On 5 November 2024, important changes were made to the Tourism Goods and Services Tax (TGST), resulting in higher tax rates for businesses in the tourism sector. Businesses in the tourism sector therefore should charge 16% TGST on applicable goods and services until 30^th June 2025, and 17% TGST from 1^st July 2025 onwards to comply with this latest amendment.

Key Changes for Staff Cafés in Tourist Establishments

One key change in the latest amendment is about staff cafés in tourist establishments. The amendment extends the exemption previously granted to staff shops, allowing staff cafés that exclusively serve employees to charge GST at the General Sector rate.

On 25^th November 2025, the Maldives Inland Revenue Authority (MIRA) introduced further details to this rule with the 31^st Amendment for the GST Regulation, outlining the following requirements:

Separate Registration:

• Staff Cafés and Staff Shops must now be registered as separate taxable activities under the General Sector, distinct from other tourism sector taxable activities.
• If both the Staff Shop and Staff Café are operated by the same person or entity, these activities should be registered together.

Internal Transfers:

Additionally, if the staff Café or Staff Shop is operated by the same person/entity as the tourist establishment, any transaction between the establishment with the Staff Café or the Staff Shop are considered as internal transfer. Hence, no output tax is required to be charged on these transactions.

Anti-Avoidance Measures

To prevent misuse of these exemptions, MIRA has introduced an Anti-Avoidance Rule. If it is determined that Staff Cafés or Staff Shops are being used to avoid paying the correct tax rate (16% until 30^th June 2025, or 17% from 1^st July 2025), those transactions will be taxed at the standard rate (16% until 30^th June 2025, or 17% from 1^st July 2025), even if they were previously treated under the General Sector rate (8%).

Our comments

Tourism establishments and operators of Staff Cafés or Staff Shops must ensure compliance with these new regulations by:

1. Maintaining clear records to substantiate the nature of transactions and avoid penalties under the Anti-Avoidance Rule.
2. Ensuring that tax rates are applied accurately to all applicable goods and services.

By adhering to these updated guidelines, businesses can effectively align with the revised tax framework and avoid potential disputes or penalties with MIRA. For further assistance in relation to such matters please feel free to consult with us.