The Republic of Maldives comprises 1,190 islands in 20 atolls spread over 348 square miles in the Indian Ocean. Tourism is the main source of economic activity for Maldives, contributing 28 percent of GDP and generating more than 60 percent of foreign currency earnings. The tourism sector has experienced impressive growth over the past 10 years, growing from 655,852 arrivals in 2009 to 1.7 million in 2019. Tourism will likely continue to drive the economy, however, following the COVID-19 outbreak, the government plans to introduce measures to diversify the economy, with a focus on the fisheries and agricultural sectors.
GDP growth averaged six percent during the past decade and has helped lift Maldives to middle-income country status. Per capita GDP is estimated at USD 11,890, the highest in South Asia. Income inequalities and the availability of jobs remain a major concern for Maldivians, especially those in isolated atolls. Following the COVID-19 outbreak, the Government revised its forecast GDP growth of 7.5 percent for 2020 to decrease to between 0.5 percent and -5.6 percent.
Maldives is a multi-party constitutional democracy, but the transition from long-time autocracy to democracy has been challenging. Maldives’ Parliament ratified a new constitution in 2008 that provided for the first multi-party presidential elections. In 2018, Ibrahim Mohamed Solih of the Maldivian Democratic Party was elected president, running on a platform of economic and political reforms and transparency, following former President Abdulla Yameen whose term in office was marked by corruption, systemic limitations on the independence of parliament and the judiciary, and restrictions on freedom of speech, press, and association. The MDP also won a super majority (65 out of 87) seats in parliamentary elections in April 2019, the first single-party majority in Maldives since 2008. President Solih pledged to restore democratic institutions and the freedom of the press, re-establish the justice system, and protect fundamental rights.
Corruption across all sectors, including tourism, was a significant issue under the previous governments. Concerns have significantly increased about a small number of violent Maldivian extremists who advocate for attacks against secular Maldivians and are involved with transnational terrorist groups.
Large scale infrastructure construction in the past five years contributed to economic growth but has resulted in a significant rise in debt. The Maldives’ debt-to-GDP ratio increased from 58.5 percent in 2018 to an estimated 61.8 percent in 2019 according to the World Bank (WB). In June 2019, the International Monetary Fund (IMF) recommended Maldives adopt a measured tightening of policies to safeguard macroeconomic and external stability.
Maldives welcomes foreign investment, although the ambiguity of codified law and competition from politically influential local businesses act as deterrents. U.S. investment in Maldives is limited and focuses on the tourism sector, particularly hotel franchising and air transportation.
|TI Corruption Perceptions Index||2019||130 of 198||http://www.transparency.org/
|World Bank’s Doing Business Report||2019||147 of 190||http://www.doingbusiness.org/en/rankings|
|Global Innovation Index||2019||N/A||https://www.globalinnovationindex.org/
|U.S. FDI in partner country ($M USD, historical stock positions)||2018||N/A||http://apps.bea.gov/international/factsheet/|
|World Bank GNI per capita||2018||$9,280||http://data.worldbank.org/
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
Maldives opened 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 deter some investment.
Foreign investments in Maldives have primarily involved resort management, but also include telecommunications, accounting, banking, insurance, air transport, real estate, courier services, and some manufacturing.
The former administration began holding an annual investor forum in 2014 to showcase priority public and private sector investment projects, but the new government has not committed to hosting the annual forum.
Invest Maldives, an organization within the Ministry of Economic Development, is the government’s investment promotion arm. Services provided by Invest Maldives include promoting Maldives as an investment destination, providing information to potential investors about the Maldives, guidance on investment approval and business registration, and facilitating the licensing of business. As of June 2020, the Invest Maldives website was not functional.
Limits on Foreign Control and Right to Private Ownership and Establishment
Maldives allows foreign parties to register companies and partnerships but does not allow foreign parties to register cooperative societies or as a sole proprietor. Under a new Foreign Direct Investment policy established in February 2020, foreign investment is allowed in all major sectors of the economy apart from the following areas, which are restricted for locals only:
- Mining of sand
- Other mining and quarrying
- Manufacture of tobacco products
- Manufacture of wood and of products of wood and cork except furniture
- Manufacture of rubber and plastics products
- Manufacture of handicrafts and souvenirs
- Retail trade
- Wholesale trade in sectors except construction materials
- Land transport services and transport via pipelines
- Postal and courier activities
- Logistics activities (in transportation and storage)
- Operating picnic islands
- Food and beverage service activities (including café, restaurants, bakeries and other eateries)
- Programming and broadcasting activities
- Legal activities (law firms etc.)
