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SUMMARY ON BUSINESS PROFIT TAX ACT


There has been a long standing discussion with regard to imposition of corporate/business
profit tax in the Maldives. The initial discussions date way back as 1995. There has been
numerous draft bills presented to the Government. However in the last two years the
discussions have been actively pursued by the current Government and the Act has now
been legislated.


As businesses in the Maldives have hitherto not been subject to any form of tax on profits the introduction of tax on
business profits whilst having a negative impact on the profits will also pose new challenges in terms of a higher
requirement for accountability in business operations. In this document we have for the benefit of our clients
summarized the more significant aspects of this statute. The Act is gazetted in Dhivehi (local language) and this
summary is prepared based on an unofficial English translation that is available at this stage. The Maldives Inland
Revenue Authority (MIRA) who shall be the authority for the administration of the Act shall produce tax regulations
pursuant to the Act in due course.


The business profit tax Act 5/2011


The President of the Republic of Maldives ratified the Act to tax business profits on 18th Jan 2011. The Act is called
"Business Profit Tax Act 5/2011".

This Act shall commence six months from the date of ratification.

The word Business includes any profession, vocation, trade, commerce, manufacture, agriculture, horticulture,
forestry, timber growing, aquaculture, fishing, fish farming, poultry, cattle raising or any other activity carried on with
a view to making profits and the granting of right to occupy immovable property for valuable consideration. Business
does not include any employment.

Scope of the Act and tax rates


The tax is payable by all Companies, Partnerships and other Businesses (proprietorships, trusts etc) resident in the
Maldives on income sourced from the Maldives exceeding Rf 500,000 (1 US$ = 12.85 Rf) per annum.




Tax on overseas sources of income for companies registered in the Maldives
Companies registered in the Maldives having sources of income outside Maldives shall be taxed on such sources
income.




Tax on non-resident companies doing business in the Maldives
Non Resident Companies doing business in the Maldives shall be taxed on
1. any profits of the company which are attributable to a business carried on by the company through a permanent
establishment in Maldives.
2. royalty or management fee earned from a person resident in the Maldives or a person with a permanent
establishment in the Maldives
3. rent received by the company for leasing property in the Maldives



The applicable tax rate is 15%
The applicable tax rate is 5%
The applicable tax rate is 15%


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Taxable profits for group of companies
Where a person is required to submit consolidated accounts the threshold of Rf 500,000 for charging tax shall apply to
the whole group.

Withholding tax


Withholding tax of 10% is payable for payments made to a person who is not resident in the Maldives. Such payments
include;
1. Management fee
2. Fee for any technical services
3. Fee for use of computer software
4. Payment for performances by public entertainers
5. Rents in respect of viewing cinematographic films in Maldives
6. Royalty/rent paid for the use of plant, machinery, equipment or property
7. Payment for carrying on any research and development
8. Any other commissions or fees

Amounts deductible in computing taxable profits


In computing the taxable profit the following expenses can be deducted.
1. Expenditure incurred exclusively for the purposes of production of income
2. Allowances for capital expenditure
3. Head office expenses
4. Staff welfare
5. Pension contributions
6. Audit fee
7. Bad debts
8. Any receipt that has suffered withholding tax
9. Payments to approved donation or charity not exceeding 5% of taxable profits
10. Pre-trading or pre registration expenses
11. Any other deduction prescribed by MIRA regulations

Amounts not deductible in computing any taxable profits


Following deductions shall not be allowed in computing taxable profits of a person for the tax year;
1. Domestic or private expenses
2. Capital expenditure
3. Rent or expenses for any premises not occupied for producing income
4. Rent of any premises owned or leased by the person and used by him in connection with the business
5. Interest exceeding 6% per annum except for interest payable to bank for financial institution approved by MIRA
6. Fines, penalty, interest payable in respect of failure to comply with laws, rules and regulations
7. Any remuneration payable by a company in excess of 10% of its taxable profits to its director, person holding
substantial interest, associate, person related to or associate of a director
8. Any remuneration payable by a trust or body of persons in excess of 10% of its taxable profits to its trustee,
member or person associated with such trustee or member
9. Any remuneration payable by a partnership in excess of 10% of its taxable profits to its partner, person holding
substantial interest in the partnership, associate of partnership, person related to or an associate of a partner

Deductions against rent


A person who is chargeable to tax for any tax year in respect of an amount received by that person as rent, can make
an election under section 9 of the Act to compute his taxable profits. Accordingly deductions may be made in
computing taxable profits of the person for that year equal to 20% of the actual rents received in that tax year.

Where such an election is made then section 9 shall apply to the exclusion of other sections of the act.


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Loss relief


Loss for a tax year can be carried forward and set off against future profits upto 5 years. A loss can be carried forward
only if a claim for that loss is made in the tax return for that year. An earlier loss is set off before a later loss.

Any loss incurred prior to commencement of the act may not be carried forward.

Exemptions


The provisions of the act do not apply to the following;
1. Banks within the charge of Law on Taxing Profits of Commercial Bank (No 9/85)
2. Any body, association or public institution approved by MIRA for promotion of Islam, relief of poor, medical relief,
education or other object of similar general public utility

Tax returns


A person who is within the charge to tax for any tax year shall make a tax return including the computation of his
taxable profit and assessment of tax in respect of that year.

Where a person who is required to make up accounts by regulations for any period ending in a tax year, he should
deliver his tax return before the end of 6 months from the end of the persons accounting period or on or before 30th
April in the following tax year whichever is later.

For all others a tax return is required to be made on or before 30th April in the following tax year.

Payment of tax


Interim payments on business profits shall be made on or before 31st July in the tax year and 31st January in the
immediately following tax year in two equal halves of the assessed tax.

Withholding tax shall be deducted from the gross payment subject to tax and shall be paid to MIRA not later than 15th
day of the month following the month in which the payment is paid or credited whichever is earlier. A return for
withholding tax shall be filed along with.

Limitations


This circulation contains information in summary form and is therefore intended for general guidance only. This
summary may not address the tax situation of a particular person, company, partnership or any other body of persons.
The meanings and interpretations of the provisions contained in the un-official English translation of the act may vary
from Dhivehi version of the act. Further aspects covering the implementation of the tax act are to be dealt with in
greater detail by MIRA regulations. You are advised to seek appropriate professional advice considering your individual
circumstances.

Should you require further information or clarifications regarding the Business Profit Tax, please do not hesitate to
contact;

Ernst & Young
G Soasanee
Rahdhebai Magu
Male
Republic of Maldives
Telephone +960 3320742
Fax +960 3320748

Dated 24 February 2011