Maldives, Republic of
Income tax is payable on total taxable income of a tax year. Taxable income is the gross total income from all sources of income after deduction of expenses allowed under the Income Tax Act.
For computation of the taxable income of a person, an expense shall be deductible only if such expense was incurred by that person and was incurred wholly and exclusively for the purpose of production of income.
Despite the above general rule, the following expenses are eligible for deduction from business income:
- Payment of zakat al-mal paid to relevant government institution.
- Contribution to Maldives Retirement Pension scheme.
- Donation to government approved institutions or a charitable organisation approved by the Commissioner General of Taxation. Maximum amount of deduction towards donation is limited to 5% of the taxable income (before deduction of donation).
In addition, the following expenses are allowed as deduction from total income subject to fulfilment of certain conditions and up to the maximum limit provided in the Income Tax Act and Income Tax Regulation:
- Welfare expenses: Expenditure incurred for general welfare of the employees and for the benefit of the employees.
- Interest: Interest on loan obtained from a person other than approved banks and financial institutions shall be deductible up to a maximum amount of 6% per annum. Overall interest deduction is subject to thin capitalisation rule (see the Group taxation section).
- Bad debts: Bad debts should be included in the person’s total income, and reasonable steps must have taken to realise the debt.
- Head office expenses: The maximum amount allowed to a PE in Maldives as deduction on account of head office expenses will be 3% of total income of ordinary business.
- Expenses incurred before commencement of business: Expenses incurred by a person before commencement of business shall be deemed as capital expenditure on the date of commencement of business.
- Capital allowance: Capital allowance on assets shall be allowed at the following rates:
Category Rate (%) Building 4 Aircraft 7 Wooden marine vessel 7 Other marine vessels 5 Furniture and fixtures 10 Motor vehicles 20 Earth moving vehicles 5 Plant and equipment (excluding office equipment) 10 Office equipment 20 Computer software 33 1/3 Crockery, cutlery, utensils, linen, loose tools 33 1/3
Where in an accounting period a person carrying on a business incurs expenditure on the acquisition of an intangible asset, a capital allowance may be deducted in computing that person's taxable income for that period equal to E/𝑛.
- E = the expenditure
- n = the useful life of the asset estimated by the person (in years)
Capital allowance shall not be deducted in respect of expenditure incurred on the following types of assets.
- Intangible assets that are not capable of definite valuation.
The following expenses are not eligible for deduction from taxable income:
- Domestic or private expenses.
- Capital expenditure.
- Expenses incurred to derive exempted income.
- Income tax payable in Maldives and outside Maldives.
- GST input tax.
- Provision for expenditure or loss.
- Fines and penalties.
- Premium paid on life insurance policy.
- Interest paid on partner’s capital and profit distributed to partners.
- Excessive compensation.
- Withholding tax (WHT) that has not been deposited with the MIRA.
- Expenses incurred before commencement of the Income Tax Act.
Donations made by a taxpayer to a State institution or a charitable organisation approved by the Commissioner General may be deducted in the computation of the taxpayer’s taxable income for the accounting period in which such donation was made. The maximum amount that may be deducted shall be 5% of the taxable income derived before the deduction of the donation.
Contribution to the Maldives Retirement Pension Scheme is eligible for deduction from taxable income.
Net operating losses
The loss suffered in a tax year can be carried forward to and set off against the taxable income of future years, subject to conditions.
In case of a company (other than a company listed on the Maldives Stock Exchange), the loss can be carried forward for set off again future taxable income only if the same shareholder or shareholders continue to hold 50% of shareholding of that company and the company carries on the same line of business.
In case of a partnership, the loss can be carried forward for set off again future taxable income only if the same partner or partners continue to hold 50% of partnership and the company carries on the same line of business.
The loss for a year can be set off within five years from the end of the year in which the loss was incurred. The accumulated loss should be set off in the order in which it was incurred.