Service Charge Regulation (Regulation Number: 2021/R-41) is designed to ensure proper collection and fair and equal distribution of Service Charge within the tourism industry and other businesses. This guide outlines the purpose of the regulation, who is required to collect service charges, how they should be collected, and the rules for distribution and submission to authorities.
Who is required to collect Service Charge?
The following businesses operating under the Maldives Tourism Act are required to collect a service charge of at least 10%:
Tourist Establishments:- Tourist resorts
- Tourist hotels
- Tourist guesthouses
- Training resorts
- Transit hotels
- City hotels
- Tourist vessels
- Yacht marinas
- Integrated tourist resorts
- Private islands approved under the Maldives Tourism Act
Service Providers within Tourist Establishments:
- Diving schools and centers
- Spas
- Water sports facilities
- Excursion activities
- Cafés, restaurants, and canteens (excluding those exclusively for employees)
- Other similar service providers, including outsourced facilities
Exemptions:
Cafés, restaurants, and canteens operated exclusively for employees within tourist establishments are not required to collect service charges.
How to Collect Service Charges
The method of collecting service charges depends on the type of service provided:
- Services Provided by Tourist Establishments: Service charge is calculated based on the value of the service provided.
- If a tourist establishment (or part of it, such as specific rooms or villas) is leased for a specific period, the service charge is calculated on the total value of the transaction.
Exemptions: Rooms or villas leased on a strata basis for a long period or transferred from one party to another are not required to collect service charges.
- Chartered Tourist Vessels: Service charges are calculated based on the value of the charter.
Administrative Fee
Employers can retain 1% of the service charge collected as administrative fees. This fee cannot exceed 1%.
Applicability to Non-Tourism Businesses
Businesses operating in industries other than the tourism industry are not required to collect service charges. However, if a non-tourism business chooses to collect a service charge voluntarily, the regulations will apply to them.
Information and Documents to Be Maintained
Employers must maintain the following information and documents for each month:
- Total Service Charge Collected: The total amount of service charge collected during the month.
- Administrative Fee Details: If the employer deducts an administrative fee, details of the fee must be recorded.
- Total Service Charge for Employees: The total amount of service charge allocated for distribution to employees.
- Employee Details: Name, ID Card or Passport Number and Designation
- Number of Days Served: The number of days each employee worked during the month.
- Service Charge per Employee per Day: The calculated service charge for each employee based on days worked.
- Total Service Charge Distributed: The total amount distributed to each employee.
Registration and Submission Requirements
Registration
All employers who collect service charges are required to register and submit the required information to LRA and Maldives Inland Revenue Authority (MIRA). A joint reporting mechanism is established to facilitate and fulfil the mandatory reporting requirements. Employers can submit the service charge information via online portal MIRAconnect.
The circular released by
LRA (Ref No:458/CIT/2021/1) states that submission of Service Charge information through the portal will be deemed as fulfillment of the obligation of information submission to both Authorities.
Submission Deadline
Employers must submit service charge details twice a year:
• First Half of the Year (January–June): Details must be submitted by 1st October.
• Second Half of the Year (July–December): Details must be submitted by 1st April of the following year.
Penalties for Non-Compliance
Businesses that fail to comply with the Service Charge Regulation may face fines and penalties as determined by LRA. These include
- Failure to collect and distribute the Service Charge as per regulations by service providers in the Tourism Industry - Based on the scale of business (not more than MVR 100,000)
- Failure to maintain required information and documents by businesses mandated to collect the Service Charge or other businesses that collect the Service charge - First time offence not more than MVR 10,000, repeat offenses not more than MVR 50,000 per instance
- Non-submission of information as required by the regulations - 7 days given to submit. If not submitted within 7 days MVR 25,000 and not more than MVR 50,000 for repeat offenses
The Service Charge Regulations in the Maldives aim to promote fairness and transparency in the tourism industry and other applicable sectors. By understanding and complying with these rules, businesses can ensure proper collection, distribution, and submission of service charges while avoiding penalties.
FAQs About Service Charge Regulations in the Maldives
1. Are service charges mandatory in the Maldives?
- Collecting service charge is mandatory for businesses operating in the tourism industry as defined under the Maldives Tourism Act.
2. Can businesses deduct administrative fees from service charges?
- Yes, but details of the administrative fee must be recorded and maintained. It cannot be more than 1% of the service charge collected.
3. How often must service charges be distributed to employees?
- Service charges must be distributed to employees on a monthly basis.
4. What happens if a business fails to comply with the regulations?
- Non-compliant businesses may face fines and penalties as determined by the LRA