The Maldives Inland Revenue Authority (MIRA) has published an English-language version of the new Income Tax Act (Act 25/2019), which was approved in December 2019. The Act covers all aspects of income tax for individuals, banks, and persons other than individuals or banks.
As previously reported, the Act includes the introduction of an income tax on individuals as follows based on annual income:
- up to MVR 720,000 - 0%
- over MVR 720,000 up to 1,200,000 - 5.5%
- over MVR 1,200,000 up to 1,800,000 - 8%
- over MVR 1,800,000 up to 2,400,000 - 12%
- over MVR 2,400,000 - 15%
The previous remittance tax on employment income (3%) is repealed by the Act.
The Act also maintains an income tax rate of 25% for banks and the income tax rates for persons other than an individual or bank as follows:
- up to MVR 500,000 - 0%
- over MVR 500,000 - 15%
Where a company is a member of a group, the MVR 500,000 threshold is divided between the group companies liable to tax and the resulting amount is used as the threshold.
For the determination of income:
- the total income of a person resident in the Maldives shall consist of income derived from the Maldives and income derived outside the Maldives; and
- the total income of a person not resident in the Maldives shall consist of income derived from the Maldives.
With respect to business income of non-residents in particular, the Act provides that income derived from the Maldives includes:
- income derived from a business carried out through the non-resident’s permanent establishment in the Maldives;
- income derived from the sale of goods or merchandise through a permanent establishment of the non-resident in the Maldives, and sale of goods and merchandise of the same or similar kind as those sold through that permanent establishment; and
- income from business activities of the same or similar kind as those effected through the permanent establishment of the non-resident in the Maldives.
The Income Tax Act also includes expanded provisions for non-resident withholding tax, which includes that where a person that carries on any business in the Maldives makes any payment of the following kinds to a person who is not resident in the Maldives, the person shall deduct non-resident withholding tax from the gross amount of the payment at the rate of 10% of the gross amount of the payment:
- Rent in relation to immovable property situated in the Maldives;
- Interest (other than interest paid or payable to a bank or non-banking financial institution approved by MIRA);
- Fees for technical services;
- Commissions paid in respect of services provided 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; and
- Insurance premium paid to a non-resident insurer.
Tax must also be withheld on payments for reinsurance premium to a reinsurer that is not a resident in the Maldives, but the rate is 3%.
A person liable to deduct withholding tax must submit a tax return to MIRA for each month and pay to MIRA the amount of withholding tax calculated.
The Income Tax Act includes several anti-avoidance rules that amend and expand upon prior rules. These include:
- A general anti-avoidance rule, which provides that where the Commissioner General has reasonable grounds to believe that one of the purposes of any arrangement or transaction entered into in any accounting period was the avoidance of tax or obtaining of a reduction in tax liability, the Commissioner General may void such an arrangement, whether by issuing an assessment or otherwise;
- Transfer pricing rules, including that every person liable to income tax under the Act, shall prepare and maintain transfer pricing documentation (with an exemption for SMEs and in respect of exempt income) in respect of transactions and arrangements entered into with associates by the due date for the submission of the tax return, which must include:
- details of the commercial and financial relations between the two parties involved;
- the terms and conditions made or imposed between the two parties involved in respect of the transaction or arrangement;
- an explanation as to why the terms are concluded as at arm’s length; and
- any other information as may be prescribed through regulation;
- Controlled foreign entity rules that apply when a company, partnership, trust or other entity that is not a resident of the Maldives is controlled by 5 or fewer residents of the Maldives; and
- Thin cap rules, which maintain the 30% of EBITDA interest deduction restriction, with excess interest expense allowed to be carried forward for up to 10 years.
Taxation under the Income Tax Act commences on 1 January 2020, except for the taxation of remuneration (employment income), which commences on 1 April 2020.
New Income Tax Regulations have also been published but are currently only available in the Dhivehi language. An English-language version is expected and should be made available on the MIRA legislation web page.