Introduction

In response to the ongoing dollar shortage in the Maldives, the Government has introduced the Fifth Amendment to the Income Tax Regulation (2024/R-84) (the “Amendment”). This Amendment, effective from 12th September 2024, introduces key revisions that taxpayers must follow, primarily concerning the presentation currency for tax returns and the payment currency for tax payments.

Under the Amendment, taxpayers whose functional currency is a currency other than Maldivian Rufiyaa (“MVR”), are now required to pay the following taxes in United States Dollars (“USD”):

• Corporate / Personal Income Tax (including interim taxes with the exception for 2024 first interim).
• Employee Withholding Tax
• Non-resident Withholding Tax
• Capital Gains Withholding Tax

Key Highlights of the Amendment

1. Presentation Currency

Corporate Income Tax / Personal Income Tax: Starting from the tax year 2024, taxpayers with a functional currency other than MVR are now required to present their tax returns and accompanying documents in USD. This marks a change from earlier provisions, where taxpayers could choose between Rufiyaa or USD if neither currency was their functional currency. However, this rule will not apply to the preparation of the first interim return for the tax year 2024. The functional currency will be determined in accordance with the principles outlined in International Accounting Standard 21 (The Effects of Changes in Foreign Exchange Rates).

Withholding Taxes: Taxpayers whose functional currency is not Rufiyaa must now prepare their Employee Withholding Tax, Non-resident Withholding Tax, and Capital Gains Withholding Tax returns in USD for periods ending on or after 31st October 2024. Earlier, these returns had to be prepared in Rufiyaa regardless of the functional currency. Currency translations must align with International Accounting Standard 21, using a rate within ±2% of the Maldives Monetary Authority’s published exchange rate.

2. Payment Currency

Corporate Income Tax / Personal Income Tax: Under the Amendment, if the taxpayer’s presentation currency is MVR, taxes can now be paid in either MVR or USD, whereas previously only MVR was accepted. If the taxpayer’s presentation currency is USD, taxes must be paid in USD starting from the tax year 2024, with the exception of the first interim payment for the year 2024. Prior to this Amendment, taxpayers had the option to make payments in either USD or MVR.

Withholding Taxes: Non-resident Withholding Tax, Employee Withholding Tax, and Capital Gains Withholding Tax can now be paid in USD or MVR. Previously, these taxes were accepted only in MVR. However, for taxpayers whose functional currency is not MVR, these taxes must be paid in USD for periods ending on or after 31st October 2024.

Exchange Rate: Where taxes are translated due to the election to pay in USD (i.e., when the functional currency is Rufiyaa), the tax amount payable in USD must be calculated using the exchange rate of MVR 15.42 per USD.

Summary of the Amendment