- Photography and videography
- Rental and leasing activities (including lease of heavy-duty machineries etc.)
- Employment activities such as employment agencies and recruitment services
- Travel agency, tour operator, reservation service and related activities
- Services to building and landscape activities
- Public administration and defense; compulsory social security
- Clinics except physiotherapy clinics
- Repair of computers and personal and household goods
The following sectors are open for foreign investment with a cap on equity ownership:
- Manufacture of fish products (75 percent)
- Manufacture of agricultural products (75 percent)
- Printing and reproduction of recorded media (49 percent)
- Manufacture of furniture (75 percent)
- Repair and installation of machinery and equipment (75 percent)
- Installation of equipment that forms an integral part of buildings or similar structures, such as installation of escalators and elevators (40 percent)
- Construction of buildings (65 percent)
- Civil engineering (65 percent)
- Wholesale trade of construction materials (75 percent)
- Franchising in international airports and approved locations (including products & services) (75 percent)
- Sea transport services (including ownership of vessels) (49 percent)
- Air transport services (including freight services) (75 percent)
- Warehousing and support activities for transportation (75 percent)
- Guest houses in approved locations (inclusive of all services) (49 percent)
- Real estate activities (65 percent)
- Accounting activities (75 percent)
- Architecture and engineering activities; technical testing and analysis (75 percent)
- Advertising (60 percent)
- Other professional, scientific and technical activities (75 percent)
- Veterinary services (75 percent)
- Security and investigation activities (75 percent)
- Office administrative, office support and other business support activities (75 percent)
- Universities and colleges (75 percent)
- Private schools (75 percent)
- Computer training institutions (75 percent)
- Vocational and technical educational institutes (75 percent)
- Sports and recreation education (75 percent)
- Engineering schools (training and conduction of courses related to aircraft engineering) (75 percent)
- Educational support activities (75 percent)
- Residential care services (75 percent)
- Social work activities without accommodation (75 percent)
- Physiotherapy clinics (75 percent)
- Creative, arts and entertainment activities (excluding live music bands and DJs) (75 percent)
- Libraries, archives, museums and other cultural activities (75 percent)
- Sports activities and amusement and recreation activities (75 percent)
- Water sports activities (49 percent)
- Dive centers and dive schools (75 percent)
The following conditions are applied to foreign investments in the construction sector, as per the foreign contractor regulation:
- Construction companies valued below USD 5,000,000 are required to be at least 35 percent Maldivian owned.
- Construction companies valued above USD 5,000,000 may be 100 percent foreign owned.
There is little private ownership of land; most land is leased from the government, but Maldivians are permitted to hold title to land. In August 2019, Parliament repealed a July 2015 constitutional amendment that allowed foreigners to own land and islands in connection with major projects, provided that they invested at least USD 1 billion and at least 70 percent of the land was reclaimed. Currently, there are no property and real estate laws or mechanisms to allow foreign persons to hold title to land.
The Land Act allows foreigners to lease land on inhabited islands for up to a maximum of 50 years, but there is no formal process for registration of leasehold titles. The Uninhabited Land Act allows foreigners to lease land on uninhabited islands for purposes other than tourism for a maximum of 21 years for investments amounting to less than USD 1 million and up to a maximum of 50 years for investments over USD 10 million. A 2010 amendment to the Tourism Act allows investors to lease an island for 50 years in general. A subsequent 2014 amendment allows 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 been developed. In 2016, Parliament approved additional amendments to the Tourism Act, whereby islands and lagoons can be leased for tourism development based on unsolicited proposals submitted to the Tourism Ministry (Law No: 13/2016).
The Ministry of Economic Development screens and 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, and performing a background check on the investors involved. According to the government, each case is reviewed based on its merits accounting for factors such as the number of existing investors in the sector and the potential for employment and technology transfer. In practice, the investment review process is not as transparent as policy would indicate, with potential for corruption to influence the decision-making process.
The approval procedure for foreign investments is as follows:
- Submit a completed Foreign Investment Application form to the Ministry of Economic Development, available at trade.gov.mv .
