Business & Tourism
Income tax signed into law
A personal income tax will be introduced for the first time.
President Ibrahim Mohamed Solih on Tuesday ratified legislation passed by parliament to introduce a progressive income tax as pledged during his campaign for the 2018 election.
The law comes into force on January 1, 2020 but employee income will become taxable after April. The existing business profit tax, bank profit tax and withholding tax for non-residents will be incorporated under the new law with a more comprehensive capital gains tax regime whilst the existing land sales tax and remittance tax on expatriates will be abolished next year.
The annual personal income tax is divided into five brackets:
- Below MVR720,000 (US$46,692) – 0%
- MVR720,000 to MVR1,200,000 – 5.5%
- MVR1.2 million to MVR1.8 million – 8%
- MVR1.8 million to MVR2.4 million – 12%
- Above MVR2.4 million – 15%
Aside from salary and wages, income tax will also be levied on rental earnings, dividends, interest, annuity, pension, retirement benefits, technical service fees, commissions, royalties, capital gains, shares and other business investments.
All income earned by a resident within or outside the Maldives will be taxable. But non-residents will be taxed for income generated in the country and temporary residents – a foreigner with a visa to stay in the country who is not married to a Maldivian – will be taxed only on income sourced from the Maldives.
Before the bill was passed on December 4, lawmakers revised the tax brackets to increase the monthly income threshold from MVR40,000 to MVR60,000 in line with the Maldivian Democratic Party’s pledges for April’s parliamentary elections, in which the ruling party won a supermajority of 65 seats in the 87-member house. The government originally proposed a starting band of MVR40,000 to MVR60,000 at eight percent.
An exemption for dividends earned by residents from resident companies was kept in place after a proposal to tax dividend income above MVR1 million a year was voted down. The Maldives Inland Revenue Authority will be required to consider housing loan repayment periods to determine capital allowance rates for buildings constructed with loans from a licensed bank or financial institution.
The landmark legislation was passed with 67 votes in favour. It was strongly opposed by resort owners and business magnates in parliament such as Jumhooree Party leader Gasim Ibrahim, Maldives Development Alliance leader Ahmed Siyam Mohamed and Dhivehi Rayyithunge Party leader Abdulla Jabir.
An income tax was part of economic reforms proposed by the previous Maldivian Democratic Party government in 2011 but the income tax bill was scuttled by the opposition-majority parliament at the time, which approved a goods and services tax, business profit tax, and a new tourism tax.
With its legal requirement to file annual tax returns and disclose earnings, an income tax regime would be an essential tool to combat corruption and illicit enrichment, former attorney general Husnu Suood observed at the time.