Transparency of the Regulatory System
Legislation is formulated by the parliament, People’s Majlis, while regulations pertaining to investment are developed by ministries and agencies, mainly by the Ministry of Economic Development. Regulations relevant to the tourism sector are developed by the Ministry of Tourism. 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. The central bank, Maldives Monetary Authority, regulates the financial sector and issues banking licenses. The Capital Market Development Authority develops regulations for the capital market and pension industry and licenses securities market intermediaries. Parliament does not regularly make draft bills and regulations available for public comments.
The government initiated a new public accounting system in 2009, which had been partially implemented as of April 2018. A new Public Finance Law and an Audit Law came into force in 2006-2007 and the Maldives Financial Transactions Reporting regulation came into effect in July 2011. The Maldives became a member of the Asia/Pacific Group on Money Laundering in July 2008 and ratified the Anti-Money Laundering and Combatting Terrorism Financing Law in April 2014, which introduced rules governing financial transactions and the inflow and outflow of money from Maldives.
The Financial Intelligence Unit, which resides in the Maldives Monetary Authority, is understaffed and lacks the expertise necessary to adequately combat money laundering and terrorist financing. A February 2016 special audit of the government-owned Maldives Marketing and Public Relations Corporation (MMPRC) by the auditor general revealed the embezzlement (through checks deposited into private bank accounts) of USD79 million in resort lease acquisition fees. The audit found the Maldives Monetary Authority’s inaction facilitated the embezzlement.
The Companies Act requires all companies to prepare and report annual financial statements. Public companies whose share capital is more than USD65,000 are required to prepare an additional annual audit report. The Registrar of Companies is responsible for making these reports publicly available but seldom does so in a timely manner. All companies listed on the Maldives Stock Exchange are required to submit their annual financial statements to the Capital market Development Authority, which publishes the statements on its website.
The website of the Attorney General’s Office (www.mvlaw.gov.mv ) publishes the full text of all existing laws and regulations, but most of the documents are in the Dhivehi language. The Attorney General’s Office is establishing an English language database of laws and court judgements.
International Regulatory Considerations
Trade and investment related legislation and regulation are influenced by common law principles from the United Kingdom and other western jurisdictions. The judiciary has cited foreign case law from jurisdictions from the United Kingdom, the United States and Australia when interpreting local trade-related statues. The Maldives is not a signatory to the WTO Trade Facilitation Agreement.
Legal System and Judicial Independence
The sources of law in Maldives are its constitution, Islamic Sharia law, regulations, presidential decrees, international law, and English common law, with the latter being most influential in commercial matters. The Maldives has a Contract Law (Law No. 4/91) that codifies English common law practices on contracts. The Civil Court is specialized to hear commercial cases. The Employment Tribunal is mandated to hear claims of unfair labor practices. A bill proposing the establishment of a Mercantile Court is pending in parliament since 2013. The Judicial Services Commission is responsible for nominating, dismissing, and examining the conduct of all judges. The attorney general acts as the legal advisor to the government and represents the government in all courts except on criminal proceedings, which are represented by the prosecutor general.
Lack of Judicial Independence, Qualification and Training
A Supreme Court was established for the first time in 2008 under the new Maldives Constitution. The Supreme Court is the highest judicial authority in Maldives. In addition to the Supreme Court, there are six courts: a high court, civil court, criminal court, family court, juvenile court, and a drug court. There are approximately 200 magistrate courts, one in each inhabited island. The Supreme Court and the High Court serve as courts of appeal. There are no jury trials. The judicial process is slow. In August 2010, the Judicial Services Commission reappointed – and confirmed for life – 191 of the 200 existing judges. Many of these judges held only a certificate in Sharia law, not a law degree. The Maldivian judiciary is not independent and impartial and is subject to executive influence. The United Nations Office of the High Commissioner for Human Rights in 2015 stated the judicial system is perceived as politicized inadequate and subject to external influence. An estimated quarter of the judges have criminal records. The media, human rights organizations and civil society have repeatedly criticized the Judicial Services Commission for appointing unqualified judges.
Laws and Regulations on Foreign Direct Investment
Foreign parties can invest in Maldives through the Foreign Investment Law or the Special Economic Zones (SEZ) Act. Details are available on the Ministry of Economic Development’s Doing Business in the Maldives Guide: http://mif.mv/manage/xpdf/dbg-2017-web.pdf
Foreign investment in Maldives is governed by Law No. 25/79, covering agreements between the government and investors. The Business Registration Act (18/2014) requires foreign businesses to register as a company or partnership. 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 the option to renew.
The Special Economic Zones (SEZ) Act of 2014 provides for the creation and management of special economic zones in Maldives and investments in those zones. The minimum investment for an SEZ project is at USD150 million and the application fee is USD25,000.
The Business Profit Tax Act (No. 5/11) governs taxation. All investments – local and foreign - are required to pay 15 percent of profits as a business profit tax. Maldives currently does not have personal income taxes. In addition, there is a goods and services tax on the tourism sector and a general services tax on all goods and services.
Competition and Anti-Trust Laws
Maldives does not have a competition law and there is no legal mechanism to review transactions for competition-related concerns.
Expropriation and Compensation
According to the Law on Foreign Investment (No. 25/79), the government may, with or without notice, suspend an investment when an investor indulges in an act detrimental to the security of the country or where temporary closure is necessary for national security. If, after due investigation, it cannot be concluded within 60 days of the temporary closure that the foreign investor had indulged in an activity detrimental to the security of Maldives, the government will pay compensation. Capital belonging to an investment that is closed for these reasons may be taken out of the country in a mutually agreed manner.
Both the previous government and the current government cancelled or re-opened provisions of foreign development agreements approved by previous governments, raising concerns about contract enforcement. In December 2012, the Maldivian government took over operation of the Malé International Airport from GMR Infrastructure Limited, an Indian company, after the Maldivian government repudiated the 2012 contract. While the government has agreed to pay GMR Infrastructure Limited damages, the amount and timing of the payments remain in dispute. Many Maldivian businesspeople consider the action tantamount to expropriation.
ICSID Convention and New York Convention
Maldives is not a Party to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States and is not a Contracting State under the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards, although the Attorney General’s Office is drafting policies required to become a party to both conventions.
Investor-State Dispute Settlement
Maldives does not have a Bilateral Investment Treaty (BIT) or Free Trade Agreement (FTA) with the United States. An Arbitration Act was passed in 2013 and provides for implementation of international arbitral awards. However, the judgments of foreign courts cannot directly be enforced through the courts. Judgments of foreign courts must be submitted to domestic courts, which then make a separate judgment.
An example of an ongoing dispute is the government’s termination of a 2010 35-year concession agreement with Global Project Developments (GPD), a subsidiary of the U.K. company Capital Investment and Finances Limited, in 2015. GPD claims the government failed to honor terms of the agreement and has publicly challenged the validity of the termination.
International Commercial Arbitration and Foreign Courts
An Arbitration Act was passed in 2013 and provides for implementation of international arbitral awards. However, the judgments of foreign courts cannot directly be enforced through the courts. Judgments of foreign courts have to be submitted as a fresh action and established as a judgment by the local courts that may then be enforced. Dispute resolution for significant investments can take years and it can be a challenge to collect payment for any damages from the government or from Maldivian companies. The Maldivian judicial system is subject to significant political pressure.
Maldives does not have a bankruptcy law although corporate insolvencies are dealt with under the Companies Act. Debtors and creditors may file for liquidation. There is no priority assigned to creditors and there is very limited legal framework to protect creditors following commencement of insolvency.