Understanding the Maldives income tax landscape is crucial for doing business in the country and for prospective investors to tax plan effectively. Here is an overview of the key aspects of the Income Tax Act applicable to businesses.
What is Income Tax?
Income tax is the tax levied on income earned during a financial year by individuals and businesses. It includes specific administrative mechanisms like non-resident withholding tax, capital gains withholding tax and employee withholding tax for taxing income derived by non-residents and employees.
Who Should Pay Income Tax?
Anyone who derives income from the Maldives must pay income tax. This includes residents, temporary residents (foreigners who legally stay in Maldives for 183 days or more, and not married to a Maldivian) and non-residents. Residents are taxed on their worldwide income, while temporary residents and non-residents are taxed only on income sourced from the Maldives. A business entity is considered a resident if:
- a company: if it is incorporated, has its head office, or central management and control in the Maldives.
- a partnership: if it is incorporated in the Maldives or has control and management there.
Taxable Income
Income tax is payable on a person’s total ‘taxable income’ derived within a financial year. Taxable income is the amount of income derived after the deduction of expenses and reliefs allowed under the Income Tax Act.
Income Subject to Income Tax
- Remuneration
- Income derived from any business
- Income derived from the rental of movable or immovable property
- Dividends
- Interest
- Annuities, pensions, and retirement benefits
- Beneficiary income
- Fees for technical services
- Commissions
- Royalty
- Capital gains
- Income or gains of any other kind
Income Exempt from Income Tax
- Dividends received by a resident in the Maldives from a company which is resident in the Maldives
- Profit distributed and interest paid on partner’s capital by a partnership which is resident in the Maldives to its partners who are resident in the Maldives
- Interest income received in respect of a security issued by a company listed on the Maldives Stock Exchange or passive interest up to a maximum of MVR 5,000 in an accounting period
- Taxes imposed under any law (eg: GST, Green Tax)
Special Tax Exemptions and Tax Incentives
- Special exemption granted by the President: under the Income Tax Act, the President has the authority to grant income tax exemption to specific projects and industries. Such exemptions are granted for a certain period depending on factors such as the revenue impact on the state, the degree of attainability of the objectives, and economic and social impact that could result from such an exemption.
- Foreign tax credits: under the Income Tax Act, any person resident in the Maldives who has paid tax in a foreign country can deduct an amount equal to the lesser of the foreign tax paid or tax payable in the Maldives from the net amount of their foreign sourced income.
- Tax incentives under Special Economic Zones Act: this Act grants a developer of a special economic zone exemptions from withholding tax and goods and services tax for the initial 10 years, and import duties on capital goods, amongst other benefits.
Income Tax Rates for Businesses
Businesses, other than banks, must pay income tax at the rate of 15% on taxable income in excess of MVR 500,000. Banks are subject to income tax at the rate of 25% of their taxable income.
Tax on Income Derived by Non-Residents
Non-residents are required to pay tax on income derived from the Maldives. Below is an overview of the income taxes payable on a non-resident’s income derived from business operations/transactions in the Maldives.
Income earned by a non-resident through a Permanent Establishment (PE) in Maldives:
Income tax applies to the income earned by a non-resident through a PE at the tax rate applicable for businesses (refer to the table above). A PE is a fixed place of business through which the business of an enterprise is wholly or partly carried out. This can include a branch, office, factory, workshop, building site and other similar places.
