On 15 October 2019, the government submitted a bill which proposes to introduce income tax in the Maldives. The proposed effective date of the Income Tax Act is 1 January 2020.

Key aspects of the proposed income tax regime are summarized below.

Taxable person

• Any person who is resident in the Maldives, where that person derives income from the Maldives or elsewhere; and
• Any person who derives income from the Maldives, whether or not that person is resident in the Maldives.

Income included in gross income

• Remuneration (any compensation or benefit derived by an employee, director, or partner in consideration for services performed, including any compensation for loss of employment or service, restrictive covenant payments, and entry or exit inducement payments);
• Business income;
• Rental income from movable and immovable property;
• Dividend;
• Interest;
• Annuity, pension and retirement benefits;
• Beneficiary income (any amount paid by a trust to a beneficiary, other than a distribution of the corpus of the trust);
• Fees for technical services (fees for technical, managerial, consultancy and other such services, not including salaries or wages);
• Commission;
• Royalty;
• Income derived from the disposal of movable, immovable, intellectual, or intangible property; and
• Income of any other kind, including proceeds of any criminal or other illegal activity.

Rates of tax

• Individuals

Taxable income for the year (MVR)	Rate
Not exceeding 480,000	0%
More than 480,000 but not exceeding 720,000	8% of the amount in excess of 480,000
More than 720,000 but not exceeding 1,200,000	MVR 19,200 + 10% of the amount in excess of 720,000
More than 1,200,000	MVR 67,200 + 15% of the amount in excess of MVR 1,200,000

• Banks
  • 25% of taxable income for the year

• Persons other than individuals and banks

Taxable income for the year (MVR)*	Rate
Not exceeding 500,000	0%
More than 500,000	15% of the amount in excess of 500,000

* For companies within a group, the tax-free threshold of MVR 500,000 must be divided equally amongst all companies within the group which are within the charge to tax.

Exempt income

• Dividend paid by a company resident in the Maldives to a person who is resident in the Maldives;
• Distributions made by a partnership resident in the Maldives to a partner who is resident in the Maldives;
• Certain distributions made by a trust resident in the Maldives to a beneficiary who is resident in the Maldives;
• Income of a non-profit organization approved by the Commissioner General of Taxation;
• Income of a public authority;
• Interest paid by a company listed on the Maldives Stock Exchange, and other interest not exceeding MVR 5,000;
• Interest or profit derived in respect of a debt security or similar product which is listed or admitted for trading on a securities exchange licensed by the Capital Market Development Authority for operation in the Maldives;
• Income exempt from tax under an international agreement;
• Remuneration paid by the Government of a foreign country or territory to a person employed by that Government, subject to certain conditions;
• Income derived by a person under a technical assistance agreement between the Government of the Maldives and a foreign government or international governmental body approved by the Commissioner General of Taxation where the person is not a resident of the Maldives or is a resident of the Maldives solely for the purpose of performing duties under the agreement;
• Income derived by a non-resident aircraft or shipping operator, charterer or lessor, subject to certain conditions;
• Basic pension and retirement pension received under the Maldives Pension Act;
• Payments received under a life insurance policy;
• Education grants and scholarships, subject to certain conditions;
• Gifts received, subject to certain conditions;
• Amounts received by hibah, bequest or inheritance;
• Amounts or property received from the state as zakat al-mal;
• Payments of dowry, nafaka or halanath;
• Amount received from the disposal of an individual’s only or primary place of residence;
• Goods and services tax received by a person registered under the Goods and Services Tax Act;
• Amounts received under the Social Security Act and other benefits paid by the state; and
• Amounts received through the “social health insurance scheme”.

Allowable deductions

• In computing a person’s taxable income, an expense or loss incurred during an accounting period shall be deducted only to the extent that the expense or loss was incurred in the production of the person’s gross income;
• Other allowable deductions, subject to certain conditions:
  • Zakat al-mal;
  • Pension contribution;
  • Welfare expenses;
  • Donations;
  • Interest paid to a non-approved bank or financial institution exceeding 6% per annum;
  • Irrecoverable debts and provision for doubtful debts;
  • Head office expenses;
  • Capital allowance;
  • Expenses incurred prior to the commencement of business;
  • Amounts subject to non-resident withholding tax; and
  • Special deductions against rental income from immovable property.

