the previous month and up 0.8% versus October 2023. This was the lowest year-on-year growth, with January 2024 registering the highest, at 10%.
Being a middle-income economy heavily reliant on tourism, the Maldives showed 3.4% growth in accommodation and food services compared to October 2023. The tourism sector contributes more than 20% of the growth in the economy, and continues to reflect a significant rebound after the decline in GDP due to the COVID-19 pandemic.
Key contributors to the economy remain tourism (20.9%), transport and communication (12.9%), wholesale and retail (10.0%) and real estate (8.6%). Diversification efforts are underway, focusing on fisheries, renewable energy and ICT to reduce reliance on tourism.
Political Environment
Recent years have seen relative political stability in the Maldives, which is essential for preserving investor trust. Nonetheless, the nation is still politically competitive, and policy decisions are influenced by election cycles.
Business Environment
The Maldives offers a favourable environment for foreign investment in certain sectors, particularly tourism, real estate, and renewable energy. The 2024 FI Act and the Foreign Direct Investment Policy (FDI Policy) enforced by the MED sets out the guidelines and requirements relating to foreign investment in the Maldives.
Sectors open to foreign investment, with restricted areas, closed areas and the percentages of shareholdings, allowed are stipulated in the FDI Policy. Foreign shareholdings are permitted in percentages ranging from 40% to 100%, with minimum investment requirements ranging between USD250,000 and USD5 million, based on proposed activities by investors.
The business environment is nevertheless susceptible to challenges in the form of environmental risks, including rising sea levels and extreme weather events, creating long-term challenges for investors. However, these risk factors may encourage sustainable development planning and green energy projects, aligning with global trends and investor interests.
Recent Changes in FDI Rules
The FI Act came into effect on 3 September 2024, repealing the 45 year-old Maldives Foreign Investment Act which entered into force on 1 May 1979. The FI Act aims to increase foreign investment and establish policies that will create a favourable environment to bring in the capital, technology, knowledge and skills that are essential to developing the economy of the Maldives.
The FI Act has introduced the requirement of a foreign investment licence detailing investment particulars, and addresses investment opportunities for foreign investors, as well as eligibility, investor protection, terms of compensation and additional related provisions.
Foreign Currency Act
A law governing foreign currency transactions was recently introduced in the Maldives on 14 December 2024. The Foreign Currency Act (FCA), effective from 1 January 2025, requires all transactions carried out in the country to be conducted in Maldivian rufiyaa (MVR), with exemptions applicable to businesses earning foreign currency income, financial service providers, dealings with tourists and other general examples such as international transactions and transactions permitted under regulations to be enacted under the FCA.
The FCA lays down deposit requirements applicable to local bank accounts by tourism service providers and all entities apart from financial institutions that receive an annual foreign currency revenue of at least USD15 million. It also mandates currency-conversion obligations on tourism establishments and high foreign currency income entities.
The FCA also addressed transitional arrangements with interim provisions applicable for the period until its enactment on 1 January 2025, as well as registration requirements and reporting requirements. Penalties are applicable for non-compliance with deposit and conversion requirements, with fines ranging from 0.25% to 0.5% of the amounts to be deposited/converted for the applicable month, and ranging from MVR1,000 to MVR10,000 for other violations.
Prospects
The current economic outlook for the Maldives shows potential for development, with growth of 4.6% in GDP in the third quarter of 2024 compared to the third quarter of 2023. Increased tourist arrivals and infrastructure development are expected to drive expansion. While, politically, there may be changes in policy directions, the focus on stabilising the economy and promotion of investments is likely to remain unchanged.
In the area of foreign investments, the revised regulatory framework is expected to attract diverse investments. Climate-change adaptation strategies, supported by international funding, may also play a role in future investments.
While the country offers opportunities for foreign investment, particularly in tourism, infrastructure and renewable energy, there are challenges to be managed, such as regulatory hurdles, climate risks, and political dynamics.
Common Structures
There are two common methods used for acquiring a company in the Maldives – asset acquisition or share acquisition.
Asset acquisition
An asset acquisition involves the sale and transfer of a specific asset or property distinct from the other assets or interests of the business. In such a transaction, the identified asset is segregated from the business entity and conveyed to the purchaser. The company itself, including its shares, ownership structure, other properties, and contractual obligations, remains unchanged.
Such transactions involve administrative complexities, including obtaining approvals for transferring regulated assets such as leases or licences. This structure is commonly used in the Maldives’ tourism sector for acquiring resorts or land/lagoon leases.
Share acquisition
A share acquisition transaction involves the transfer of shares or equity interests in the company from the seller to the buyer. The underlying company, including its assets, contracts, business operations, supplier relationships and other engagements, remains intact and unaffected by the transaction. The sale does not disrupt the company’s operations or its legal standing; the changes occur solely at ownership level. Share acquisitions are straightforward and efficient, particularly for private companies governed by the Companies Act (Law No 7/2023). For public companies, share purchases are subject to additional regulations, including disclosure requirements and potential capital market restrictions.
