Transparency of the Regulatory System
Maldives’ Parliament (the People’s Majlis) formulates legislation, while ministries and agencies, primarily 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 (MMA) 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 current Parliament, sworn in in April 2019, regularly makes draft bills and regulations available for public comment.
Since its inauguration in November 2018, the Solih administration has taken steps to improve fiscal transparency. For example, beginning in December 2018, the MoF began issuing weekly updates on fiscal operations on its public website. A limited write-up on total annual debt obligations for 2022 and projected annual debt obligations for 2023 and 2024 were included in a “budget book” published on the MoF website, along with the 2022 proposed budget. It includes the total amount of debt, disaggregated into the totals of domestic and foreign debt; however, it does not include details of contingent or state-owned enterprise (SOE) debt. Statistics on Central Government debt and on debt guaranteed by the government are published on the MoF website on a quarterly basis. Details of government-held debt are published bi-annually. Quarterly debt statistics include details on disbursed outstanding debt (both domestic and guaranteed), active external loans, external grants, and active sovereign guarantees. Quarterly debt can be found at https://www.finance.gov.mv/debt-management/debt-statistics .
Details of SOE debt are published in the quarterly and annual reports on SOEs published by Public Enterprise Management (PEM) of the MoF at https://www.finance.gov.mv/public-finance/public-enterprises/audited-financial-statements-of-soes .
Details of active sovereign guarantees as of September 21 can be accessed at: https://www.finance.gov.mv/public/attachments/mBb3dwgKLN1YZvSJOkAOdNDmzUSq8bn1uwXovIEK.pdf .
The MMA, which functions as Maldives’ Central Bank, includes information on domestic debt obligations on a monthly basis on their website: http://mma.gov.mv/#/research/statisticalPublications/mstat/Monthly percent20Statistics .
The MoF published a mid-year “Fiscal and Debt Strategy Report” on their website in July 2021. This report included details of the position of the debt portfolio at the end of 2020 and the estimated position by the end of 2021: https://www.finance.gov.mv/fiscal-and-debt-strategy-report .
The website of the Attorney General’s Office (AGO) ( 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 AGO is establishing an English language database of laws and regulations while the Judiciary is working on a database of court judgements.
Environmental, social, and governance (ESG) reporting is voluntary. Listed PLCs voluntarily report on sustainability aspects and Corporate Governance reporting is mandatory for all listed companies. Annual Reports of listed companies: https://www.cmda.gov.mv/en/public/listed-companies .
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) and has submitted some of the notifications under Technical Barriers to Trade. However, the Ministry of Economic Development reports that technical assistance is required for Maldives to fully comply with WTO obligations.
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 as the highest judicial authority in Maldives in 2008 under the new Maldives Constitution. In addition to the Supreme Court, there are six courts: the 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. In February 2020, President Solih stated his intent to submit a bill introducing a circuit court system in Maldives. As of March 2022, the government was working on legislative amendments to the Judicature Act to establish the circuit court.
Historically, the judicial process has been slow and, often, arbitrary. In August 2010, the Judicial Services Commission (JSC), the judicial watchdog, 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 subjected frequently 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 have criminal records. The media, human rights organizations, and civil society had repeatedly criticized the JSC for appointing judges deemed unqualified.
This history led President Solih’s administration to make judicial reform a top priority. In 2019, the JSC was overhauled; it 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 JSC. 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 and in the tax guide:
Invest Maldives ( https://investmaldives.gov.mv ) is the primary website for investments and provides information on areas that are open for investment in Maldives. Sector-wise, broad investment opportunities are presented on the website with links to conceptual project briefs for which Invest Maldives is seeking investment from potential investors.
A Foreign Direct Investment (FDI) policy was published in February 2020 to consolidate existing practices and introduce 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 first and second amendments to the FDI policy were announced on June 13 and 15, 2021 respectively. The policy is available at https://trade.gov.mv/laws-regulations under Foreign Investment Act.
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 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 and the Remittance Tax regime imposed under the Remittance Tax Act was repealed with the commencement of the Income Tax Act. 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.
In September 2020, President Solih ratified the sixth amendment to the Employment Act, which provides a standalone regulatory framework for overseas employees. It includes guidance on registering with the online x-pat system (work permit processing portal), grant of quotas, collection of quota fees, grant of entry passes and work permits to enter and remain in the country for work, deposits and refunds, accommodation arrangements and standards, regularization and penalties for breaches.
In November 2020, President Solih ratified the second amendment to the Maldives Immigration Act. Under the new amendment, there are two additional visa options for foreigners travelling to Maldives: a corporate resident visa and a meeting visa. The corporate resident visa is a permit issued to foreigners who have invested over $250,000 in Maldives or by maintaining $250,000 in a fixed deposit account in a Maldivian bank for five years. According to the amendment, shareholders and partners of companies registered and operating in Maldives may acquire a corporate resident visa for themselves and their families under the established rules and regulations. The meeting visa is a short-duration permit under which foreigners may visit Maldives for professional reasons. This may include attending a business conference, professional convention or a meeting approved by a government agency. A meeting visa is issued according to the guidelines defined by the Registrar of Businesses.
Competition and Antitrust Laws
In 2019, Maldives drafted the Competition and Fair Business Practices Act to ensure a fair market and equitable opportunities for all small and medium enterprises. President Solih ratified the bill on August 31, 2020, and it came into force in February 2021. The Ministry of Economic Development is the principal agency responsible for implementing the Act, including hearing, reviewing, and acting on competition-related complaints. No competition-related cases have been submitted to Ministry of Economic Development as of March 2022.
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 upon 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. In 2015, the foreign corporation then filed the case in Maldives High Court to enforce the ruling of the arbitration center. In 2016, Sun appealed the arbitration center’s decision in Maldives’ Civil Court, which ruled in Sun’s favor and ordered the foreign corporation to pay USD 16 million to Sun as compensation for violating the terms of their agreement to manage the resort. This ruling was overturned by the Maldivian High Court on July 7, 2020, and led to the Civil Court ordering freeze on bank accounts of Sun. In February 2022 the Civil Court withheld the passports of and issued a travel ban against the directors of Sun for failure to pay $27 million in damages to the foreign corporation.
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 must 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.
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.