Attitude toward Foreign Direct Investment
Maldives began opening up to foreign investment in the late 1980s and currently pursues an open policy for foreign investments, although the weak and in some cases arcane system of laws and regulations discourage investment.
Foreign investments in Maldives have primarily involved resort management, but also include telecommunications, accounting, banking, insurance, air transport, courier services, and some manufacturing. In October 2015, the government of Maldives held the second annual investor forum in Beijing, China and invited foreign investors to invest in the Maldivian banking and financial sector, renewable energy, real estate, logistics, transport, healthcare, education, and construction. In 2014, the government enacted a Special Economic Zones law to facilitate foreign investment projects of strategic significance.
There are no country specific restrictions on foreign investment and Maldives allows foreign investment in all major sectors apart from the following areas, which are restricted for locals only:
i) Wholesaling of goods
ii) Photography and related activities
iii) Souvenir trading and related business (wholesale and retail trade)
iv) Inter-island passenger transfer services by sea (Foreign investors can engage in this area with 51 percent local shareholding.)
v) Water sports and related activities (Foreign investors can engage in this area with 51 percent local shareholding)
vi) Operation of bonded warehouses in the customs area.
vii) Fishing within the Exclusive Economic Zone (EEZ) of Maldives
viii) Purchasing, processing and export of Skipjack Tuna
Other Investment Policy Reviews
The most recent World Trade Organization trade policy review was conducted in March 2016: https://www.wto.org/english/tratop_e/tpr_e/tp432_e.htm . In the past three years, the government of Maldives has not conducted any trade policy reviews through any other international organizations.
Laws/Regulations of Foreign Direct Investment
There are two regimes under which a foreign party can invest in the Maldives: 1) through the normal regime governed under the Foreign Investment Law; and 2) the Special Economic Zones regime governed by the Special Economic Zones (SEZ) Act. The Ministry of Economic Development published a Doing Business in the Maldives Guide in 2015 which contains details: http://www.trade.gov.mv/dms/161/1453198480.pdf
The Ministry of Economic Development (www.trade.gov.mv) is tasked with promoting and regulating foreign investments in all sectors, except for the tourism sector and special economic zones. The Ministry of Tourism (www.tourism.gov.mv) is in charge of setting policy and developing the tourism sector, while the Maldives Marketing and Public Relations Corporation (www.visitmaldives.com) promotes Maldives as a destination. The Ministry of Economic Development reviews all proposed investments prior to granting registration. Certain business sectors require sector level operating licenses from other ministries/agencies, including fisheries and agriculture, banking and finance, health, tourism, transport, construction, and education. Foreign investments within the tourism sector – such as resorts – are registered with the Ministry of Tourism. Banking licenses are issued by the Maldives Monetary Authority, and governed under the Banking Act (No. 24/2010), while the tourism sector falls under the Tourism Act (No. 2/99).
Foreign investment in Maldives is governed by Law No. 25/79, covering agreements between the government and investors. A separate law (No. 4/79) governs business and trading activities by foreign nationals, while the Business Profit Tax Act (No. 5/11) governs taxation. The Business Registration Act (18/2014) requires every person conducting business in Maldives to register the business as a company, partnership, cooperative society or sole proprietor (the latter two are restricted to Maldivians only). The Companies Act (10/96) governs the registration as well as the regulatory and operational requirements for public and private companies. The Partnership Act of 2011 governs the formation and regulation of partnerships. Foreign investments are currently approved for an initial period of five years with an option to renew.
The Ministry of Economic Development offers one-stop services to investors. Incentives include import duty concessions, 100 percent foreign ownership (other than the restricted sectors listed above), and no restrictions on repatriation of earnings or profits. All investors – local and foreign – are required to pay 15 percent of profits in accordance with the Business Profit Tax, effective since July 2011. Maldives currently does not have personal income taxes. In addition, a Goods and Services Tax (GST) on the tourism sector and a general GST on all goods and services supplied in Maldives came into effect in 2011. The tourism GST rose to 12 percent from November 2014 onwards, whereas the general GST has remained at six percent since its imposition in 2011. International arbitration is available for dispute settlement.
The Special Economic Zones (SEZ) Act of 2014 aims to facilitate strategic development projects needed for the country, and was designed by the government to achieve its economic development agenda. The Act provides for the creation and management of special economic zones in Maldives and investments in those zones, with incentives granted to the developers and investors operating in the zones. The minimum investment for a SEZ project stands at USD 150 million and the application fee is USD 25,000. Investors are also required to provide a USD 1 million bank guarantee. The SEZ board has the powers to freeze potential investors’ local assets if the permit is terminated and the investor has any outstanding debt.
