Maldives, Republic of

Corporate - Income determination

Last reviewed - 03 August 2020

The total income of a person resident in the Maldives shall include the income derived from the Maldives and income derived outside the Maldives.

The total income of a person not resident in the Maldives shall include the income derived from the Maldives.

The income that is taxable in accordance with Section 3 of the Income Tax Act includes:

  • Remuneration.
  • Income derived from any business.
  • Income derived from the rental of movable or immovable property.
  • Dividends.
  • Interest.
  • Annuity, pensions; and retirement benefits.
  • Beneficiary income.
  • Technical service fee, royalty, and commission.
  • Gain from disposal of movable, immovable, intellectual, or intangible assets.
  • Other incomes or gains, including proceeds from criminal or illegal activities.

A person is taxed on one’s taxable income, which is derived from all sources of income mentioned in Section 3 of the Income Tax Act.

The Income Tax Act provides for the circumstances where the income is deemed to be received in Maldives and the income that is exempted from income tax.

Income derived from Maldives

The income that is deemed to be derived from Maldives (Section 11) includes:

  • Remuneration derived from any employment in Maldives.
  • Directors’ fee received by a director from a resident company.
  • Income derived by a partner of resident partnership firm.
  • Income derived by a non-resident from a business carried out through its PE in Maldives.
  • Rental income derived from any immovable property situated or registered in Maldives.
  • Dividend received from a resident company.
  • Interest, royalty, or technical service fee received from a person resident in Maldives or received from a non-resident that is attributable to its PE in Maldives.
  • Income derived from disposal of movable property that is situated or registered in Maldives or income derived under an agreement made in Maldives for disposal of such property.
  • Profit derived from disposal of immovable property situated in Maldives.
  • Profit derived from disposal of a share or interest in a company, partnership, or trust in which more than 50% of value related to an immovable property situated in Maldives.
  • Profits derived from disposal of a share or any interest in a resident company, partnership, or trust.
  • Income derived from the disposal of an intellectual or intangible property used or registered in Maldives or income derived under an agreement made in Maldives for disposal of such property.
  • Insurance premium received in respect of resident in Maldives or a property situated in Maldives.
  • Income that is taxable in Maldives in accordance with an agreement or treaty with a foreign jurisdiction or an international organisation.
  • Income derived by a non-resident shipping or aircraft operator in international transport.

Exempted income

The income that is exempted from income tax (Section 12) includes:

  • Dividend received by a resident in Maldives from a resident company.
  • Profits distributed by a resident partnership to its resident partners.
  • Income derived by an office of the government or approved charitable trust.
  • Interest derived from a security issued by a listed company in Maldives.
  • Interest (other than business income) up to a maximum limit of MVR 5,000.
  • Interest or profit derived from a debt security or similar product that is listed on the Maldives Stock Exchange.
  • Exempted income under a treaty or an agreement with foreign jurisdiction.
  • Remuneration or income received from a foreign government by a non-resident or a temporary resident.
  • Income of non-resident aircraft or shipping operator, charterer, or lessor in international transfer who are exempted under reciprocal arrangement.
  • Payments received under life insurance policy.
  • Receipt from basic pension and retirement pension under Maldives Pension Act.
  • Grants and scholarships (subject to approval from Commissioner General of Taxation).
  • Gift up to a maximum limit of MVR 40,000.
  • Gift from relatives, government, charitable institutions, and wedding gifts.
  • Receipt of Hibah, bequest, inheritance, Zakat, dowry, nafaka, or halanath.
  • Income derived from disposal of a person’s sole or principal private residence.
  • Grants received by an individual under Social Protection Act and other government grants.
  • Receipt under Social Health Insurance Scheme.

Inventory valuation

Inventory should be valued in accordance with the International Financial Reporting Standard (IFRS) or any other approved accounting standard. Last in first out (LIFO) method of inventory valuation is not accepted.