- Walk-in consultations are available for foreign investors who may wish to discuss their proposals prior to submitting an application.
- Receive approval
- The standard processing time is three working days; however, if relevant ministries must be consulted, the approval may take 10-14 days.
- Register a business vehicle
- Once approval is received, an investor must register as a company, partnership, or a company which has been incorporated in another jurisdiction.
- Application forms for registering as a legal vehicle are available from the ministry’s website.
- Sign the Foreign Investment Agreement with the Ministry of Economic Development.
- This Agreement outlines the terms and conditions related to carrying out the specific business in Maldives. For tourism sector investments, a Foreign Investment Agreement is not required as the land lease signed with the Ministry of Tourism governs all matters relating to tourism businesses in Maldives.
- Obtain licenses and permits.
- Sectors which require operating licenses include fisheries and agriculture, banking and finance, health, tourism, transport, construction, and education.
- Once approval is received, an investor must register as a company, partnership, or a company which has been incorporated in another jurisdiction.
Other Investment Policy Reviews
The most recent World Trade Organization trade policy review was conducted in March 2016:
Maldives ranked 147 out of 190 on the World Bank’s Ease of Doing Business index, scoring especially low on getting electricity; registering property; trading across borders; protecting minority investors; getting credit; and resolving insolvency. On average, it takes six steps and 12 days to start a business.
The Ministry of Economic Development manages the process for business incorporations, permits, licenses and registration of logos, trade markets, seals, and other processes. The Ministry’s website details relevant policies and procedures: http://www.trade.gov.mv/
The Ministry of Economic Development also maintains an online business portal at https://business.egov.mv/ to access the following services: Name Reservation; Business Name Registration; Sole Proprietorship registration submission; Company Registration Submission; SME Categorization; Issuance of Corporate Profile Sheet; Logo Registration; Seal Registration; Trade Mark Registration, Request for Certificate of Incumbency; Request for Letter of Good Standing; and a Request for re-issuance of registration certificate. Foreign investment companies, including entities with any foreign shareholding, must receive foreign investment approval before they can register online.
As of April 2020, the government was drafting amendments to the Companies Act, Electronic Transactions Bill, Mercantile Court Bill, and an Insolvency Bill which could affect business facilitation. In June 2019, the government signed a USD 10 million project with the Asian Development Bank to develop a National Single Window project designed to establish a national single window system for international trade and reengineered trade processes.
The government does not promote or incentivize outward investment but does not restrict domestic investors from investing abroad either. According to UNCTAD’s 2019 World Investment Report, Maldives has not registered any outward investment since 2005.
2. Bilateral Investment Agreements and Taxation Treaties
The United States does not have a bilateral investment treaty with Maldives. Maldives signed a trade and investment framework agreement with the United States and held its first meeting in October 2014. The second meeting was held in June 2019. The Maldives and the United Arab Emirates signed an Agreement on the Promotion and Reciprocal Protection of Investments in October 2017.
India and Maldives signed a trade agreement in 1981, which provides for export of essential commodities. Maldives signed and entered into the South Asian Free Trade Area (SAFTA) in 2006 and signed but has not ratified the Trade Preferential System of the Organization of the Islamic Conference in 2014.
Maldives first signed an Agreement on Trade and Economic Cooperation with the People’s Republic of China (PRC) in 2004 and then signed its first bilateral free trade agreement with the PRC in December 2017. However, according to media reporting the agreement is not yet in effect and, the Solih administration intends to review the pending China FTA. The Government of Maldives also initiated free trade agreement discussions with Hong Kong in 2017.
The United States has not signed a bilateral taxation treaty with Maldives.
Maldives signed a Double Tax Avoidance Treaty with the United Arab Emirates, which entered into force on January 2017. In April 2016, Maldives and India signed an agreement to avoid double taxation of income derived from air transport and an agreement to share information on taxes, both of which are currently in force. In 2005 Maldives signed a double taxation avoidance treaty which is a limited multilateral agreement between members of the South Asian Association for Regional Cooperation (SAARC) for avoidance of double taxation and mutual assistance in tax matters.
