The government is moving to tighten the tax framework for foreign businesses operating in the Maldives, with proposed changes targeting both overseas construction contractors and foreign tourism service providers.
One of the proposed changes would double the withholding tax on payments made by Maldivian businesses to foreign contractors working on construction projects in the country.
The amendment, submitted by PNC MP Hassan Zareer, proposes increasing the current withholding tax rate from 5 percent to 10 percent. Zareer has argued that the move would help create a more balanced and competitive environment for companies competing for construction projects in the Maldives.
Withholding tax is deducted from payments made to non-resident entities and transferred to the state as tax revenue. The system is designed to ensure that income earned in the Maldives by foreign companies is taxed even when those companies do not maintain a permanent business presence in the country.
The proposed increase comes alongside another major tax measure targeting the international tourism market.
A separate amendment submitted by PNC MP Mohamed Dawood seeks to introduce GST on tourism-related services provided by foreign tour operators, travel agents and offshore booking platforms.
The proposal aims to bring inbound tourism services supplied by businesses without a permanent establishment in the Maldives within the country’s tax system. It would also establish rules governing how offshore booking platforms and foreign tourism companies would be treated for tax purposes.
The government estimates that implementing the new tourism tax system would require an initial investment of approximately MVR 2.8 million, followed by around MVR 5.1 million in annual recurring expenditure.
Despite the additional administrative costs, the government expects the measure to generate approximately MVR 1.61 billion in annual revenue once fully implemented.
The proposed changes come as the government seeks to expand tax collection from foreign businesses benefiting from economic activity in the Maldives and strengthen the application of the destination principle within the country’s tax framework.
Parliament passed the amendments on Sunday and referred them to the Public Accounts Committee for further consideration.