Share acquisitions in public companies must comply with CMDA rules, which aim to promote transparency and protect shareholder interests. Additionally, acquiring control in a listed company may involve adhering to the Maldives’ listing rules and obtaining approvals from the MSE.
Key Considerations for Foreign Investors
Regulatory compliance
Adherence to the FI Act (Law No 11/2024) and the FDI Policy, which stipulates permissible sectors, shareholding limits, and minimum investment thresholds, is critical. For example, franchising in international airports and approved locations (including products and services) requires compliance with foreign ownership caps of 75%.
Approval processes
Transactions involving foreign investors often require government approval, particularly for sectors with restrictions or of strategic importance. The Ministry of Economic Development typically oversees these approvals.
Sector-specific rules
Tourism and other regulated sectors have unique requirements for ownership and operational control. For instance, foreign ownership of land is prohibited, but long-term leases are permissible.
Tax implications
Understanding the tax regime and legal obligations is crucial to ensure compliance and maximise efficiency. Taxes such as Income Tax, Goods and Services Tax (GST) and Withholding Tax will apply.
While transaction structures can be broadly categorised as full acquisitions or minority investments, the sector-specific regulatory landscape ultimately dictates the permissible structure and the approval requirements for the transaction.
Competition Law
Under the Competition Act (Law No 11/2020), transactions that may affect market competition could face scrutiny under general regulatory oversight. In particular, the Ministry of Economic Development (MED) may intervene if a transaction is perceived to create monopolistic conditions or hinder fair competition – see 6.1 Applicable Regulator and Process Overview and 6.2 Criteria for Review.
Corporate governance in the Maldives is determined by type of entity. Companies are regulated under the Companies Act 2023, which outlines incorporation, management, and reporting requirements. Partnerships are governed by the Partnership Act (Law No 13/2011), which provides flexibility in shared management and liability structures.
Vehicles Allowed for Foreign Investments
Under the FI Act (Law No 11/2024), the following parties are eligible for FDIs:
The most commonly used vehicles for FDIs are private limited companies and partnerships. Private limited companies are preferred due to limited liability protection and their straightforward incorporation process, requiring a minimum of one shareholder and allowing up to 50. Partnerships, including general and limited liability partnerships, are popular among professional service providers.
Implications for Foreign Investments
The choice of corporate or legal entity form has significant implications, such as:
The Companies Act 2023 and the Corporate Governance Code govern the relationship between a company and its shareholders, including minority investors. The Act provides mechanisms to protect minority shareholders’ interests, ensuring they are treated fairly and equitably.
Minority Investor Rights in Public Companies
In public companies, minority shareholders are afforded protections under the Capital Market Development Authority’s Corporate Governance Code (CGC), which emphasises principles of fairness and transparency. The CGC ensures that all shareholders, including minorities, have access to relevant information and are treated equitably.
Key protections include the following.
Minority Investor Rights in Private Companies
In private companies, minority shareholders have specific rights, including:
Initial Disclosures
Foreign investors applying for an FDI licence must submit specific information to the MED during the application process. These disclosures help assess the viability and compliance of the proposed investment:
Reporting Obligations and Disclosure on FDI Disposal
Foreign investors holding an FDI licence must comply with ongoing reporting obligations to maintain their licence and legal standing. The FDI licence is tied to the approved business structure and activities. Any changes, such as modifications in ownership, scope, or capital structure and disposal, must be reported to the MED and will require prior approval.
There is no specific ownership percentage threshold that alters disclosure and reporting obligations. All foreign investments are subject to the same reporting requirements regardless of ownership stake.
Disclosure Obligations for Companies
Foreign investments registered under the Companies Act 2023 must comply with the disclosure and reporting obligations under it. These include the following.
The Maldives Securities Act (Law No 2/2006) (as amended) (“The Securities Act”) provides for matters relating to regulating the Maldives stock market. The Securities Act established the Capital Market Development Authority mandated to regulate and supervise the securities market and to protect and promote the interests of investors in securities.
The available forms of securities are debentures, bills, government bonds, stocks, shares, bonds or notes issued or proposed to be issued or any right warrant or option in respect thereof by a body corporate or any other institution.
It is possible for all companies registered in the Maldives to raise capital for their businesses through equity financing or debt financing.
Under the rules established by Maldives Stock Exchange, to raise capital through equity financing, all businesses are eligible to list their securities subject to meeting the requirements set by the laws and regulations. Equity securities can be listed through an offer for subscription, offer for sale or introductory listing. Debt securities can be listed as an offer for subscription or offer for sale. Additionally, sukuk bonds and investment funds are available for listing.
There are no restrictions for businesses operating in the Maldives to raise capital through debt financing by obtaining loans from both local and international banks.
Businesses primarily fund themselves by debt financing through bank loans versus raising funds through the capital markets, since access to the latter involves stringent regulatory procedures.
There are regulations formulated under the Securities Act that govern various forms of securities in the Maldives, as follows.