A July 2015 amendment removed the constitutional restriction on foreign freehold land ownership. Foreign parties willing to invest USD 1 billion in connection with large scale development projects can now own land in Maldives, provided 70 percent of the land is reclaimed.
The Maldivian judiciary is not completely independent and impartial and is subject to executive branch influence. There are numerous allegations of judicial impropriety and abuse of power. The Office of the High Commissioner for Human Rights in 2015 stated the judicial system was perceived as politicized, inadequate, and subject to external influence. Many judges, appointed for life, hold only a certificate in Sharia law, not a law degree from an institution of higher education. An estimated quarter of the judges have criminal records, according to the Department of State’s Human Rights Report on Maldives of 2014. The media, human rights organizations, and NGOs have repeatedly criticized the Judicial Service Commission for appointing unqualified judges.
Industrial Promotion
Maldives plans to develop special economic zones to promote off-port shipping services, the information technology (IT) sector, and financial services, with the passage of the SEZ Act (2014).
In addition, the following industries offer potential for foreign investors:
Tourism
Transportation and shipping
Renewable energy
Since 2014, the government of Maldives has held annual Investment Forums to showcase priority investment areas of the government and private sector. Information is also disseminated through the website of the Ministry of Economic Development (www.trade.gov.mv) and through public announcements calling for expressions of interest for specific projects.
Limits on Foreign Control
Maldives allows foreign parties to register companies and partnerships but does not allow foreign parties to register cooperative societies or as a sole proprietor. Foreign investment is allowed in all major sectors of the economy apart from the following areas, which are restricted for locals only:
i) Wholesaling of goods
ii) Photography and related activities
iii) Souvenir trading and related business ( wholesale and retail trade)
iv) Inter-island passenger transfer services by sea (Foreign investors can engage in this areas with 51 percent local shareholding.)
v) Water sports and related activities (Foreign investors can engage in this area with 51 percent local shareholding)
vi) Operation of bonded warehouses in the customs area.
vii) Fishing within the Exclusive Economic Zone (EEZ) of Maldives
viii) Purchasing, processing and export of Skipjack Tuna
There is little private ownership of land. Citizens can hold title to land. A prohibition on foreign ownership of any land ended in July 2015 when Parliament passed and the president ratified a constitutional amendment allowing foreigners who invest at least USD 1 billion to own land and islands, provided at least 70 percent of the land is reclaimed. Until the constitutional amendment, there were no property and real estate laws or a mechanism to allow foreign persons to hold title to land. As a result, Maldives ranked 169 on the ease of registering property in the World Bank’s 2015 Ease of Doing Business Report.
An amendment to the Tourism Act passed in 2010 allows investors to lease an island for 50 years in general. In April 2014, Parliament approved a law to allow the extension of resort leases up to 99 years for a payment of USD 5 million. The changes aim to incentivize investors, make it easier to obtain financing from international institutions, and increase revenue for the government. Leases can be renewed at the end of their terms, but the formula for assessing compensation value of a resort at the end of a lease has not yet been developed. All other land may be leased for maximum periods ranging from 10 to 15 years, depending on the purpose for which the land was initially allocated.
Privatization Program
A new Privatization Act was introduced in January 2013, and governs all privatization and corporatization efforts by the government. A Privatization and Corporatization Board has been established under the Act, tasked with planning, implementing, administering and monitoring the government’s privatization and corporatization efforts. However, there are no privatization programs being implemented at present.
Screening of FDI
The Ministry of Economic Development screens and internally reviews all foreign investment proposals. The process includes standard due diligence efforts such as a local police screening of all investors, determining the financial standing of the proposed shareholders through a bank reference, as well as performing a background check on the investors involved. The opinions of the related sector participants are also sought. Each case is reviewed based on its merits and other factors, including the number of existing investors in the area, and the employment and technology transfer potential demonstrated. The Ministry of Economic Development makes the final decision. This has been a fairly transparent process to date.
Below is a step-by-step procedure of approval of foreign investments:
Step 1: File Foreign Investment Application form with the Ministry of Economic Development
Maldives does not have a competition law and there is currently no legal mechanism to review transactions for competition-related complaints.
The Ministry of Economic Development encourages investment projects that: (1) establish and enhance the delivery of basic services required to be provided by the State; (2) promote economic diversification and demonstrate potential to structurally reduce the country’s current dependence on the tourism sector; (3) expand the export base of the economy and support import substitution; (4) enhance the human capital development and employment opportunities for Maldivians on a significant scale; (5) promote innovative product development and new markets for the tourism sector; (6) bring enhanced improvements to the health and education sectors in terms of service delivery, quality, and accessibility; (7) expand and develop sports infrastructure and services in Maldives; (8) promote the use of renewable energy in Maldives; and (9) promote incremental social and economic benefits from the available natural resources.