Luxury Villa Acquisition in the Maldives: An Overview

25 July 2024

This overview summarises the key areas that a buyer or foreign investor may consider when deciding to purchase or invest in a luxury villa (tourism strata property) in the Maldives.

1. What is a Tourism Strata Property?

The Maldives Tourism Act (Act No. 2/99) (the “Tourism Act”) and Regulation on Long Term Strata Leasing of Villas or Rooms (Regulation No. 2023/R-154) (the “Strata Regulation”), allow subdivision and creation of strata properties with separate strata titles in tourist resorts and integrated tourist resorts (the “Resort”). 

A tourism strata property, as per the Tourism Act and Strata Regulation, is defined as a villa or room located within the Resort with the following characteristics (the “Strata Property”):

  • Included in the site plan of the Resort;
  • Separate from other facilities in the Resort;
  • Boundary demarcated/identified;
  • Connected to utilities provided in the Resort; and
  • Having right of ways to the property and right of entry to the Resort.

2. Foreign Ownership of Strata Property

A foreign national or Maldives-registered entity (in which all directors and shareholders can be foreign nationals) are allowed to acquire and hold long term lease of a Strata Property, as per the applicable foreign investment laws and Tourism Act.

3. Tenure

How can the Strata Property be Held?

A leasehold title is allowed to be held by the lessee of a strata lease (the “Strata Leaseholder”) for the term of the lease pursuant to the Tourism Act and Strata Regulation.

After acquisition of the strata lease, Strata Leaseholder will obtain the right to use the Strata Property on a long lease basis but not the (freehold) ownership of the land, building and fixtures attached to the Strata Property. However, all movable property or personal property such as furnishing and decorations, within the boundary of the Strata Property will fall within the exclusive property of the Strata Leaseholder.

Length of Lease Term

Under the Tourism Act and Strata Regulation, the term of a strata lease cannot exceed the term of the Resort’s Head Lease Agreement* or if subleased, the term of the Sublease Agreement**. 

Head Lease Agreements are by default entered into for a lease term of 50 years with an option to extend up to 99 years. The lease term under Sublease Agreements cannot exceed the term of the Head Lease Agreement and hence, typical leases of sublease are for the balance term of the Head Lease Agreement.

Similarly, typical leases of strata lease are for fairly long terms (commonly, offered for the balance term of the Head Lease Agreement or Sublease Agreement).

*Head Lease Agreement is the lease agreement signed between the Government and head lessee specifying the terms under which an island, land or lagoon is leased to the head lessee for development and operation of a Resort. 

**Sublease Agreement is the lease agreement signed between the head lessee and sublessee specifying the terms under which an island, land or lagoon is leased for development and/or operation as a Resort.

4. Ownership Rights over the Strata Property

As per the lease agreement signed between the Resort operator and Strata Leaseholder for the lease of the Strata Property (the “Villa Lease Agreement”), the Strata Leaseholder will be entitled to the following rights in relation to the Strata Property:

  • Right of Use: a right to use the Strata Property for personal use and as an income generating asset.
  • Mortgage Rights: a right to mortgage the strata lease rights. Any mortgage created over the strata lease will have to be registered with the Ministry of Tourism.
  • Strata Lease Sale Rights: a right to sell/assign the lease rights acquired by the Strata Leaseholder under the Villa Lease Agreement to a third party, with the Resort operator’s prior consent.
  • Easements: a right of way through the Resort to access the Strata Property and for the passage and provision of supplying water, electricity, drainage and sewerage to the Strata Property.

5. Legislative Requirements for Strata Lease Acquisition

The principal regulator involved in regulating Strata Properties in the Maldives is the Ministry of Tourism (MOT). In this respect, Strata Property leasing transactions have to be recorded in a Villa Lease Agreement and registered with the MOT. Additionally, where a Strata Property in a Resort is leased out, a property management agreement has to be signed for the management of the Strata Property and submitted as part of the application package for the registration of the Villa Lease Agreement.

Villa Lease Agreement

Requirements that must be fulfilled and the terms that must be included in the Villa Lease Agreement are detailed in the Tourism Act and Strata Regulation. Most importantly, the Villa Lease Agreement must align with the Head Lease Agreement, ensuring its lease term does not exceed the head lease and prohibit further sublease rights. Rest are commercial terms that are commonly included and negotiated in a property lease agreement such as lease term, rent and rights and obligations of the parties.

Property Management Agreement

A property management agreement has to be signed between the Resort operator and Strata Leaseholder which specifies how the maintenance and upkeep of the Strata Property will be managed by the Resort operator. One of the reasons a property management agreement is mandated by the Tourism Act is that the Strata Leaseholder cannot be allowed to operate the Strata Property as a separate tourist establishment within the Resort. 

The terms that must be included in the management agreement is listed in the Strata Regulation published by the MOT and made effective on 05 September 2023 – which includes following key provisions:

  • Period the Strata Property will be personally utilised by the Strata Leaseholder within a calendar year;
  • Period the Strata Property can be utilised by the Resort operator for tourist accommodation within a calendar year;
  • Profit share arrangement between the Strata Leaseholder and the Resort operator in respect of the revenue generated from tourists accommodated at the Strata Property; and
  • Provision on upkeep and maintenance of the Strata Property.

Title Registration

Upon completion of the Strata Property acquisition and lease transaction, an application has to be filed at the MOT to register the rights and interests acquired by the Strata Leaseholder in the specific Strata Property.

The MOT will then issue a Strata Title Registry to the Strata Leaseholder – which is the title confirmatory document for the Strata Property.

6. Taxes Applicable to Strata Properties

Below are the main taxes applicable to Strata Properties:

# Tax Type Applicable Rate Notes
1. Tourism Goods and Services Tax (TGST) 16% TGST will be charged:

  • for the strata sale and lease transaction.
  • for goods and services obtained from the Resort by tourists that reside at the Strata Property.
2. Green Tax USD 6 Green Tax will be charged from each tourist per each day of stay at the Strata Property.

Additionally, the Strata Leaseholder will be subject to Maldivian Income Tax implications based on income generated from the Strata Property.