New Foreign Investment Law of the Maldives: An Overview
3 December 2024
On September 3, 2024, a new Foreign Investment Act (Act Number: 11/2024) was published by the Government Gazette pursuant to its ratification by the President (the “New Foreign Investment Law” or “New Law”). The new Foreign Investment Law takes effect today, 3 December 2024, 3 months following its publication, following which it repeals the 1979 Foreign Investment Act (Act Number: 25/79). The implementing regulations that are to be issued pursuant to the New Foreign Investment Law are mandated to be issued within 3 months from the New Law coming into effect.
This overview outlines the key provisions in the New Foreign Investment Law and its implications for international investors and their investments in Maldives.
1. Summary of Key Points
– Investment Areas
Under the New Law, the areas allowed/open for foreign investment are categorised into 2 sectors. That is:
- Open investment sectors; and
- Conditional investment sectors.
For conditional investment sectors, investment approval will be granted after considering factors such as national security, effect on local competition, need for foreign investment in the particular sector and employment created.
The ‘Conditional Investment Sectors List’ including details on the restrictions/conditions for each sector has to be published in the Government Gazette within 3 months from the New Foreign Investment Law coming into effect and it would be subject to revision every 3 years.
- List of Restricted Activities
Section 11(a)(1) of the New Law requires the Minister of Economic Development and Trade to issue and update the ‘list of restricted activities’ for foreign investment.
The list of restricted activities is treated as an absolute restriction against foreign investors undertaking particular economic activities which are reserved only to local investors on grounds of national security, public economic interests and preserving public order.
– New Requirement to Obtain a Foreign Investment Licence
The New Law introduces a mandatory requirement for a business registered in Maldives with foreign ownership to obtain a foreign investment licence issued by the Ministry of Economic Development and Trade (MEDT).
With this change the foreign investment application process will become a 4 stage process, where each step needs to be completed before proceeding to the next, as outlined below.
- Step 1 – Obtaining No Objection Letter
- Step 2 – Completing Business Registration
- Step 3 – Obtaining Foreign Investment Licence
- Step 4 – Signing Foreign Investment Agreement
The foreign investment licence will be issued after the business registration is completed. Hence, it is understood that steps 2 and 3 will be processed together provided the submitted application package is in order. Completion of step 2 and 3 therefore will result in the issuance of the business registration certificate and the foreign investment licence simultaneously.
Details that must be included in the foreign investment licence, procedures to amend the details included in the licence (such as scope allowed for the foreign investment to operate) and procedure for licence renewal are provided in the New Law. Further, circumstances pursuant to which the licence can be suspended or revoked and the consequences of licence revocation are detailed in the New Law.
– Provisions that must be included in the Foreign Investment Agreement Codified into Law
The outgoing law mandates that a Foreign Investment Agreement (FIA) has to be signed between the Government and the Investor. The FIA covers the rights and obligations of the parties involved to regulate and protect the investment made.
The New Foreign Investment Law codifies these provisions, listing them explicitly to enhance legal certainty and standardise investment procedures. The codified provisions align with those already included in the current draft FIA issued by the MEDT.
– Enhanced Investment Protections
The New Law, in its Chapter 4, expressly provides for the following investor protections:
- Fair and Equitable Treatment
The New Law provides that all foreign investments and its profits will be afforded with (i) full protection and security; and (ii) fair and equitable treatment – ensuring protection to investors against arbitrary and unreasonable or unfair actions by the State along with a stable and legally secure environment for investments.
- Capital and Profit Repatriation
The New Law further provides that foreign investors shall have the right to repatriate their investment capital and the proceeds of their investment/profits. This right can be limited by the State in situations such as foreign exchange issues or other economic crises faced by the State.
- Expropriation Protections
The New Law also provides that an investors’ investment may not be confiscated/expropriated by the State except for public interest or national security reasons. Further that, in such an event, it has to be carried out in accordance with the provisions of law and after compensating the investor for their losses on a fair and reasonable basis – determined based on fair market value of the investment and other factors plus procedures that are to be specified in the implementing regulations.
It is understood that these statutory protections have been incorporated into law with the intention to provide investors’ comfort with their investments and capital protection.
– Penalties
Non-compliance or breach of the New Law can result in significant penalties. Companies conducting activities beyond the scope of their licence may face fines of up to 30% of their total business value. Additionally, submitting false information during the foreign investment licence application process can result in fines ranging from MVR 100,000 to MVR 1,000,000. Breaches of foreign investment licence rules, or failure to rectify such breaches within the prescribed period without valid justification, may also lead to penalties of MVR 100,000 to MVR 1,000,000 or up to 10% of the investment value.
2. Implications to Existing Foreign Investments and Interim Matters
Upon the coming into effect of the New Law, existing registered foreign investments will be considered as foreign investments approved and registered under the New Law and continue as per the foreign investment approvals granted to them until the currently approved investment period expires.
Investments falling into the following categories are required to submit an application for registration under the New Law within 12 months of the New Law coming into effect:
- Tourism related investments that obtained foreign investment approval from the Ministry of Tourism in accordance with the 1979 Foreign Investment Act; and
- Foreign businesses operating in the Maldives without a foreign investment approval.
3. What will happen to the FDI Policy?
The FDI Policy, which came into force on 11 February 2020, is the main document which sets down the criteria (including maximum percentage of foreign shareholding, minimum initial investment amount and investment period) and MEDT approval process for foreign investments.
The FDI Policy was formulated pursuant to the 1979 Foreign Investment Act and as such it is understood that the FDI Policy will be repealed upon the New Law coming into force. It is not clear how soon a new FDI Policy or list of activities that are open and closed for foreign investment will be published by the MEDT.
4. Considerations for New Investments
The New Foreign Investment Law is now in effect as of 3 December 2024. Whilst the implementing regulations are expected to provide further details on the application of the New Law, all new foreign investments when assessing the viability of an investment in the Maldives via setting up a new company, investing in a local company or establishing a branch should first determine whether the industry in question is open to foreign investment.
Furthermore, with the new Companies Act of the Maldives (Act Number: 7/2023), which came into effect in January 2024, investors should also seek advice as to their obligations as shareholders and directors of locally registered companies, notably the corporate governance and other rules to which they must comply, and the consequences of any failure to comply.