A foreign investor undertaking a foreign direct investment in the Maldives is not subject to securities laws simply by conducting business there unless the investor is seeking to be listed on the stock exchange or to invest in securities.
The recent Third Amendment to the Securities Act (“Third Amendment”) permits foreigners to invest in securities. However, the details of the securities available for foreign investment are to be stipulated in the regulations to be formulated under the Securities Act.
It is a requirement under the Third Amendment that, in determining the securities in which foreigners can invest, consideration must be given to restricted business areas under the FI Act. Therefore, the rules pertaining to how a foreign investment fund can operate in the Maldives will be better known once the regulation concerning this matter has been formulated, by June 2025.
A foreign investment fund operating in the Maldives will be subject to the Securities Act and the Regulations. The Capital Market Development Authority is responsible for formulating the regulations.
A merger control framework was introduced in the Maldives under the Competition Act (Law No 11/2020), which came into effect on 31 August 2021. However, the legal framework for merger control remains incomplete. While the Competition Act defines “merger” as the combination of two or more previously independent entities or the acquisition of control over assets and goodwill through joint ventures, the Ministry of Economic Development and Trade is yet to publish the criteria for determining what constitutes an anti-competitive merger.
As of now, the Competition Act does not require mandatory notification or provide an option for voluntary notification of mergers. This gap may be addressed once the necessary regulations are enacted. In the absence of these regulations, mergers are still subject to competition review if they contravene the Competition Act’s provisions.
Under the Competition Act, a merger control legal framework exists, although the lack of stated criteria for evaluating potential mergers raises questions over substantive overlap or competitive assessment. The Competition Act basically prohibits mergers that restrict, distort, or impede market competition. Once the regulations are in place, factors such as revenue thresholds, market share or anti-competitive practices would probably be included in the merger evaluations.
The Competition Act also provides broad authority to address anti-competitive behaviour, including price fixing, market divisions, production limitations, and abuse of dominance. These principles suggest that any substantive competitive assessment will focus on market dominance, consumer impact, and the promotion of fair competition.
If a merger violates the Competition Act, the MED has the authority to:
Given the incomplete regulatory framework, it is unclear what other commitments or remedies may be required.
The MED has the authority to block or challenge mergers that contravene the Competition Act. This includes taking action before or after the investment is made. If the MED determines that a merger hinders competitive practices, it may:
Failure to comply with the Competition Act could result in enforcement actions, including fines and operational restrictions. Foreign investors have the right to appeal decisions under the Competition Act, although the specific appeals process has not been detailed.
Legal Framework
Foreign investments in the Maldives are governed by the FI Act which came into effect on 3 December 2024, replacing the Law on Foreign Investments enacted in 1979. The new FI Act lays out the framework for FDIs, including areas of investment, approvals, investor protections and revocation of licences.
In addition to the FI Act, foreign investments are subject to the following regulatory laws:
Foreign investments are governed by the Ministry of Economic Development (“the Ministry”), as the responsible authority for processing applications for such investments, granting necessary approvals, issuing licences and overseeing compliance. The Ministry further consults with other government bodies for sector-specific approvals and regulations.
Scope of Review
The FI Act requires all foreign investments go through the review process regardless of the nature or type of investment. A licence to invest is mandatory for any foreign investment in the Maldives.
Stages of Approval
There are certain stages of obtaining approval for a foreign investment under the FI Act.
The duration of notification and review are subject to the type of investment, legal framework and any complexities involved. While there is no minimum or maximum time frame for the review and notifications set in the FI Act, these may be established in the guidelines to be made under the Act.
The review and consideration criteria established under the FDI Act are applicable to all foreign investments. No specific review processes are mandated under the FI Act for specific entities.
Eligibility
Under the FI Act, the following parties are eligible to invest in the Maldives:
Sectors of Investment
The FI Act requires the business sector of foreign investment to be generally open and conditionally open for foreign investments. Categories applicable to the investments are outlined as provided below.
The Ministry is mandated to publish a list of Category B sectors with details of any conditions and restrictions applicable. Until the list is published under the FI Act, the sectoral requirements are subject to the FDI Policy.
Minimum Investment Requirements
Investors must meet initial investment requirements depending on the business activity to be undertaken. There are various business activities with set minimum initial investment values ranging from USD250,000 to USD5 million. Business activities which do not have a set initial investment amount are available for negotiation.
Foreign Shareholding Requirements
The maximum percentage of foreign shareholdings also depends on the business activity. The percentages of foreign shareholdings range from 40% to 100% based on the proposed business activities by the investors. The activities that do not have a specified minimum initial investment value do not have a maximum percentage of foreign shareholding determined, and the shareholding percentage for the activities may be negotiated.
Considerations in Granting Approvals for Investment
The approval process for foreign investments is subject to the following considerations:
Under the FI Act, the review process for foreign investment proposals includes an evaluation of the extent of threat the investment is likely to pose on the national security of the country. As sectors of investment are categorised with negotiable and restricted sectors identified, the review process for investment proposals will include sector-specific considerations in terms of national security.