3. Legal Regime
Transparency of the Regulatory System
Maldives’ Parliament (the People’s Majlis), formulates legislation, while ministries and agencies, mainly the Ministry of Economic Development, develop regulations pertaining to investment. The Ministry of Tourism develops regulations relevant to the tourism sector. 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 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. The new Parliament, sworn in in April 2019, regularly makes draft bills and regulations available for public comments. Since inauguration in November 2018, the Solih administration has taken steps to improve fiscal transparency, for example beginning in December 2018, the Ministry of Finance began issuing weekly updates on fiscal operations which can be found at: http://www.finance.gov.mv/publications/statistical-releases/weekly-fiscal-developments . A limited write-up on total annual debt obligations for 2020 and projected annual debt obligations for 2021 and 2022 were included in a “budget book,” published on the Ministry of Finance website, along with the 2020 proposed budget. It includes the total amount of debt, disaggregated into the totals of domestic and foreign debt. It does not include details of contingent or state-owned enterprise debt. The Maldives Monetary Authority (the Maldivian Central Bank) included information on domestic debt obligations on a monthly basis on their website: http://mma.gov.mv/#/research/statisticalPublications/mstat/Monthly percent20Statistics . The Ministry of Finance published a mid-year “Fiscal and Debt Strategy Report” on their website in July 2019. This report included details of the position of the debt portfolio at the end of 2018 and the estimated position by the end of 2019:https://www.finance.gov.mv/fiscal-and-debt-strategy-report.
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
Maldives is a member of the South Asian Association for Regional Cooperation (SAARC) and is a signatory of the South Asian Free Trade Area (SAFTA).
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.
Maldives is a member of the World Trade Organization (WTO).
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 has been 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 legal advisor to the government and represents the government in all courts except on criminal proceedings, which are represented by the Prosecutor General.
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 and often arbitrary. 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 a semi-independent institution but has been frequently subjected to executive influence, particularly the Supreme Court. 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 25 percent of judges also have criminal records. The media, human rights organizations, and civil society had repeatedly criticized the Judicial Services Commission for appointing judges deemed unqualified. Judicial reform is a top priority for President Solih’s administration. In 2019, the Judicial Service Commission was overhauled and has since removed the former Supreme Court bench and initiated investigations into ethics standards complaints against several judges from the High Court, Criminal Court, Civil Court, Family Court and several island magistrate courts. In August 2019, Parliament amended the Judicial Service Commission Act to return control of the Department of Judicial Administration (DJA), which is responsible for the management of courts, to the judicial watchdog Judicial Service Commission. This amendment was intended to overcome longstanding issues of the former Supreme Court using its direct supervision of the DJA to punish judges exhibiting judicial independence by transferring them to a lower court or another island as retribution.
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: https://www.maldivesembassy.or.th/media/attachments/2019/08/23/doing-business-maldives-trade-min.pdf and the tax guide: https://www.mira.gov.mv/forms/m829-tax-guide-for-foreigners-doing-business-in-the-Maldive.pdf
A new Foreign Direct Investment policy announced in February 2020 consolidated existing practices and introduced new guidelines, including two new routes to get government approval for foreign direct investments and new caps on equity ownership for investments in certain sectors. The policy is available on http://trade.gov.mv/dms/669/1581480884.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 and 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.
Maldives introduced income taxes for the first time through an Income Tax Act in December 2019. Taxation under the act was set to commence on January 1, 2020 but remuneration was to come within the purview of income effective April 1, 2020. The Business Profit Tax regime imposed under the Business Profit Tax Act was repealed with the commencement of Income Tax. Under the Act, tax rates remain unchanged for banks at 25 percent on profits, while taxes of 15 percent on profits that exceed USD 32,425 (MVR 500,000) would be levied on corporations, partnerships and other business entities.
Competition and Anti-Trust Laws
In 2019, Maldives drafted a Competition and Fair Business Practices Act to ensure a fair market and equitable opportunities for all small and medium enterprises, which is undergoing parliamentary review prior to enactment as of June.
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.
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. In 2016, the Maldivian government paid GMR USD 271 million in damages as ordered by a Singaporean Arbitration Tribunal.
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. In September 2019, Maldives acceded to the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards, which came into force in Maldives in December 2019.
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 modeled on the United Nations Commission on International Trade Law (UNCITRAL) model law 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. In April 2019, President Solih established the Maldives International Arbitration Centre, a requirement under the 2013 Act.
