The Maldives is taxing the world's travel agents. What the new T-GST law does

The amendment to the GST law has drawn formal protests and warnings from British and European operators and travel trade associations. Here is what it entails and which questions remain unanswered with three weeks left before implementation.

The GST regime previously ran on the origin principle. When holiday packages in the Maldives are sold by offshore booking platforms, covering accommodation, transport, food and beverage, only a portion of those services are taxable. The goods and services are delivered in the Maldives, but MIRA could not legally access information about the transaction between the tourist and the foreign platform, both of whom are outside the country when it takes place. 

A resort selling a villa to a European wholesaler paid T-GST on the net rate. Since the latter is not physically in the country, what the wholesaler adds on top before selling to the guest could not be taxed domestically. 

The revised law switches to the destination principle: tax follows the place where a service is consumed rather than the place where the seller happens to be established. A bed night slept in Baa Atoll is a Maldivian supply regardless of the website that sold it. This is the standard the government has touted in defence of the move. 

In the revised law, a new provision establishes where the supply is deemed to take place. Where the recipient is not GST-registered in the Maldives, a service is deemed to be supplied here if it is "an inbound tourism product, or agency or booking services pertaining to the supply of an inbound tourism product". An inbound tourism product is defined broadly to include accommodation, meals, transport, or any other tourist activity in the Maldives.

Further provisions bring the supply of an inbound tourism product by a person with no fixed place of business in the Maldives within the definition of a taxable activity. Those suppliers – and the agency and booking services attached to them – are placed in the tourism sector (to which the 17 per cent rate rather than the eight per cent general rate applies).

A separate section requires anyone supplying such goods or services to register. There is no turnover threshold. The MVR1 million threshold for ordinary businesses does not apply.

The margin. A special valuation rule is introduced for offshore suppliers: the taxable value is what the traveller pays, less what is payable to the Maldivian supplier. The suppliers will not be eligible for any input tax deduction.

Local tax firm CTL Strategies worked out an example: an overseas operator sells a Maldives package for US$2,500. It has bought US$1,700 of resort accommodation, US$250 of airport transfers and US$150 of excursions. The total is US$2,100 inclusive of US$305.12 of T-GST. Under the margin mechanism, the taxable value is US$400. GST at 17 per cent is US$68. The US$305.12 that was paid cannot be reclaimed. The margin calculation is treated as having recognised it.

Both principals and agents must pay the tax. A principal is an operator that buys rooms at net rates, sets its own price and carries the risk. An agent is a platform that discloses it is arranging a booking between the resort and the guest. The former pays on the markup while the latter pays on its commission. 

The deeming rule applies only where the recipient is not GST-registered in the Maldives. Sales routed through a registered local agency must be assessed separately.

The annual tax revenue was estimated at MVR1.6 billion (US$104 million), which includes MVR299.3 million from overseas travel agents and about MVR1.3 billion from foreign tour operators. 

Extrapolating from MVR 1.6 billion at 17 per cent, the offshore margin on Maldives travel would have to be about MVR9.5 billion a year. That is more than US$600 million of value outside the Maldives tax net. An industry op-ed on Hotelier Maldives, which first ran the calculation in late August, questioned the methodology for calculating the tax collection figure.

In its October 2024 development update, the World Bank examined the leakage and judged the government's route unpromising. Pillar One – a stalled OECD framework that aims to let countries tax large companies where their users and consumers are located, even without a physical office – and a digital services tax would not capture these sales because the customers are not Maldivian residents, it argued. A permanent establishment argument would not hold, because the platforms have no meaningful presence, digital or otherwise. The Bank concluded that it would be "challenging to create a nexus that would justify taxing those foreign platforms."

Its recommendation for the "only viable alternative" was to "properly assess the price to be charged by the Maldivian providers": apply the arm's length principle and transfer pricing rules to net-rate contracts, build a transfer pricing unit at MIRA capable of audits and advance pricing arrangements. In the interim, a presumptive levy could be imposed on the gap between the local price and the offshore price. This would be payable by the Maldivian company at about three per cent. It would be creditable against future adjustments and repealed once MIRA's capacity was built.