Within the approval process, the Ministry has the discretion to request for any information that is needed with regard to assessing the proposals and their potential threats to the national security. The investments are further subject to sector-specific laws and regulations, and any requirements and conditions set for national security will be imposed on the investment.
Pre-Investment Approval
The review process for investment proposals involves several considerations, as listed above. The Ministry may not issue approval to proposals that do not meet the criteria or are not eligible for investing in the country. It may also block or reject a proposal which is unfavourable to the country after evaluating mandatory considerations after assessment of the proposal.
Post-Investment Challenges
The Ministry may review and challenge investments after approval where new concerns arise, such as breach of terms of the investment agreement, non-compliance with the applicable law, or emerging risks to national security.
Revocation and Cancellation of Investment Licences
The Ministry has the discretion to cancel or withhold an investment licence in the following circumstances:
A foreign investment licence may be revoked in the following instances:
Where an investment licence is intended to be revoked or suspended, the investor must be informed of the revocation/suspension through written notice with the relevant justification. The investor must be granted the opportunity to present an argument against suspension or revocation of the investment licence. Where the investor makes a submission in response to the notice, the Ministry must make a decision on the submission. If the investor makes no submission in response to the notice, the Ministry must inform the investor on the suspension or revocation of the licence in writing.
Additional circumstances concerning the withholding or cancellation of licences are to be provided in the regulations to be made under the FI Act.
Appeal of Decisions
Under the FI Act, investors have the right to challenge the decisions taken by the Ministry or any other government institution regarding foreign investment. The Ministry is mandated with establishing a review committee to look at matters filed regarding investments. Where the matter filed involves a decision by a member of the committee, that particular member will not be included in the committee set up for that discussion.
Where the decision by the Ministry on a complaint by an investor is not resolved, the investor has the right to file the matter with the relevant court or follow the procedure prescribed in the investment agreement.
Foreign Currency Act
The Foreign Currency Act (Law No 32/2024) stipulates that all transactions in the Maldives must be conducted in MVR. However, exceptions include international transactions, payments for exported goods and services, and payments to government or state institutions under specific acts or regulations. Exemptions for businesses earning foreign currency income include payments for goods and services, dividend payments, transactions with shareholders or related parties, employee salaries and benefits, share transfers, and dealings related to the issuance of bonds and sukuk.
Industry/Sector-Specific Restrictions
Tourism Sector
The tourism industry is governed by the Tourism Act (Law No 2/99) and the regulations enacted under the Tourism Act. Investors must obtain licences and approvals from the Ministry of Tourism for resort development, guesthouses, or other tourism-related projects.
Fisheries Sector
Investments in the fisheries sector are subject to the Fisheries Act (Law No 14/2019). Certain activities, such as the exploitation of specific marine resources, may have restrictions to protect the environment and local industry.
Banking and Finance Sector
The Maldives Monetary Authority Act (Law No 6/81) regulates financial institutions. Foreign investors must obtain licences to operate banks or non-banking financial institutions.
Telecommunications Sector
Investments in telecommunications are governed by the Telecommunications Act (Law No 43/2015). Approvals from the Communication Authority of Maldives (CAM) are required.
Healthcare Sector
Investments in healthcare are regulated under the Health Services Act (Law No 29/2015). Approvals are needed from the Ministry of Health for hospital or clinic operations.
Money Laundering and Financing of Terrorism Act
Financial transactions are subject to the Prevention of Money Laundering and Financing of Terrorism Act (Law No 10/2014) and associated regulations. The Maldives Monetary Authority (MMA) oversees compliance with Money Laundering and Financing of Terrorism Act to prevent illicit financial activities. Businesses must ensure proper documentation and comply with identity verification procedures by reporting entities.
Tax Laws - See 9.1 Taxation of Business Activities
Direct Taxes
Residents are taxed on worldwide income, while non-residents and temporary residents are taxed on income sourced in the Maldives, as follows.
Indirect Taxes
Businesses are required to withhold 10% tax on dividend and interest payments to non-residents, except for interest paid to approved banks or financial institutions.
Treaty With UAE
No source taxation is applicable on dividends and interest in Maldives. However, these provisions do not apply if the recipient carries out business through PEs in the Maldives, and the dividends or interest are effectively connected with that PE or are fixed-base.
Treaty With Bangladesh
Dividends and interest may be taxed in the Maldives, the source country. The rates of withholding tax under domestic law align with the tax treaty. However, interest is exempt from source taxation if paid to the government of Bangladesh, to the Bangladesh Bank or any other institution agreed between competent authorities.
This treaty with Bangladesh includes a Limitation of Benefits (LOB) article denying treaty benefits if obtaining such benefits is a principal objective, or one of the principal objectives, unless the granting of such benefits is consistent with the purpose of the treaty.
Loss Relief
Trading losses can be carried forward for up to five future periods to be offset against taxable income. This loss relief can only be claimed if shareholders maintain over 50% ownership and the business continues in the same line of activity from the start of the loss-making period to the end of the period when the relief is claimed.