In 2013, Maldives-based Sun Travels and Tours terminated a foreign corporation’s 20-year management agreement for a luxury resort. The business took the case to the International Court of Arbitration in Singapore and was awarded USD 27 million in damages. The Court dismissed a USD 16 million counterclaim by Sun Travel and Tours. Maldivian courts have failed to enforce the reward.
International Commercial Arbitration and Foreign Courts
An Arbitration Act modeled on the United Nations Commission on International Trade Law (UNCITRAL) model law 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. In April 2019 President Solih established the Maldives International Arbitration Centre, a requirement under the 2013 Act. 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 scores 33.3 out of 100 on resolving insolvency in the World Bank’s Ease of Doing Business Distance to Frontier index. 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.
4. Industrial Policies
Maldives introduced a Special Economic Zones Act (Law No.: 24/2014) in September 2014, with the goal of encouraging private investment in large-scale projects in priority areas, including: export processing activities; transportation and transshipment; universities, hospitals and research facilities; information communication and technology parks; international financial services; oil and gas exploration; and initiatives that introduce new technologies. SEZ investments in excess of USD 150 million qualify for special tax and regulatory incentives guaranteed under the SEZ law. The list of priority sectors is reviewed by the President on a yearly basis.
Incentives under the SEZ law include:
- Exemption from business profit tax
- Exemption from goods and services tax
- Exemption from withholding tax
- Flexible procedures in foreign employment
- Exemption from taxes on sale and purchase of land
- Option of acquiring freehold land by registered companies in Maldives with at least 50 percent local shareholding
The duration of these tax exemptions depend on the business area of the investment and the scale of the investment.
As of April 2020, no companies have invested in Maldives under the SEZ law.
Foreign Trade Zones/Free Ports/Trade Facilitation
As mentioned immediately above Maldives introduced a Special Economic Zones Act (Law No.: 24/2014) in September 2014. Please refer to the above section for details of investment incentives provided for under the Act.
Performance and Data Localization Requirements
In an attempt to boost local employment, the Law on Foreign Investments requires Maldivian nationals to be employed unless employment of foreigners is a necessity. Qualifying employers are provided a quota, limiting the number of expatriates who can be employed. Quota levels depend on the sector and size of the investment. Employers obtain quotas from the Ministry of Economic Development before applying for employment approval. SEZ investments receive some exceptions to these rules. A report by the International Labor Organization (ILO) found that the quota system is cumbersome and difficult to implement and that inefficiencies and red tape create unnecessary administrative burdens while doing little to increase local employment. In addition, the ILO reported when labor is not available because of quota requirements, employers often resort to the irregular labor market, providing incentives to the phenomena of visa trading.
5. Protection of Property Rights
Secured interests in property, movable and real, are recognized and enforced under the 2002 Land Act, and the councils on each island maintain registries. Rights in real estate are governed by the Land Act, the Uninhabited Islands Act (20/98) and the Tourism Act (2/99). Foreign parties cannot own land but can lease land for periods no longer than 99 years for business activity under the remaining regimes.
Intellectual Property Rights
Although the government has an intellectual property unit within the Ministry of Economic Development, it is not active. The government has not yet signed international agreements or conventions on intellectual property rights.
The World Intellectual Property Organization (WIPO) is providing assistance to the government on the drafting of bills regarding trademarks and geographical indicators. For additional information about national laws and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/ .
6. Financial Sector
Capital Markets and Portfolio Investment
Maldives Stock Exchange (MSE), which first opened in 2002 as a small securities trading floor, was licensed as a private stock exchange in 2008. The Securities Act of January 2006 created the Capital Market Development Authority (CMDA) to regulate the capital markets. The MSE functions under the CMDA. The only investment opportunities available to the public are shares in the Bank of Maldives, Islamic Bank of Maldives, five state-owned public companies, a foreign insurance company, a foreign telecommunications company and a local shipping company. The market capitalization of all companies listed on the exchange was USD 857 million at the end of 2018.
Foreigners can invest in the capital market as both retail and institutional investors. Capital market license holders from other jurisdictions can also seek licenses to carry out services in the Maldives capital market. There are no restrictions on foreign investors obtaining credit from banks in Maldives nor are there are restrictions on payments and transfers for current international transactions.
