12. The Maldives: A Fledgling International Tax Jurisdiction

Individual residents of the Maldives are taxed on business profits on a territorial basis. Resident partnerships and corporations are taxed on worldwide income, but the tax rate is quite modest (a flat rate of 15 % or 0 % in some cases). A special regime for Maldivian offshore financial services centers (deriving all income outside the Maldives) taxes income at a flat rate of 5 % (or 0 % in some cases). In order to attract economic activity to the Maldives, the country permits an investor to enter into an agreement that confers exemption from the business profits tax.

In the Maldives, resident individuals are taxed on a territorial basis, while resident partnerships and corporations are taxed on a worldwide basis. Individuals are taxed only on business profits arising from carrying on business in the Maldives. Corporations and partnerships are taxed on all income wherever it is derived and allowed a credit against Maldivian income tax liability for foreign taxes paid. The Business Profit Tax (BPT) is imposed at a flat rate of 15 % (or 0 % on low amounts of profits). Under a special regime, Maldivian offshore financial services centers (which derive income from business outside the Maldives or from certain financial instruments, loans, royalties, or real property outside the Maldives) are taxed a flat rate of 5 % (or 0 % on low amounts of profits).

A company not resident in the Maldives is subject to BPT (at the above rates) on profits attributable to any business carried on in the Maldives that are attributable to a permanent establishment located there. Non-corporate nonresidents are taxable on profits derived from carrying on a business in the Maldives, whether or not though a permanent establishment (e.g., a non-resident auditor that visits a client in the Maldives to perform work), on rents from buildings leased in the Maldives, and on royalties and management fees paid by a resident of the Maldives or through a permanent establishment in the Maldives.

Maldives has no participation exemption. Dividends paid by resident companies to non-residents are not generally subject to BPT. Where the recipient is subject to BPT, the BPT is deducted in computing taxable profits.

Although the Maldives, formerly a tax haven, does not participate in the OECD’s Global Tax Forum, its regime has emerged as one that conforms to internationally accepted standards of taxation.

The Maldives is party to the South Asian Association for Regional Cooperation (SAARC) Limited Multilateral Agreement on Avoidance of Double Taxation and Mutual Administrative Assistance in Tax Matters. This agreement permits information exchange, including exchange of information relating to tax havens or harmful tax regimes if it does not violate internal law or exceed normal administrative mechanisms. The Maldives has concluded its first Tax Information Exchange Agreement (TIEA with India) and expects to conclude future agreements.

In order to attract economic activity to the Maldives, an investor may enter into an agreement under the Law on Foreign Investments that confers an exemption from BPT. These agreements are intended to support investments of importance to the economy, whether to support tourism or non-tourism. Agreements are concluded with foreign governments to facilitate economic and social development. In addition, investment in Special Economic Zones offers tax concessions providing exemptions from BPT as well as temporary exemptions from goods and services tax (GST) and withholding tax.

The Madives is a party to a number of trade and investment agreements.