The Maldives Monetary Authority (MMA) has released the Draft General Regulation on Foreign Currency for public comments. This regulation outlines the additional transactions permissible to be carried out in a foreign currency, procedures for deposit and conversion requirements, and actions to be taken against non-compliance with the Foreign Currency Act (FCA). For a detailed overview of the FCA, refer to our previously
published article on our website. Here is a breakdown of the key provisions of the draft regulation:
Transactions Permitted in Foreign Currency
In addition to the exemptions given in the Foreign Currency Act (FCA), the regulation extends the transactions exempt from being carried out in the local currency. These include
- Insurance Transactions between Insurance Companies insurance intermediaries and customers, in relation to insurance policies sold to business other than tourism service providers
- Transactions between companies earning income in foreign currency and their shareholders including foreign currency exchanges
- Related party transactions: Transactions between companies earning foreign currency income and their related parties (within the same corporate group), including foreign currency exchanges
- Payment by Diplomatic Missions in the Maldives
- Other transactions as determined by the Governor
Transfer or Deposit Requirements
The draft regulation states that determination of whether an entity other than tourism goods and services providers (“Other Businesses”) meets the threshold of USD 15 million will be based on:
- Financial statements from the previous year.
- Goods and Services Tax (GST) returns
Entities transferring or depositing foreign currency income into a bank account must submit details of the foreign currency to be transferred or deposited within 10 working days following the end of the month. A ‘deposit declaration form’ must be submitted via the foreign exchange portal.
Classification and Obligations for Foreign Currency Conversion
The draft regulation clarifies the classification of tourism establishments:
- Category A: Includes yacht marinas accommodating tourists as other similar establishments stated in the FCA.
- Category B: Includes homestays as part of tourist guesthouses.
Choosing the amount of foreign currency to be converted
The FCA provides tourism goods and service providers with two options for calculating their foreign currency conversion requirements:
- Based on the number of tourist arrivals, or
- 20% of gross sales
Businesses must declare their chosen option in the first sales report after registration. This choice can be revised every January. Additionally, if a business converts more foreign currency than required, the excess amount can be adjusted in subsequent months.
Computation of Gross Sales
When calculating gross sales in foreign currency, the following can be deducted:
- Tourism Goods and Services Tax (TGST)
- Green Tax (GRT)
- Service charges
Documents Required for Currency Conversion
Businesses must submit the following documents to banks when converting foreign currency:
- Taxpayer Identification Number (TIN)
- Business registration number
- Name of the establishment or business
- Month of the sales proceeds being converted
- Any additional information required by MMA
Conversion details must be submitted
within 10 working days of the following month via the conversion declaration form.
Review of conversion requirement
The FCA allows businesses to request a review of conversion requirements if standard computations leave them with insufficient foreign currency. Section 12(a) of the FCA states 4 foreign currency obligation(s) that can be considered such a review including government obligations, debt payments and payment obligations due to court/tribunal/arbitration decision. The draft regulation specifies that:
- Government obligations include payments under any act or regulation.
- Debt refers only to long-term loans (over one year) obtained directly for the purpose of business.
Documents Required for Review:
- Tax clearance report (issued within the past month)
- Attested copies of government obligations payable in foreign currency
- Attested copies of debt instruments
- Loan documents and current loan statements
- Court judgments or tribunal decisions (if applicable)
- Cash flow statements for the current financial year
- Audited financial statements from the previous year
- Any other information required by MMA
MMA’s Review Process and Considerations
Upon reviewing a submitted request, the MMA will decide one of the following:
- The minimum amount to be converted and the duration for which such conversion is allowed;
- That there is no requirement to revise the amount to be converted; or
- If any documents are missing, amend, and resubmit for review.
The draft general regulations also outline key considerations the MMA will consider when determining the outcome of a review submission. These include:
- Registration with the MMA as per the Regulation on Foreign Currency 2025/R-2. (Refer to our article for detailed information on this regulation.)
- Submission of reports as required under this regulation and the FCA.
- Compliance with transfer, deposit, and conversion requirements.
- Actions taken for non-compliance with this regulation and whether the business has followed up on such actions.
- Payment of taxes and other government obligations as required under the Act and Regulation.
- A forecasted cash flow analysis based on monthly income to assess the ability to fulfill foreign currency obligations for the year.
- For tourism service providers, if the chosen conversion option has been changed, whether the converted amount based on the revised option will be sufficient to meet their foreign currency payment obligations
Reporting and document maintenance
Business must maintain the documents for 5 years and submit the monthly sales reports by the 28th of the following month via the foreign exchange portal. If a registered business halts operations temporarily, notify MMA within 10 days with the following information.
- Date business temporarily stops operations
- Reason for temporarily halt
- Expected date operations will be resumed
Penalties for Non-Compliance
The General Regulation outlines a structured penalty system for non-compliance
- First Notice – 15 days to comply
- Final Notice – Additional 15 days to comply
Penalties
- Failure to meet deposit requirements: Fine of up to 0.25% of the required deposit.
- Failure to meet conversion requirements: Fine of up to 0.5% of the required conversion.
- Other violations: Fines ranging from MVR 10,000 to MVR 1,000,000, and daily fines for continued non-compliance depending on severity.
The draft regulation specifies that fines must be paid to the MMA within 90 days (about 3 months) of imposition. However, businesses may enter an installment plan to settle the dues. If fines remain unpaid after 90 days (about 3 months), a final notice will be issued. Following this, the MMA has the discretion to inform relevant government authorities, which may result in the suspension of the business’s operating license. Additionally, the MMA may pursue enforcement actions through the courts to recover outstanding dues.
Investigating cases of fraud in accounts and information submitted
If MMA suspects that the sales report and declaration submitted is falsified, MMA may request documents to check the issue. In doing so MMA may check the bank transactions relating to the period, tax returns submitted to MIRA and any other documents submitted to authorities. The MMA has the authority to require businesses to correct any inaccurate information submitted and to adjust transfer, deposit, or conversion requirements accordingly.
The draft General Regulation on Foreign Currency introduces significant clarifications and extensions to the existing framework under the FCA. MMA invites stakeholders to review the draft regulation and submit their comments by
23 February 2025.