Money and Banking System
The Maldives financial sector is dominated by the banking sector. The banking sector consists of eight banks, of which three are locally incorporated, four are branches of foreign banks and one is a fully owned subsidiary of a foreign bank. There are 52 branches of these banks throughout the country of which 33 are in the rural areas. Additionally, at the end of 2017 there were 116 automatic teller machines (of which 51 were located in rural areas) and 230 agent banking service providers. Maldives has correspondent banking relationships with six banks. Maldives has not announced intentions to allow the implementation of blockchain technologies (cryptocurrencies) in its banking system. International money transfer services are offered by four remittance companies through global remittance networks. Two telecommunications companies offer mobile payment services through mobile wallet accounts and this service does not require customers to hold bank accounts.
Non-bank financial institutions in the country consist of four insurance companies, a pension fund, and a finance leasing company, a specialized housing finance institution and money transfer businesses. Maldives Real Time Gross Settlement System and Automated Clearing House system is housed in the Maldives Monetary Authority for interbank payments settlements for large value and small value batch processing transactions respectively. There has been an increase in usage of electronic payments such as card payments and internet banking. All financial institutions currently operate under the supervision of the Maldives Monetary Authority.
Foreign Exchange and Remittances
Rules relating to the foreign exchange market are stipulated in the Monetary Regulation of the Maldives Monetary Authority (MMA). Both residents and non-residents may freely trade and purchase currency in the foreign exchange market. Residents do not need permission to maintain foreign currency accounts either at home or abroad and there is no distinction made between foreign national or non-resident accounts held with the banks operating in Maldives. The exchange rate is maintained within a horizontal band, with the value of the Rufiyaa allowed to fluctuate against the U.S. dollar within a band of 20 percent on either side of a central parity of MVR12.85 per U.S. dollar. In practice, however, the rufiyaa has been virtually fixed at the band’s weaker end of Rf 15.42 per dollar, according to the IMF.
Rules regarding foreign remittances are governed by the Regulation for Remittance Businesses under the Maldives Monetary Authority Act of 1981. There are no restrictions on repatriation of profits or earnings from investments. The government imposes a three percent remittance tax on money transferred out of Maldives by foreigners employed in the Maldives. Effective from 1 January 2017, the coverage of the remittance tax was broadened to include the withdrawal of cash abroad in instances where the withdrawal is made from a bank account opened in the Maldives or by using a prepaid cash card issued by a bank in the Maldives.
Sovereign Wealth Funds
In 2016, Maldives Finance Minister Ahmed Munawar announced plans to establish a “Sovereign Development Fund (SDF)” that would support foreign currency obligations incurred to executive public sector development projects. In March 2020, the government announced the SDF has amassed USD 272 million.
7. State-Owned Enterprises
The Maldives Privatization and Corporatization Board (PCB) monitors and evaluates all the majority and minority share holding companies of the Government of Maldives. PCB reported 30 SOEs in 2019. Major SOEs include the State Trading Organization, Dhiraagu (a telecom provider), Maldives Water and Sewerage Company, and Maldives Airports Company Limited.
Maldivian SOEs do not strictly adhere to the OECD Guidelines on Corporate Governance for SOEs. When SOEs are involved in investment disputes, domestic courts, which are not transparent, tend to favor the government enterprise. SOEs also follow different procurement regulations than government offices. As a result, SOEs have been a major contributor to fast rising Maldives’ public debt levels.
A 2013 Privatization Act governs all privatization and corporatization efforts by the government. The Privatization and Corporatization Board monitors and evaluates all the majority and minority share holding companies of the Government of Maldives. The Government of Maldives has not announced any upcoming privatization drives.
8. Responsible Business Conduct
There is limited but growing awareness of responsible business conduct (RBC) or corporate social responsibility (CSR) among the business elite and tourism resort owners. All new government leases for tourism resorts contain CSR requirements and individual resorts often implement their own RBC programs. However, the government does not have a consistent policy or national action plan to promote responsible business conduct.
Maldives scored 130 out of 180 countries in the Transparency International Corruption Perception index in 2019 with a score of 29 out of 100, below regional competitors like Sri Lanka, India, and Pakistan. Corruption practices exist at all levels of society, threatening inclusive and sustainable economic growth.