Capital losses derived from disposal of movable, immovable, intellectual or intangible property can be set off against capital gains for a period of not more than five years from the end of the period in which they were incurred.
Special Deductions for Banks
Provision for doubtful debts are not deductible when calculating taxable profit. An exemption to this provision applies for banks, where a deduction is allowed for a specific loan loss provision for doubtful debts in respect of loans and advances, as computed according to the Act.
Related-Party Financial Transactions
Interest on intercompany debt is deductible for tax purposes up to a maximum of 6% per annum subject to the availability of interest capacity, which stands at 30% of profit before loss relief, capital allowance and interest deductions. Effective transfer pricing management is required for these financial transactions.
In addition to the above, tax treaties can be utilised to reduce withholding taxes on payments made to non-residents, as stated in 9.3 Tax Mitigation Strategies.
Tax on Sale or Other Dispositions of FDI
Any gains derived from the disposal of assets are subject to capital gains, provided the assets do not qualify for a capital allowance. There is no general blanket exemption for capital gains earned by foreign investors.
In cases where a foreign non-resident company earns profit on any of the following transactions with a resident company, the latter must withhold 10% of the gross payment:
Anti-Avoidance Regimes for Foreign Investments
The Maldives has implemented a comprehensive and effective framework to ensure FDIs are conducted transparently, fairly, and with economic substance.
Transfer Pricing Rules
Transfer pricing rules ensure that transactions between foreign investors and related local entities adhere to the arm’s length principle. Compliance with these rules demands meticulous documentation, covering commercial relationships, transaction terms, and proof of arm’s length pricing.
Addressing Offshore Entities and Debt Manipulation
The jurisdiction’s Controlled Foreign Entity (CFE) rules prevent tax deferral by ensuring that the income of offshore entities controlled by residents is taxed proportionately.
To curb tax avoidance through excessive debt financing, thin capitalisation rules limit interest deductions to 30% of tax-EBITDA. This prevents companies from inflating debt to shift profits via interest payments.
Guarding Against Artificial Arrangements
Through General Anti-Avoidance Rules (GAAR), the tax authorities challenge transactions lacking genuine commercial purpose or economic substance. Transactions misaligned with economic reality may be recharacterised or disregarded, addressing mismatched tax systems and low-tax jurisdiction routing to ensure substance in cross-border investments.
Global Collaboration for Transparency
The jurisdiction enhances compliance through international agreements for automatic data exchange. These agreements expose hidden offshore accounts and beneficial ownership structures.
Legal and Regulatory Regime
Applicability of the Laws
The Employment Act, Industrial Relations Act and Occupational Safety and Health Act specify that, except for the parties excluded from the Act by any other statute, it is applicable to both public and private sector workers and employers. Currently, only the Police and Armed Forces are not included in the Employment Act. The Police, Armed Forces, and Presidential appointees are exempt from the Industrial Relations Act.
The above specified laws and regulations are applicable to both local and foreign employers in the Maldives. There are no additional laws or regulations that foreign investors should consider regarding employment.
Prevalence of Collective Bargaining, Works Council or Labour Union Arrangements
The laws and regulations relating to collective bargaining and labour unions only came into effect in 2024.
Compensating Employees
The general rule in the Maldives is to pay employees in money. Payment in kind is allowed if it meets the conditions stipulated in the Employment Act (generally, it will not be disallowed, must be of a reasonable value and able to be utilised by or be of benefit to the employee and their family).
All Maldivian employees are required to be paid the minimum wage set by the government, with the amount paid based on the employer’s type of business. The government categorises businesses based on gross income, net profit and number of employees. The minimum wage may include a basic salary and a fixed allowance determined by the employer. It is prohibited to include any other payments payable to employees, whether discretionary or statutory, in calculating minimum wage. Currently, expatriate employees in the Maldives do not qualify for the country’s minimum wage, so employers are free so set their own minimum wage for these employees.
All Maldivian employees have to be registered in the Maldives Retirement Pension Scheme by their employers. Employers are required to contribute an amount equivalent to 7% of the pensionable wage of the employee to the scheme every month. It is not mandatory to enrol expatriate workers in the Maldives Retirement Pension Scheme.
Other statutory benefits mandated to be paid to employees are as follows:
When a business operating in the Maldives, whether acquired in part or full, undergoes a change of control, is assigned, leased or transferred in any other way, the Employment Act mandates that the employment agreements of the business be transferred to the new owner. The rights, obligations and any transactions between the employees and employer will be deemed to have been transferred/taken place between the transferee and the employees. This includes the continuity of employment without interruption.
The Employment Act does not mandate for the workers’ council or other collective bargaining requirements to be met to complete an acquisition or other investment transaction.
The FI Act requires all foreign investments go through an approval process which includes extensive stages leading up to their agreement. Permitted sectors for foreign investments are subject to the FDI Policy until the mandated regulations are published under the FI Act. The approval process of foreign investment applications is generally subject to the following considerations:
The screening also includes assessments of adequacy of intellectual property protection measures, particularly where the proposed investment involves technology transfer, trademarks, or any proprietary processes. In addition, the proposals will be examined for compliance with the laws and regulations of the Maldives.