But instead of a low-rate interim levy on domestic taxpayers it can audit, the government has legislated a 17 per cent charge on foreign companies it cannot.

Mohamed Firaq, CEO of Inner Maldives, a leading local travel operator, wrote on 18 August that the concerns raised by the IMF were about "offshore booking platforms, commissions routed through foreign entities, transfer pricing, related-party transactions", matters of avoidance and profit shifting that "should not automatically be treated the same as foreign tour operators that contract rooms in the Maldives and package, market and sell holidays in their own countries". Operators commit to guaranteed room allocations and block airline seats, paying for what they do not sell, and carry their own marketing, staffing and distribution costs. He argued that their overseas profit "is therefore not simply the difference between the Maldives hotel rate and the final package price". 

The government-sponsored bill was submitted to the Majlis on 15 August, reviewed by a committee, passed on 26 August and ratified five days later. In contrast, New Zealand consulted for years before extending GST to offshore sellers. Australia phased its regime across two budgets. 

The second problem is bookings sold. The amendments do not contain an explicit transition rule. Under existing time of supply rules, GST becomes due on the earlier of the tax invoice or the payment. It is unclear whether a package paid for in August 2026 for a January 2027 stay would fall outside the regime.

"Resort agreements have been signed, brochures printed, packages distributed and bookings confirmed," the Maldives Association of Travel Agents and Tour Operators said.

Both ECTAA (European Travel Agents' and Tour Operators' Associations) and ABTA (The Travel Association) have warned that European consumer protection rules restrict operators from raising the price of a package after sale. The operator would therefore be forced to absorb the tax on bookings currently on the books.

Meanwhile, in the absence of a threshold for eligibility, a small specialist agency selling a handful of honeymoons a year would face the same registration and filing burden as Booking.com.

The Maldives also has a thin double taxation treaty network with its main source markets. MIRA cannot compel an Italian operator to open its ledgers or easily test how much of a package bundling flights, insurance and a Dubai stopover has been allocated to the Maldives leg.

It would be "extremely difficult to implement and enforce" a requirement for every foreign agent working through a Maldivian company to register, MATATO warned. Local agents cannot be expected to take on "identifying, educating, monitoring or effectively policing" hundreds of thousands of overseas partners, it added. 

In a circular issued after ratification, MIRA required all TGST-registered businesses to submit details of the foreign tour operators, online travel agencies and bed banks they deal with by 6 September. The tax authority is invoking the new information-gathering power granted by the law to build a list of who should be registering. Resorts are effectively being asked to name their distribution partners.

A foreign partner database represents "years, and in some cases decades" of relationship building, MATATO had said before the law was passed, arguing that commercially sensitive data should not be collected at scale without safeguards.

ABTA, which represents around 3,500 UK travel brands with a combined turnover above £41 billion, wrote to Tourism Minister Mohamed Ameen on 27 August, before ratification, urging the government to pause implementation and consult. ECTAA, the European umbrella body, wrote separately to Ambassador Dhiyana Saeed in Brussels. Both acknowledged the Maldives' right to set its own tax policy but asked for transitional arrangements, clarity on thresholds and margin calculation, and registration procedures designed for non-resident businesses. Germany's DRV called the timetable rushed. 

The local association's core objection is that the law does nothing for the businesses it is said to help. The amendment offers local agents "no significant new protection, no competitive advantage and no reduction in their existing obligations," MATATO said. On the assumption that taxing foreign operators automatically benefits local ones, the group said it "does not believe this is necessarily the case".

If selling the Maldives becomes harder, foreign partners may "divert business to competing destinations," it warned. "Local travel agents should not become collateral damage in an attempt to increase government revenue."

The amendments require a revised GST regulation to be enacted in 30 days. The rules would have to specify how a foreign supplier with no MIRAconnect account registers; whether margins are calculated transaction by transaction or aggregated across a period; what happens when the final cost payable to the resort is not known at the time the traveller pays; how packages mixing Maldives and non-Maldives components are apportioned; the treatment of cancellations, refunds and adjustments; which return form applies, and whether the standard monthly and quarterly filing rules carry over; whether any transitional relief will be given for bookings sold before 1 October.