The Solih administration has publicly pledged to tackle widespread corruption and judicial reform. As part of President Solih’s first 100 business day agenda, he established a Presidential Commission on Corruption and Asset Recovery to investigate corruption cases originating between February 2012 and November 2018. As of June, the commission had not issued a report of its findings. Additional measures towards increased transparency include requiring public financial disclosures for cabinet members, political appointees, and all members of parliament.
Maldives law provides criminal penalties for corruption by officials, but enforcement is weak. The law on prevention and punishment of corruption (2000) defines bribery and improper pecuniary advantage and prescribes punishments. The law also outlines procedures for the confiscation of property and funds obtained through the included offenses. Penalties range from six months to 10 years banishment, or jail terms. According to non-governmental organizations, a narrow definition of corruption in the law, and the lack of a provision to investigate and prosecute illicit enrichment, limited the Anti-Corruption Commission’s work.
Maldives acceded to the United Nations Convention against Corruption in March 2007, and under the 2008 Constitution, an independent Anti-Corruption Commission was established in December 2008. The responsibilities of the Commission include inquiring into and investigating all allegations of corruption by government officials; recommending further inquiries and investigations by other investigatory bodies; and recommending prosecution of alleged offenses to the prosecutor general, where warranted. The Commission does not have a mandate to investigate cases of corruption of government officials by the private sector.
The Maldives is a party to the UN Anticorruption Convention. Maldives is not a party to the OECD Convention on Combatting Bribery.
A number of domestic human rights groups generally operated without government restriction, investigating and publishing their findings on human rights cases. Government officials, however, were rarely cooperative and responsive to their views. Upon assumption of office President Solih’s administration pledged to submit a new NGO bill that would increase protections for non-government organizations but has yet to do so as of June.
Resources to Report Corruption
Anti-Corruption Commission of the Maldives
Address: Huravee Building, Male, Maldives, 20114
Telephone: (800)3300007 (Toll free number), (960) 331 0451, (960) 331 7410 (General Inquiries)
Email: email@example.com; firstname.lastname@example.org
Ms. Asiath Rilweena
Address: MF Building, 7th Floor, Chaandhanee Magu, Male’, Republic of Maldives
Telephone: +960 330 4017
10. Political and Security Environment
Maldives is a multi-party constitutional democracy, but the transition from long term autocracy to democracy has been challenging. Maldives gained its independence from Britain in 1965. For the first 40 years of independence, Maldives was run by President Ibrahim Nasir and then Maumoon Abdul Gayoom, who was elected to six successive terms by single-party referenda. August 2003 demonstrations forced Gayoom to begin a democratic reform process, leading to the legalization of political parties in 2005, a new constitution in August 2008, and the first multiparty presidential elections later that year through which Mohamed Nasheed was elected president.
In February 2012 Nasheed resigned under disputed circumstances. President Abdulla Yameen’s tenure, beginning in 2013, was marked by corruption, systemic limitations on the independence of parliament and the judiciary, and restrictions on freedom of speech, press, and association. Yameen’s tenure was also characterized by increased reliance on PRC-financing for large scale infrastructure projects, which were decided largely under non-transparent circumstances and procedures.
In September 2018, Ibrahim Mohamed Solih of the Maldivian Democratic Party (MDP) won the campaign for president running on a platform of economic and political reforms and transparency. The MDP also won a super majority (65 out of 87) seats in parliamentary elections in April 2019, the first single-party majority since the advent of multi-party democracy. President Solih has pledged to restore democratic institutions and the freedom of the press, re-establish the justice system, and protect fundamental rights.
There is a global threat from terrorism to U.S. citizens and interests. Attacks could be indiscriminate, including in places visited by foreigners and “soft targets” such as restaurants, hotels, recreational events, resorts, beaches, maritime facilities, and aircraft. Concerns have significantly increased about a small number of violent Maldivian extremists who advocate for attacks against secular Maldivians and are involved with transnational terrorist groups. For more information, travelers may consult the State Department’s Country Reports on Terrorism. http://www.state.gov/j/ct/rls/crt/2015/index.htm
U.S. citizens traveling to Maldives should be aware of violent attacks and threats made against local media, political parties, and civil society. In the past there have been several killings and violent attacks against secular bloggers and activists. For more information, travelers may consult the State Department’s 2019 Human Rights Report link: https://www.state.gov/reports/2019-country-reports-on-human-rights-practices/maldives/
Maldives has a history of political protests. Some of these protests have involved use of anti-Western rhetoric. There are no reports of unrest or demonstrations on the resort islands or at the main Velana International Airport. Travelers should not engage in political activity in Maldives. Visitors should exercise caution, particularly at night, and should steer clear of demonstrations and spontaneous gatherings. Those who encounter demonstrations or large crowds should avoid confrontation, remain calm, and depart the area quickly. While traveling in Maldives, travelers should refer to news sources, check the U.S. Embassy Colombo website for possible security updates, and remain aware of their surroundings at all times.