Capital gains

Gain on disposal of movable, immovable, intellectual, or intangible property, which are not eligible for capital allowance, will be treated as capital gain. The capital gain will form part of taxable income of the person and is subject to tax under the Income Tax Act. There is no separate tax rate for capital gain.

The capital gain is the amount by which the disposal consideration exceeds the cost base of the property. Cost base of a property includes the expenditure on acquiring and improving the property and expenditure incurred directly in connection with the disposal of the property.

Capital loss incurred on disposal of a property can be set off against the capital gain in the same tax year and unadjusted capital loss, if any, can be carried forward to subsequent years (up to five years) to set off against capital gain.

Dividend income

Dividend derived from a company resident in the Maldives is deemed to be derived in Maldives and subject to income tax. However, dividends received by a resident in the Maldives from a company that is resident in the Maldives is treated as exempted income.

Interest income

Interest received by a resident company is subject to income tax in Maldives. However, interest income received in the following manner is exempted from income tax:

  • Interest derived in respect of a security issued by a company listed on the Maldives Stock Exchange.
  • Interest that does not constitute interest income specified in Section 3(b) of the Income Tax Act (up to a maximum of MVR 5,000 in an accounting period).

Rental income

Income derived from the rental of any immovable property situated or registered in the Maldives is deemed to be derived from Maldives and subject to income tax.

There is a special provision made in the Income Tax Act for the rental income derived from an immovable property in Maldives:

A person who derives rent from immovable property situated in the Maldives and prepares financial statements on a cash basis may elect to claim a deduction of an amount equal to 20% of the amount of total rental income received in that accounting period as expenditure incurred in deriving the person’s rental income.

Where a taxpayer makes the election under this provision, one shall not be allowed any other deduction in the computation of one’s taxable income in respect of expenditure incurred to derive one’s rental income.

Royalty income

Royalty or technical service fee derived in the following manner is treated as income derived from Maldives:

  • Royalty and technical fee paid by a person resident in the Maldives that does not constitute an expense of their PE outside of the Maldives.
  • Royalty and technical fee paid by a non-resident in respect of an expense of their PE in the Maldives.

Partnership income

A partnership shall pay tax on its taxable income under the Income Tax Act in its name and as if it were a separate legal entity.

Partners of a general partnership shall be jointly and severally liable to meet all of the obligations imposed on the partnership under the Income Tax Act.

Profits distributed by a partnership that is resident in the Maldives to its partners who are resident in the Maldives are exempted from income tax.

Unrealised gains/losses

The person subject to income tax shall prepare financial statements in accordance with international accounting standards approved by the Commissioner General, using the accrual basis of financial accounting.

Notwithstanding anything to the contrary in any accounting standard, where a person prepares financial statements on an accrual basis:

  • An unrealised gain, including an unrealised foreign exchange gain, shall be included in the computation of the person’s taxable income for an accounting period to the extent that the gain arises in connection with assets and liabilities held on revenue account at the end of that accounting period.
  • An unrealised gain, including an unrealised foreign exchange gain, that arises in connection with assets and liabilities held on capital account at the end of an accounting period shall not be included in the computation of the person’s taxable income for that accounting period.
  • An unrealised loss, including an unrealised foreign exchange loss, may be deducted in the computation of the person’s taxable income for an accounting period to the extent that the loss is incurred in connection with assets and liabilities held on revenue account at the end of an accounting period.
  • An unrealised loss, including an unrealised foreign exchange loss, incurred in connection with assets and liabilities held on capital account at the end of an accounting period shall not be deducted in the computation of the person’s taxable income for that accounting period.

‘Assets held on capital account’ refers to assets that the person does not trade, or assets that are eligible for a capital allowance, or assets treated in accordance with international accounting standards as property, plant, and equipment, investment property, intangible assets, or other non-current assets.

‘Liabilities held on capital account’ refers to liabilities, the incurring of which does not give rise to expenses that qualify as deductions under the Income Tax Act, or liabilities treated in accordance with international accounting standards as non-current liabilities.

‘Assets and liabilities held on revenue account’ refers to assets and liabilities other than those held on capital account.