While there is a Copyrights Act which protects software and databases, the Maldives lacks comprehensive legislation for protection of other intellectual property rights.
The Maldives is, however, party to the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement), which sets minimum standards for the protection and enforcement such rights. The TRIPS Agreement covers intellectual property rights relating to various areas, such as copyright, trademarks, geographical indications, designs, patents and trade secrets.
Article 24 of The Constitution of the Republic of Maldives (2008) provides that everyone has the right to respect for their personal and family life, home and private communications, and that every individual must respect these rights. Apart from this, there is no general legislation on privacy and personal data protection to date.
The Maldives has no legislation covering intellectual property rights that could reach foreign investors extra-territorially. Sector-specific laws could cover confidentiality or data security obligations, and indirectly impact foreign operators – depending on the sector of investment. There is currently no regulatory body in the Maldives mandated for data protection.
The FI Act does, however, require compliance with international treaties and conventions relating to investments and businesses to which the country is a party. Where certain policies and obligations are set out differently under these treaties regarding investments in the Maldives, the terms of such conventions (which include bilateral or multilateral investment treaties and independent agreements which set out policies of investment) will take precedence over the FI Act for investments by investors from countries that are party to them.
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admin@premier-chambers.com www.premier-chambers.comActivities Permitted in Special Economic Zones
Special Economic Zones (SEZs) are designated specific areas defined by boundaries or co-ordinates and managed by individual developers who run economic activities within the areas. SEZs are eligible for various incentives and will be treated separately from the general customs regulations of the country, particularly in terms of import and export duties. SEZs may include different types of zones, such as industrial estates, export-processing zones, free trade zones and other zones as stipulated under the Special Economic Zones Act (the “SEZ Act”), which governs the SEZs in Maldives.
The SEZ Act, which was signed into law on 01 September 2014, regulates investments in the designated zones, lays out incentives granted to developers and investors, and establishes relevant rules.
Permitted activities – developments over the years
The SEZ Act provides that the activities to be conducted in SEZs ‒ along with the minimum threshold for the total investment required for the specific zone ‒ will be decided by the President, in consultation with the SEZ Board. The permitted activities are to be promulgated on a yearly basis through a presidential decree.
The minimum investment threshold for projects in the Maldives’ SEZs has been adjusted over time; it was initially set at USD150 million and later reduced to USD100 million. This change allowed for a broader range of investments, particularly in sectors such as export-oriented manufacturing, ports, airports, international logistics, and infrastructure (eg, universities, hospitals, and research facilities).
The core sectors remained consistent, including renewable energy, oil and gas exploration, information and communication technology parks, and the introduction of new technologies. More recently, food security areas and gas exploration activities were added to the list of permitted activities.
In the most recent presidential decree, dated 12 January 2025, the activities permitted in SEZs have been categorised into two types:
The activities permitted for projects in the USD100 million minimum investment requirement category remain consistent with earlier presidential decrees. The presidential decree further requires investment proposals that meet the USD100 million minimum investment threshold to allocate at least 50% of the investment to strategic areas. Investment proposals for sustainable township development must allocate a minimum threshold of USD500 million solely to the components of the development.
Issuance of permits ‒ primary considerations
Prior to issuing a permit, the SEZ Board will assess the proposed investment based on the following criteria:
Establishment of projects in SEZs
The process for establishing a project within SEZs in the Maldives involve the following steps:
Incentives for developers and investors in SEZs
Under the SEZ Act, developers and investors are guaranteed several incentives, subject to the scale and scope of their investments. These include exemption from import duties on materials exported for development, exemption from income tax, and exemption from Goods and Services Tax (GST). Additionally, there is an exemption from taxes related to the sale and purchase of land, as well as from withholding tax. Developers and investors are also eligible for tax relief and tax credits, provided they follow specified procedures. Furthermore, the SEZ Act allows the free transfer of capital and profits abroad, making it easier for foreign investors to manage their finances.
Evolving Landscape of Indirect Taxes
With digitalisation as a key priority in the Maldives, the tax administration plans to implement an electronic invoicing system, initially focusing on the largest revenue-generating taxpayers. This will simplify tax compliance, make reporting easier and more reliable, and promote a fair and transparent tax system.
The Maldivian Parliament has passed an amendment to the Goods and Services (GST) Act to increase the GST rates applicable to service providers in the tourism industry from 16% to 17%, effective from July 2025. Additional changes to the GST regime proposed in the 2025 budget include some notable shifts. One key change is the adoption of the “destination principle”, whereby tax is levied on final consumption. Further amendments are proposed to tackle tax challenges in the digital economy.
These shifts aim to create a level playing field for Maldivian companies competing with major overseas entities. From 1 January 2025, green tax rates levied on tourist establishments in the Maldives have doubled. Integrated tourist resorts, resort hotels, tourist vessels and guesthouses located on uninhabited islands or with more than 50 rooms are required to pay USD12 per day (previously USD6). Hotels or guesthouses located on inhabited islands or with fewer than 50 registered rooms must pay USD6 per day (previously USD3).
