MALDIVES: An Introduction to General Business Law

Introduction

Maldives, an Indian Ocean archipelago, is a country with a rich and complex history encompassing political, legislative and judicial dimensions of significant importance. The nation operates under a presidential system with a multiparty democracy. Its legal framework follows the English adversarial model, with judicial precedents guiding legal decisions. Parliament enacts laws heavily influenced by English principles, as evidenced by the Law of Contract 1991, Mortgages Law 1993 and Companies Act 2023.

Business Overview

Maldives offers a favourable commercial environment for international investors, characterised by an open trade climate, a robust private business sector, a contemporary tax system and effective legal protections for foreign investments.

Foreign business entities can be registered in Maldives via three avenues under the standard regulations outlined in the Foreign Investment Act. The options include establishing a new foreign investment company with complete foreign ownership, transferring registration of a foreign-incorporated company to Maldives and purchasing shares from a company locally incorporated in Maldives.

The Maldives-China Free Trade Agreement, Maldives’ first bilateral free trade agreement – which recently came into effect, on 1 January 2025 – aims to boost trade in Maldives to USD1 billion by exempting import duties on China’s industrial exports to Maldives, whilst Maldives aquatic exports to China will benefit from zero tariffs.

Hospitality

An interested investor has the option to acquire a tourism lease in Maldives through various means, including the transfer of an existing lease or the transfer of shares in a resort lease-holding entity. Potential investors can also obtain tourism leases via subleases, hotel management agreements or mortgage grants, subject to approval from the Ministry of Tourism.

Interested parties can lease a tourist island, land or lagoon from the Ministry of Tourism in Maldives through a public bidding process or by submitting a favourable technical and financial proposal for listed islands. Most tourist resorts in Maldives are located on undeveloped greenfield islands leased by the Ministry of Tourism, adhering to the “one island-one resort” principle.

Banking and finance

A significant number of projects in Maldives, particularly those in infrastructure and hospitality development, are financed by international lenders. Notably, foreign banks, including those from China (such as the Export-Import Bank of China and the Industrial Commercial Bank of China) have been engaged for notable projects such as the redevelopment of Velana International Airport and the construction of the Male’-Hulhumale’ link bridge.

German banks, such as Aareal Bank AG, have made substantial contributions to financing asset acquisitions within the Maldivian hospitality sector. Additionally, numerous banks from the United Kingdom, the Middle East, Singapore, Hong Kong and Australia – many of which we have represented – play a pivotal global role in lending for resort and hotel development projects in Maldives.

Maldives provides a favourable environment for offshore lending, as neither offshore lenders nor borrowers are required to obtain approvals from Maldivian authorities, including the central bank, to grant or secure offshore financing for various projects in the country. An additional factor promoting offshore lending is the provision and enforcement of securities in favour of offshore entities, which ensures that offshore lenders are afforded the same legal standing as their onshore counterparts.

Significant improvements in the Maldivian law regarding banking and finance can be seen, where the country recently introduced the Foreign Currency Act (December 2024), establishing guidelines for managing foreign currency transactions in Maldives and regulating currency exchange practices, such as requiring Maldives businesses to exchange a portion of foreign currency earnings from realised sales proceeds through Maldives banks.

Construction and infrastructure

Construction and infrastructure projects in Maldives, such as hotel and airport developments, are awarded through a bidding process in which foreign companies can participate when announced by the Maldivian government.

Generally, project agreements follow International Federation of Consulting Engineers (FIDIC)-based contracts and require extensive regulatory approvals, registrations, and collaboration with government authorities for effective project management. These projects are typically financed by offshore lenders, including development banks such as the Asian Development Bank, the International Finance Corporation or private financial institutions like HSBC and Chinese-owned banks.

Taxation

Maldives maintains a streamlined tax framework comprising direct and indirect taxes such as income tax, green tax, corporate tax and goods and services tax.

Nonetheless, recent changes to taxation laws in Maldives have been made due to a dollar shortage in the country. Thus, the Fifth Amendment to Income Tax Regulation (2024/R-84) mandates US dollar payments for taxpayers using non-Rufiyaa currencies for:

• corporate/personal income tax (except 2024, first interim);
• employee withholding tax (from October 2024);
• non-resident withholding tax (from October 2024); and
• capital gains withholding tax (from 31 October 2024).

Additionally, The Maldivian Parliament has recently approved a bill proposing amendments to several key financial acts, including the Goods and Services Tax Act (10/2011), the Airport Taxes and Fees Act (29/2016) and the Tourism Act (2/99), which focuses on raising the amount of tax charged. For instance, the tourism goods and services tax rate is increased from 16% to 17%, effective from 1 July 2025.

Maldives signed the Maldives-UAE Double Tax Avoidance Agreement with the UAE, which establishes rules for determining tax liability for individuals and entities operating in both countries. Additionally, Maldives is also a part of a specific multilateral agreement within the South Asian Association for Regional Cooperation (SAARC) that focuses on preventing double taxation and providing mutual assistance in tax matters.

Dispute resolution

Dispute resolution in Maldives adopts a multifaceted framework that encompasses both judicial proceedings and alternative mechanisms, such as arbitration.

The 2008 Constitution of Maldives restructured the judicial system, establishing the Supreme Court as the highest appellate authority, supported by the High Court as the principal court of appeal. Alongside the traditional judiciary, various specialised institutions address conflicts involving private entities as well as disputes between government bodies and private parties. Prominent among these are the Employment Tribunal, the Tax Appeal Tribunal and Maldives International Arbitration Centre, each playing a pivotal role in the resolution of specific categories of disputes.

In our experience of representing numerous foreign investors in Maldives, there is a discernible preference for foreign-seated arbitration as a means of securing a neutral forum for dispute resolution. Additionally, following Maldives’ accession to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) in 2019, foreign arbitral awards can now be recognised and enforced within the jurisdiction. This development facilitates the enforcement of awards from leading international arbitration institutions, such as the London Court of International Arbitration (LCIA) and the Singapore International Arbitration Centre (SIAC).

Conclusion

Maldives combines tourism appeal with robust international business co-operation, supported by a progressive legal framework and an English-influenced system.