Foreign direct investment (FDI) in the Maldives

FDI in Figures

According to UNCTAD's World Investment Report 2023, FDI flows to the Maldives reached USD 722 million in 2022, increasing by 12.3% compared to one year earlier but still well below the three-year average recorded before the pandemic (USD 663 million in 2017-19). At the end of the same period, the total stock of FDI stood at USD 6.7 billion, representing around 108.2% of the country’s GDP. The tourism sector is the main driver of FDI in the Maldives, accounting for a significant portion of the country's foreign exchange earnings. Many of the major hotel chains have invested in the Maldives, including the Four Seasons, Hilton, and Marriott. In recent years, there has been a trend towards more luxury and high-end tourism, with the development of private island resorts and exclusive villas. The fisheries sector is also a key area for foreign investment in the Maldives: the country has one of the largest tuna fisheries in the world, and foreign investors have been involved in the processing and exporting of the catch. In 2022, there were 24 new foreign direct investments registered. Ten were directed towards the tourism and hospitality sector, fivewww.transparency.org/en/cpi/2023/index/mdv towards construction, four towards renewable energy projects, three towards medical services, one towards environment testing services, and one towards safety system maintenance. According to the Maldives Monetary Authority, during 2023, a significant portion of all external financial inflows into the Maldives comprised net inflows from direct investments, totaling USD 751.4 million.

Traditionally, the country has had an open and liberal, economical environment. Foreign companies are now allowed to own land (if in connection with major projects and provided they invested at least USD 1 billion). Foreign investment is allowed in all major sectors of the economy except some specific activities (e.g. mining and quarrying, retail trade, land transport, postal and logistics services, food & beverage, defense, etc.). On the other hand, property rights are generally weak; most land is owned by the government and then leased to private owners or developers. Although legally independent, the judiciary is subject to influence amid numerous allegations of judicial impropriety and abuse of power. The Ministry of Economic Development rigorously screens and evaluates all foreign investment proposals. This process involves several standard due diligence procedures, including local police screening of investors, assessing the financial stability of proposed shareholders through bank references, and conducting background checks on involved investors. The government emphasizes that each case is evaluated on its individual merits, considering factors such as the presence of existing investors in the sector and the potential for employment generation and technology transfer. The Maldives ranks 93rd among the 180 economies on the 2023 Corruption Perception Index and 158th out of 184 countries on the latest Index of Economic Freedom.

What to consider if you invest in the Maldives

Strong Points

Maldives has a number of assets to attract foreign investors, including:

  

• tourism potential due to the presence of uninhabited islands
• no restrictions on repatriation of profits and capital proceeds, and no foreign exchange restrictions
• customs duty exemptions for large-scale projects
• easy entry by obtaining Business Visa or Corporate Resident Visa
• freedom to use foreign managerial, technical and unskilled workers
• the presence of Special Economic Zones (SEZs) with investments in excess of USD 150 million qualifying for special tax and regulatory incentives
• provision for overseas arbitration of disputes.

Weak Points

The country's weaknesses include:

 

• small domestic market
• the geography of the archipelago (consisting of 26 atolls and more than 1,000 coral islands)
• high dependence on the tourism sector
• the ambiguity of codified law and competition from politically influential local businesses
• some sectors are still restricted for foreign investors (e.g. wholesale and retail trade, logistics activities, food and beverage service activities, broadcasting, rental and leasing activities, etc.) while others have a cap on foreign equity ownership (manufacture of fish and agricultural products – 75%, construction of buildings and civil engineering – 65%, sea transport services – 49%, air transport services – 65%, etc.).

Government Measures to Motivate or Restrict FDI

The government of the Maldives provides several incentives to foreign investors, including free repatriation of profits and capital proceeds, no foreign exchange restrictions, easy entry by obtaining a Business Visa or Corporate Resident Visa, as well as tax incentives for certain investments in the Special Economic Zones (exemption from business profit tax, goods and services tax, withholding taxes, flexible procedures to employ foreigners, exemption from taxes on sale and purchase of land, etc.). The duration of these tax exemptions depends on the business area of the investment and its scale.