International taxation
The Maldives has been expanding its treaty networks, with three bilateral double taxation avoidance agreements (DTAAs) signed to date. The most recent agreement with Malaysia is yet to be enforced.
The Maldives Inland Revenue Authority (MIRA) is increasingly focusing on addressing base erosion and profit shifting (BEPS) issues, particularly concerning the activities of multinational enterprises (MNEs) that engage in profit shifting to low-tax jurisdictions. The country’s transfer pricing regulations are aligned with the OECD Transfer Pricing Guidelines, reflecting its commitment to international tax standards.
Cross-border financial transactions in the Maldives are frequently subject to disputes, particularly in cases involving tax evasion, transfer pricing, and BEPS issues. These disputes often escalate to tax tribunals and appellate courts, reflecting the increasing scrutiny of MNEs and their financial activities. MIRA closely monitors such transactions to ensure compliance with international tax standards and domestic regulations. During the next two years, MIRA will significantly focus on identifying avoidance schemes, auditing high-risk taxpayers, and proposing legislative revisions to mitigate these risks.
Audit and enforcement trends
The tax administration plans to carry out targeted tax registration during 2025 and 2026, focusing on permanent establishments, transport, rentals, professionals, online businesses, and expatriates ‒ with ongoing efforts to identify unregistered businesses.
Additionally, recent judicial precedents, including Yacht Tours Maldives Pvt Ltd v MIRA (2025), have reinforced key legal principles regarding enforcement, providing greater clarity for businesses such as those paying lease rent to the government under contractual agreements. The ruling by the Supreme Court has affirmed that MIRA’s authority cannot extend beyond what is expressly provided by the law and that enforcement actions must align with contractually agreed remedies. The tax administration aims to improve timely revenue collection by publicising defaulters, pursuing civil litigation, recovering from third parties, and collaborating with government agencies.
Digitalisation of Maldivian tax system
The tax administration aims to implement electronic invoicing by the end of 2026, beginning with a focus on large taxpayers and then expanding to others. By the end of 2028, the tax administration plans to integrate its system with banks, other payment service providers, and government agencies to enhance domestic revenue collection.
Tax and duty incentives
Tax incentives are currently offered to businesses and industries, exempting them from income taxes and GST. The government plans to expand these exemptions, particularly for significant infrastructure development projects, which already benefit from special income tax exemptions.
Additionally, the government is actively seeking investments in nine strategic sectors (including manufacturing, renewable energy, and international financial services) under the SEZ incentives. A range of concessions and incentives are provided, such as exemptions from direct and indirect taxes, exemptions from import duties, and the free repatriation of capital and profits.
These measures reflect the Maldives’ commitment to fostering economic growth, encouraging investment, and supporting key industries through favourable tax policies
Change in Foreign Investment Regime’s Financial Capacity Assessment
The Foreign Investment Act (Law No 11/2024) has introduced a significant change in how the financial capacity of foreign investors is assessed ‒ namely, the replacement of the traditional letter of financial credibility with the intention of creating a more comprehensive financial capacity assessment. This represents a significant stride towards guaranteeing that investments entering the Maldives are supported by verifiable financial strength or capacity, thereby mitigating the risk of underfunded ventures.
Old approach
Prior to the enactment of the Foreign Investment Act, foreign investors seeking to establish businesses in the Maldives were required to submit a letter of financial credibility issued by a bank from their home country or place of domicile. The purpose of this letter was to verify that the investor had satisfactory interactions with the bank. It was a straightforward, all-encompassing assurance of the investor’s financial status and there was no obligation to provide specific financial information.
Although this approach provided general assurance, it had significant shortcomings. The letter only verified that an investor had a banking relationship; it did not demonstrate that investors’ actual financial capacity to fund and sustain an investment. There was no requirement for investors to show evidence of cash, capital commitment or external financing arrangement. This created a challenge for regulators in determining whether the investments that were approved were adequately funded or whether the investors had the financial stability to fulfil their long-term obligations in the Maldives.
New approach
Upon the commencement of the Foreign Investment Act, the foreign investment application procedure has replaced the need for financial credibility letters with a financial capacity assessment process. The revised methodology mandates that investors provide demonstrable financial preparedness through verifiable documentation, ensuring that only financially competent investors get approval.
The new process provides two distinct methods for demonstrating financial capacity. The first method requires investors to prove demonstrated financial capacity, meaning they must show direct ownership of financial resources through bank statements, audited financial reports, and net worth statements. Investors must also provide evidence of liquid assets, tax returns, and proof of equity contributions. These documents will enable the government to evaluate an investor’s financial stability and capacity to maintain their planned investment.
The second method allows investors to prove their ability to mobilise capital through formal financing commitments. This includes letters of intent from banks, term sheets outlining funding conditions, and commitment letters from financial institutions. Investors can also submit pre-approved loan facilities, equity subscription agreements, and evidence of past successful funding raising efforts. This approach ensures that even those who do not have all the required funds readily available can qualify by demonstrating credible financing arrangements.