Deductions not allowed

• Domestic or private expenditure;
• Certain types of capital expenditure;
• Expenditure incurred to derive exempt income;
• Income tax payable in the Maldives or any other country;
• Input tax deductible in accordance with the Goods and Services Tax Act;
• Provisions for expenditure or loss;
• Fines or other amounts payable in respect of any failure to comply with a law or regulation;
• Bribes;
• Premium payable under a life insurance policy, except under certain circumstances;
• Certain expenses of a partnership;
• Excessive compensation;
• Withholding tax payable to the Maldives Inland Revenue Authority under the Income Tax Act but not paid; and
• Expenditure incurred prior to the date of commencement of the Income Tax Act.

Losses

• If a person incurs a loss in an accounting period, the person may carry the amount of the loss to the immediately following accounting period and offset it against the taxable income of that period so far as that taxable income extends.
• A loss may not be carried forward more than 5 years from the end of the accounting period in which it was incurred.
• Companies, partnerships and trusts must satisfy certain conditions in order to be eligible to carry forward a loss.

Return filing and payment

• Unless prescribed otherwise in the Income Tax Act, a person who is required to pay tax under the Act for a tax year must submit interim payment statements by 31 July of the current tax year and 31 January of the following tax year, and pay half of the assessed tax for the previous tax year as each interim payment by those dates. Interim payments are not mandatory if the previous tax year’s assessed tax was less than MVR 20,000.
• Unless prescribed otherwise in the Income Tax Act, a person who is required to pay tax under the Act for a tax year must file a tax return by 30 June of the following tax year and make the final payment by that date.
• The Income Tax Return is a self-assessed return.

Employee withholding tax (EWT)

• Where an employer or any person acting on behalf of the employer pays remuneration (whether or not in cash) to an employee, the person must deduct employee withholding tax from the gross amount of each payment made each month in the following manner.

Amount of pay per month (MVR)	Rate
Not exceeding 40,000	0%
More than 40,000 but not exceeding 60,000	8% of the amount in excess of 40,000
More than 60,000 but not exceeding 100,000	MVR 1,600 + 10% of the amount in excess of 60,000
More than 100,000	MVR 5,600 + 15% of the amount in excess of MVR 100,000

• Employers must submit a monthly EWT Return by the 15th day of the following month and pay the amount due by that date.

Non-resident Withholding Tax

• Where a person carrying on business in the Maldives makes any payment of the following kinds to a person that is not resident in the Maldives, the person making the payment shall deduct non-resident withholding tax from the gross amount of the payment at the rate of 10%, unless prescribed otherwise:
  • Rent in relation to immovable property situated in the Maldives;
  • Royalty;
  • Interest paid to a non-approved bank or financial institution;
  • Dividend;
  • Fees for technical services (fees for technical, managerial, consultancy and other such services, not including salaries or wages);
  • Commissions paid in respect of services performed in the Maldives;
  • Payments made in respect of performances in the Maldives by public entertainers;
  • Payments made for carrying out research and development in the Maldives;
  • Payments made to a non-resident contractor;
  • Insurance premiums; and
  • Reinsurance premiums (3% tax rate).
  • Non-resident withholding tax does not apply to:
  • Payments made by a public authority;
  • Payments made in administering the national social health insurance scheme; and
  • Exempt income.
• Persons who make a payment subject to non-resident withholding tax in a month must submit a Non-resident Withholding Tax Return for the month, by the 15^th day of the following month and pay the amount due by that date.
• Non-resident withholding tax is a final tax.

Other salient points

• The Bill contains:
  • A general anti-avoidance provision, transactions subject to transfer pricing rules, controlled foreign entity rules, and a thin capitalization rule; and
  • Rules for allowing credit for foreign tax paid.
• The Income Tax Act shall be administered by the Maldives Inland Revenue Authority, in accordance with the Tax Administration Act.
• The Bill proposes to repeal the following acts and taxes:
  • The Business Profit Tax Act, which will be subsumed by the Income Tax Act;
  • The Bank Profit Tax Act, which will be subsumed by the Income Tax Act;
  • The Law on Taxation of Petroleum Companies Operating in the Maldives;
  • Land Sales Tax; and
  • Remittance Tax.
• The Bill contains transitional provisions for the subsumption of the Business Profit Tax Act and the Bank Profit Tax Act by the Income Tax Act.