Non-resident withholding tax (NWT):
This is an administrative mechanism for taxing income derived from the Maldives by non-residents. NWT also applies to non-resident entities deriving income from Maldives without a PE. NWT is applied at the rate of 10% on the gross amount of the income received, except for non-resident contractors, who are taxed at the rate of 5%. Types of income subject to NWT are:
- Rent from immovable property in the Maldives
- Royalty
- Interest (other than interest paid or payable to a bank or non-banking financial institution approved by MIRA)
- Dividends
- Fees for technical services
- Commissions paid in respect of services supplied 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
- Insurance premium paid to a non-resident insurer
Capital gains withholding tax (CGWT):
This is an administrative mechanism for taxing income derived by non-residents from certain transactions in the Maldives. CGWT is applied at the rate of 10% on the gross payment received from such transactions. Types of transactions captured by CGWT are:
- Disposal of immovable property situated in the Maldives
- Disposal of a share or any interest in a company, partnership, or trust, where more than 50% of the value is related to immovable property in the Maldives at any time during the past 365 days
- Disposal of a share or any interest in a company, partnership, or trust that is resident in the Maldives
- Disposal of an option or right to buy property specified in any of the above transactions
- Disposal of intellectual or intangible property used or registered in the Maldives or income derived under an agreement made in the Maldives for the disposal of such property
Employee Withholding Tax (EWT)
EWT is an administrative mechanism through which the employer collects income tax payable on remuneration earned by employees, directors and partners. Remuneration subject to EWT includes the total earnings within a month, such as salary, wages, allowances and benefits, after deducting pension contributions.
Employers are required to withhold EWT from the total gross amount of monthly remuneration paid above MVR 60,000 at the following rates and pay it to the Maldives Inland Revenue Authority on behalf of the employee.
- MVR 60,000 to MVR 100,000 at the rate of 5.5%
- MVR 100,000 to MVR 150,000 at the rate of 8%
- MVR 150,000 to MVR 200,000 at the rate of 12%
- More than MVR 200,000 at the rate of 15%
Deductions
- Deductible expenses: businesses can deduct expenses incurred during an accounting period if they are wholly and exclusively incurred for the purpose of generating their total income. Deductible expenses include zakat a-mal (obligatory charity on wealth in Islam), pension contributions, welfare expenses, donations, interest (to the extent permitted by thin capitalization rules under the Act), bad debts and provisions for doubtful debts, head office expenses, capital allowance, expenses incurred prior to commencement of business, and non-resident withholding tax. The Income Tax Act outlines rules regarding how deductions apply to these expenses.
- Special deductions for businesses renting immovable property: businesses that derive rent from immovable property in the Maldives and prepare financial statements on a cash basis can opt to claim a special deduction against their total rental income. These businesses can deduct 20% of the total rental income received during the accounting period as expenditure incurred to derive the rental income.
- Non-deductible expenses: the Income Tax Act outlines the type of expenditures that are not permitted for deductions. Some non-deductible expenses outlined in the Act include domestic or private expenditure, income tax payable in the Maldives or another country, provisions for expenditure or loss, statutory fines or other amounts due for non-compliance, interest paid on a partner’s capital and profit of the partnership distributed to the partners.
Taxable Period
The taxable period for income tax is from 1 January to 31 December.
Deadlines for Filing Tax Returns and Payment, and Currency of Payment
- Income tax: the income tax return and payment are to be made over two interim periods followed by a final filing and payment. First interim payment and first interim return must be made by 31 July of that tax year. Second interim payment and second interim return must be made by 31 January of the immediately following tax year. Final payment and final tax return must be made by 30 June of the immediately following tax year. Income tax return and interim return must be prepared in the taxpayer’s presentation currency (the currency in which financial statements and tax returns are prepared). If the presentation currency is Maldivian Rufiyaa, income tax payment must be made in Maldivian Rufiyaa. If the presentation currency is United States Dollars, tax payment can be made in either Maldivian Rufiyaa or United States Dollars.
- NWT: the NWT return, and payment must be made by the 15th of the month following the month in which the payment was made to the non-resident. NWT payments can only be made in Maldivian Rufiyaa.
- CGWT: the CGWT return, and payment must be made on the earlier of the date the withholding agent becomes the owner of any asset or the date the payment related to the transaction is made. CGWT payments can only be made in Maldivian Rufiyaa.
- EWT: the EWT return, and payment must be made by the 15th day of each month. EWT payments can only be made in Maldivian Rufiyaa.