Impact of foreign investment
This represents a significant shift in the government’s assessment of foreign investment applications. Foreign investors are no longer permitted to rely on ambiguous letters from the bank; they are now required to submit definitive financial documentation. This change eliminates speculative investors who may not have the necessary financial resources, ensuring that only serious investors with actual capital commitments are approved.
This also enhances risk management of the government. By mandating verifiable financial documentation from investors, the government is more accurately able to evaluate an investor’s capacity to initiate and maintain an investment in the long term. This is of particular significance in situations where the success of a project is contingent upon its financial stability. By screening out high-risk investors, the government can now reduce the number of stalled or failed projects that are the result of underfunding.
From a foreign investor confidence perspective, the new framework attempts to create a more transparent and predictable investment environment. The more stringent financial criteria would reduce the competition for experienced investors from unqualified participants, enhancing investment prospects and safeguards for genuine investors. Foreign investors who meet the financial capacity requirement will benefit from a more stable regulatory environment, as the Foreign Investment Act seeks to prioritise financially sustainable investments.
However, it introduces a new challenge for investors, especially for those who depended on financial credibility letters as a convenient tool. Audited financial statements and liquid asset confirmations necessitate substantial financial structuring, which may prove challenging for small-scale investors or entrepreneurs to provide. Additionally, this may also increase approval timelines, as the Foreign Investment Unit will not conduct detailed financial reviews before granting a foreign investment licence.
The decision to replace financial credibility letters with a financial capacity assessment marks a transformational change in its foreign investment regime in the Maldives. More importantly, the government has enhanced investor responsibility and risk management by transition from a general and ambiguous verification procedure to a comprehensive financial assessment.
While the foreign investment regime introduces additional compliance burdens for investors, they also create a more secure and transparent investment environment. For foreign investors, this means that preparing comprehensive financial documentation is now a prerequisite for market entry.
Introduction of a Foreign Currency Act in the Maldives
The Foreign Currency Act (32/2024), published in the official gazette on 14 December 2024 and effective as of 1 January 2025, has introduced new rules concerning the use of foreign currency in the Maldives. The Foreign Currency Act has repealed the long-standing Monetary Regulation of 1987 and sets clear guidelines for foreign currency transactions, foreign currency deposits, and exchange requirements, with a particular focus on businesses in the tourism sector.
The key highlights of the Foreign Currency Act are as follows.
General currency of transactions
All the transactions within the Maldives must be conducted in Maldivian rufiyaa (MVR), with exemptions given to the following:
There are also general exemptions covering:
Mandatory deposit of foreign currency to a bank account held with a licensed bank in the Maldives
Tourism goods and services providers, as well as other service providers (excluding businesses in the tourism and financial sector), that earn an equivalent of USD15 million or more annually in the preceding financial year are required to deposit or transfer the proceeds from their monthly foreign currency sales into a designated bank account by the 28th day of the third month following the receipt of income.
Mandatory foreign currency exchange requirements
For Category A tourist establishments (tourist resorts, integrated resorts, private islands, resort hotels, and similar places), there is a requirement for exchange of USD500 per tourist arrival per month or exchange of 20% of the monthly gross sale in foreign currency.
For Category B tourist establishments (tourist vessels, tourist guesthouses and tourist hotels), the Foreign Currency Act requires exchange of USD25 per tourist arrival during the month or 20% of the monthly gross sales in foreign currency.
Other goods and service providers (excluding financial institutions and businesses in the tourism sector) are required to exchange 20% of the monthly gross sales in foreign currency if they receive an annual revenue equivalent or more than USD15 million.
The mandatory foreign exchange requirement for tourist arrivals does not apply to children under 12 years of age, tourists staying for fewer than 24 hours, those staying on a complimentary basis or hosted by the government, or tourists staying on tourist vessels that are registered and operated outside the Maldives.
Penalties for non-compliance
The Foreign Currency Act stipulates a fine of up to 0.25% of the monthly foreign currency amount to be deposited into the bank account in the event of non-compliance with the deposit requirements. For violations of the exchange requirements, a fine of up to 0.5% of the monthly foreign currency amount to be converted into Maldivian rufiyaah will be imposed. Additionally, the Maldives Monetary Authority may impose a daily fine of up to 0.25% or 0.5% for continued failure to comply with the deposit and exchange requirements.
For other violations of the Foreign Currency Act, a fine ranging from MVR10,000 to MVR1 million may be imposed on a party, depending on the severity of the violation.
What it means for Maldivian economy
Overall, the Foreign Currency Act was introduced with the aim of strengthening the country’s fiscal framework, reducing currency volatility, and ensuring greater stability in the Maldivian economy. It is hoped to play a crucial role in regulating foreign exchange transactions, attracting foreign investments and supporting key sectors such as tourism and trade by fostering a more resilient and investor-friendly environment.
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