U.S. Embassy employees are not resident in Maldives. This will constrain the Embassy’s ability to provide services to U.S. citizens in an emergency. Many tourist resorts are several hours’ distance from Malé by boat, necessitating lengthy response times by authorities in case of medical or criminal emergencies.
11. Labor Policies and Practices
Skilled and unskilled labor are scarce. Expatriate labor is allowed into Maldives to meet shortages. Maldives Immigration reported approximately 200,000 registered expatriate workers in the country in 2019, mostly in tourism, construction, and personal services. The government reported 63,000 unregistered expatriate migrant workers, but non-governmental sources estimate the number is even higher. Notwithstanding the labor shortage, unemployment in Maldives is also high, as many youth leaving lower secondary school have few in-country avenues to pursue higher secondary education. Although resorts may offer employment opportunities, locals are less likely to take advantage of these jobs as resort employment practices require employees to live and work on the island for long stretches of time, away from family. Religious and cultural reasons also discourage women from seeking employment on distant islands.
The Law on Foreign Investments requires Maldivian nationals to be employed unless employment of foreigners is a necessity. Please see section on “Performance and Data Localization” for more detail.
The 2008 the Employment Act and a subsequent amendment to the Employment Act recognize workers’ right to strike and establish trade unions; however, current law does not adequately govern the formation of trade unions, collective bargaining and the right to association. While the constitution provides for workers’ freedom of association, there is no law protecting it, which is required to allow unions to register and operate without interference and discrimination. As a matter of practice, workers’ organizations are treated as civil society.
A regulation on strikes requires employees to negotiate with the employer first, and if this is unsuccessful, then the employees must file advance notice prior to a strike. The Freedom of Peaceful Assembly Act effectively prohibits strikes by workers in the resort sector, the country’s largest money earner. Employees in the following services are also prohibited from striking: hospitals and health centers, electricity companies, water providers, telecommunications providers, prison guards, and air traffic controllers.
Maldives became a member of the International Labor Organization in 2008 and has ratified the eight core ILO Conventions. Maldives has not ratified the four priority governance ILO Conventions. In 2019, the ILO called on the Government to take the necessary measures to eliminate child labor, including through adopting a national policy and a national action plan to combat child labor in the country.
12. U.S. International Development Finance Corporation (DFC) and Other Investment Insurance Programs
Development Finance Corporation (DFC)/Overseas Private Investment Corporation (OPIC) began operations in Maldives in 2011, but no projects have yet been identified. Maldives became the 165th member of the Multilateral Investment Guarantee Agency of the World Bank Group, on May 20, 2005.
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
|Host Country Statistical source*||USG or international statistical source||USG or International Source of Data: BEA; IMF; Eurostat; UNCTAD, Other|
|Host Country Gross Domestic Product (GDP) ($M USD)||2019||$5,800||2018||$5,327||https://www.imf.org/en/
|Foreign Direct Investment||Host Country Statistical source*||USG or international statistical source||USG or international Source of data: BEA; IMF; Eurostat; UNCTAD, Other|
|U.S. FDI in partner country ($M USD, stock positions)||N/A||N/A||2018||N/A||BEA data available at https://www.bea.gov/international/
|Host country’s FDI in the United States ($M USD, stock positions)||N/A||N/A||2018||N/A||BEA data available at https://www.bea.gov/international/
|Total inbound stock of FDI as percent host GDP||N/A||N/A||2018||80.3 percent||UNCTAD data available at
World percent20Investment percent20Report/
* Source for Host Country Data: Maldives National Bureau of Statistics
Table 3: Sources and Destination of FDI
Data not available.
Table 4: Sources of Portfolio Investment
Data not available.
14. Contact for More Information
Economic and Commercial Chief
U.S. Embassy Colombo, Sri Lanka