The Foreign Investment Act (Law Number: 11/2024) (“FIA” or “Act”) of the Maldives came into effect on 3 December 2024, establishing a comprehensive framework to attract foreign investment while safeguarding national interests. This landmark legislation aims to create a favorable environment for foreign capital, technology, and expertise, fostering economic growth and sustainable development in the country.
This article provides an overview of the Maldives Foreign Investment Act, highlighting its key features and implications for businesses considering investment opportunities in the Maldives.
Sectors for Foreign Investments
The FIA categorizes sectors for foreign investment into three distinct groups:
- Open Sectors: Foreign investors can freely invest in these sectors without restrictions, offering ample opportunities for businesses to enter the market.
- Conditionally Open Sectors: Investment is permitted in these sectors, but only under specific conditions determined by the Ministry of Economic Development & Trade (“MED”). These conditions may include regulatory approvals, partnerships with local entities, or adherence to sector-specific guidelines.
- Closed Sectors: These sectors are entirely closed to foreign investment, primarily to protect national security, public interest, or cultural heritage.
Currently, the sectors that are open, conditionally open, and closed for foreign investment remain the same as under the Foreign Direct Investment Policy, as announced by MED on 3rd December 2024.
Investment Approval Process
Foreign investors must obtain approval to invest in the Maldives. Following the submission of the foreign investment application the approval process consists of the following stages:
- Issuing a No-Objection Letter: The Ministry evaluates the investment proposal and issues a no-objection letter if it meets the legal requirements.
- Completion of Required Procedures: Investors must meet specific obligations outlined in the no-objection letter.
- Issuing a Foreign Investment License: After completing the required procedures, the investor receives a license to conduct business in the Maldives.
- Investment Agreement: A formal agreement is signed between the investor and the relevant Ministry detailing the terms of the investment.
Eligible Parties for Investment
Foreign investors eligible to apply for investment permission under the FIA include:
1. Foreign individuals;
2. Foreign companies, including:
- Companies with all foreign shareholders.
- Companies with both local and foreign shareholders.
- Companies incorporated outside of Maldives with local shareholders directly or indirectly holding 100% shares.
3. Businesses registered in the Maldives as below:
- Partnerships with foreign shareholders.
- Companies with foreign shareholders.
- Companies re-registered in the Maldives under the Companies Act.
4. Joint venture arrangements established between Maldivians and Foreigners;
5. Foreign NGO’s; and
6. Legal entities incorporated under and governed by the laws of a foreign jurisdiction.
Foreign Investment License
The law outlines the key terms that should be included in the investment license (non-transferable license), including:
- The investment scope and amount.
- Duration of the license.
- Obligations related to compliance with local laws and regulations.
Considerations for granting approval
Applications for foreign investments should be submitted to MED along with the documents required as per the regulation made pursuant to the Act. MED is required to consider the following before granting approval:
- Financial capability of the applicant or the ability to raise the funds for investment
- The applicant is not a foreign national, or a foreign national who controls a company or partnership or other legal entity, prohibited from entering or residing in the Maldives under the Immigration Act or any other law
- If the investment is in a conditionally open sector, the applicant must comply with all sector-specific requirements outlined in the regulations.
- If the investment spans more than one conditionally open sector, the applicant must fulfill the regulatory requirements for each sector individually
Investment Agreement
The FIA specifies the minimum requirements to be included in an Investment Agreement. These include:
- Details of the business, such as the nature of the investment and its scope.
- The amount of Foreign Direct Investment (FDI) to be made.
- Obligations of the investor, including:
- Payment of taxes (unless exempted),
- Compliance with environmental protection laws,
- Adherence to relevant acts and regulations,
- Employment of local personnel, and
- Other specified responsibilities.
Incentives and Benefits for Foreign Investors
- Fair Treatment and Protection: Foreign investors are guaranteed fair and equitable treatment under the law. Their investments are protected from arbitrary actions by the government, and their profits can be repatriated to their home countries, subject to certain exceptions related to economic crises or balance of payment difficulties.
- Repatriation of Profits: Investors have the right to transfer profits and capital abroad, although during times of economic difficulty (e.g., foreign exchange shortages), the government may impose conditions to regulate the repatriation of funds.
- Prohibition on Expropriation: The law only allows for the expropriation of foreign investments under very exceptional circumstances, such as national security concerns or public interest needs. However, the government must provide fair compensation based on the market value of the investment.
- Tax and Fiscal Benefits: Foreign investors are entitled to benefit from the Maldivian tax system, with specific tax exemptions and incentives based on the nature of the investment, particularly in priority sectors.
Enforcement, Compliance, and Dispute Resolution
- Monitoring Compliance: The Ministry is tasked with ensuring that foreign investors comply with the terms of their investment licenses. If investors fail to meet their obligations or violate the conditions of their license, penalties such as fines, suspension, or cancellation of the license can be imposed.
- Complaints and Dispute Resolution: The law allows foreign investors to file complaints with the Ministry if they feel that their rights have been violated or if there are disputes with government decisions. A Review Committee will assess complaints, and unresolved matters may be taken to the court or through other dispute resolution mechanisms as outlined in the investment agreement.
- Violation and Penalties: Investors who breach the terms of their licenses or fail to adhere to the regulations may be fined or face the cancellation of their investment license. Fines can range from a fixed amount to a percentage of the value of the unauthorized investment or business activity.
Engaging in unauthorized business activities:- Engaging in business activities that contravene the Act and regulations enacted under the Act or conducting activities outside the scope of the foreign investment license.
- Penalty: Fines up to 30% of the total business or investment value.
Providing false or misleading information:
- Submission of false or misleading information during the foreign investment license application process.
- Penalty: Fines ranging from MVR 100,000 to MVR 1,000,000.
Violating license terms:
- Violating the terms specified in the foreign investment license.
- Penalty: Fines ranging from MVR 100,000 to MVR 1,000,000, or up to 10% of the total business or investment value.
Failing to comply with Ministry instructions
- Failing to comply with the Ministry’s instructions to rectify actions that are inconsistent with the foreign investment license.
- Penalty: Fines ranging from MVR 100,000 to MVR 1,000,000, or up to 10% of the total business or investment value.
International Treaties
These include Bilateral Investment Treaties (BITs), Multilateral Investment Treaties (MITs), and Free Trade Agreements (FTAs). The Foreign Investment Act (FIA) states that if these treaties include different provisions to govern foreign investments in the Maldives, such provisions will prevail over the provisions of the FIA.
The most recent China-Maldives FTA came into effect on 01 January 2025. This FTA is poised to enhance trade and investment opportunities between the two nations, boosting economic growth and development in the Maldives. Investors interested in the Maldives should stay updated on these treaties as they offer unique benefits and protections.