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 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 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 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.
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 considered to be 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 semi-independent institution, but foreign investors have reported that it has been frequently subject 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 the judges also have criminal records. The media, human rights organizations and civil society have repeatedly criticized the Judicial Services Commission for appointing judges deemed unqualified. Judicial reform is a top priority amongst President Solih and his super-majority in Parliament and this sector is likely to undergo significant reforms in the coming year to address the weakness in the qualifications of judges, lack of an independent bar, and inefficiencies in the lower court structures.
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 and the tax guide: https://www.mira.gov.mv/forms/m829-tax-guide-for-foreigners-doing-business-in-the-Maldive.pdf
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 April 2019, the Invest Maldives website (http://investmaldives.gov.mv/) was not functional.
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. No companies have been created under the SEZ law as of April 2019 and the government is in the process of reviewing the existing SEZ law.
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
In 2016, Maldives drafted a Competition and Fair Business Practices Act to ensure a fair market and equitable opportunities for all small and medium enterprises but it was not passed.
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. While the government has agreed to pay GMR Infrastructure Limited damages, the amount and timing of the payments remain in dispute.
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.
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.
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. 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.
In 2013, Maldives-based Sun Travels and Tours terminated Hilton Hotel’s 20-year management agreement for a luxury resort. Hilton took the case to the International Court of Arbitration in Singapore and was awarded USD27 million in damages and dismissed a USD16 million counterclaim by Sun Travel and Tours. Maldivian courts have failed to enforce Hilton’s reward.
Maldives scores 33.25 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.