The New Foreign Investment Act Ratified

The new Foreign Investment Act (Act Number 11/2024) (the “Act”) was ratified by the President of Maldives on 3 September 2024, introducing new rules to the foreign investment framework in the Maldives.

Upon becoming effective, the Act will repeal the Maldives Foreign Investment Act of 1979 (Act Number 25/79) (the “Previous Act”).

Definition of Foreign Investment

The Act defines “foreign investment” as the transfer of capital, employees or technology to the Maldives by a foreign investor pursuant to a foreign investment licence issued to the investor.

This definition notably excludes projects or works which are engaged for specific contract periods and the Act does not specifically address the procedures relating to such time-bound projects or works.

As such, it is presently unclear how entities can be set up for time-bound projects under the Act – which would have significant impacts on foreign contractors in Maldives. Clarifications are expected to be provided by the Ministry of Economic Development and Trade (the “Ministry”) in due course regarding the business registration process applicable to such projects.

Permitted Sectors for Foreign Investments

Similar to the previous regime, the new Act continues to maintain sector-specific restrictions for foreign investments in the Maldives. To be eligible for setting up a foreign investment in the Maldives under the Act, the targeted business sector of the foreign investment must either be:

Open for foreign investment; or
Open for foreign investment subject to conditions/restrictions.

The Act outlines the following categories applicable to foreign investments in the Maldives.

A	B	C
Open sectors	Open sectors with conditions/restrictions	Restricted sectors
All sectors that do not fall within (B) and (C)	The Ministry is required to publish a list of the sectors with details of the conditions and restrictions applicable to those sectors	The Ministry is required to publish a list of the restricted sectors

The New Act therefore diverges from the current practice wherein foreign investment approvals are granted under an exhaustive industry sector list published by the Ministry in its Foreign Direct Investment Policy.

Restricted Sectors

Restricted sectors and open sectors with conditions/restrictions as noted above will be determined by the Minister of Economic Development and Trade in consultation with the Cabinet. Sectors that do not fall into restricted sectors or open sectors with conditions/restrictions will be open for foreign investment without any restrictions.

The lists are to be published within three months of the Act coming into effect and will be reviewed by the Ministry every three years.

Foreign Investment Approval Process

The Act reiterates the current foreign investment approval process, which remains mostly unchanged. The process consists of the following stages:

- Stage 1 (Foreign Investment Application):The foreign investor is to submit a foreign investment application to the Ministry along with a declaration of no objection with respect to setting up the investment in the Maldives;
- Stage 2 (Letter of No-Objection): The Ministry will review the application and issue a Letter of No-Objection with conditional approval following which the foreign investor will be required to complete the requirements laid out by the Ministry;
- Stage 3 (Foreign Investment Licence): Foreign investors who meet the requirements in Stage 2 will be issued a foreign investment licence by the Ministry;
- Stage 4 (Foreign Investment Agreement): The Ministry and the foreign investor are to sign a foreign investment agreement.

Foreign Investment Licence

The main update in the approval process in the new Act is the introduction of the foreign investment licence detailing the investment particulars.

According to the Act, the Foreign Investment Licence must include the approved business sectors for the foreign investment. Where the foreign investor seeks to revise the business sectors, they would be required to submit an application to the Ministry to update the Foreign Investment Licence. This process aligns with the current practices followed by the Ministry.

If the foreign investor wishes to renew the Foreign Investment Licence, a renewal application has to be submitted to the Ministry prior to six months from the expiry of the Licence.

Existing Investments

Upon the Act coming into effect, foreign investments established under approvals granted by the Ministry pursuant to the Previous Act will be deemed as registered foreign investments under the new Act.

However, foreign investments established under approvals granted by the Ministry of Tourism, as well as those established without foreign investment approvals, must submit a new foreign investment application under the Act within 12 months of it coming into effect (i.e. before 3 December 2025). Failure to submit the required application will result in the revocation of business permits issued to such foreign investors.

Who can apply for foreign investment approval?

The below entities/persons are listed under the Act as being eligible to apply for foreign investment approval:

Non-Maldivian individuals;
The following foreign registered companies:
- Companies with fully non-Maldivian shareholders;
- Companies with Maldivians and non-Maldivians as shareholders;
- Companies with full Maldivian shareholding, whether direct or indirect;
The following business entities which are registered in the Maldives:
- Partnerships with non-Maldivians holding partnership shares;
- Foreign companies with non-Maldivians holding shares;
- Re-registered companies (i.e. foreign companies having a registered branch in Maldives).
Joint venture arrangements entered into between Maldivians and non-Maldivians;
Foreign NGOs;
Legal entities created in a foreign country pursuant to the laws of that country.

Suspension or Termination of Foreign Investment Licence

A foreign investment licence may be suspended or revoked where:

False information was provided to the Ministry during the approval process;
The investor is declared bankrupt;
The business entity undergoes ownership restructuring with all shares under Maldivian ownership;
The investor has not undertaken activities specified in the foreign investment licence for at least 1 year or where the investor engages in other activities not authorised by the foreign investment licence;
The investor fails to meet a condition specified in the foreign investment licence;
Cancellation of permission or licence granted by a competent authority to carry out the relevant business or business activity;
De-registration of a re-registered company.

The Act requires the Ministry to revoke the foreign investment licence in the following instances:

False information was provided to the Ministry during the approval process; or
A condition specified in the foreign investment licence is not fulfilled.

Investor Protections

The following provisions have been provided in the Act with respect to investor protections:

Fair and equitable treatment: The Act states that investments established pursuant to the Act shall have full legal protection with respect to the investment and the profits generated from the investment.
Free transfer of investment and returns: The Act states that investors shall have the right to repatriate capital related to the investment and profits generated from the investment. However, the Act confers authority to the government to restrict repatriation rights where the Maldives face major economic challenges such as balance of payment issues or foreign exchange limitations.
Full protection and security: Investments made under the Act cannot be seized by the state or its institutions unless for a designated public or national security reason. In such cases, the investor must be compensated as stated in the Act.

It is to be noted that the above protections are generally covered under the existing Foreign Investment Agreements and the Act codifies these protections.

International Treaties and Free Trade Agreements

The Act further includes provisions for the application of international treaties and free trade agreements (FTA) for foreign investments in Maldives. Where such treaties and FTAs include provisions to govern specific foreign investments in Maldives, the Act prescribes that those provisions would prevail over any other relevant rules.

Effective date

The Act will come into effect on 3 December 2024.