Regulations detailing leniencies under Foreign Exchange Act takes effect

The Maldives Monetary Authority (MMA) has amended two regulations linked to the recent changes to the Foreign Exchange Act, detailing leniencies granted under the law.

The amendments were published on the Government Gazette on Thursday, and took immediate effect.

President Dr. Mohamed Muizzu ratified the amendments to the Foreign Exchange Act on September 31, bringing changes to the standards by which businesses earning dollar revenue must exchange money at banks.

In this regard, the threshold for mandatory foreign exchange by businesses earning dollar revenue, excluding those in the tourism sector, has been raised from USD 15 million to USD 25 million per annum.

Other key changes to exchange requirements:

• Category A establishments (resorts, integrated tourist resorts and private islands): 40 percent of monthly revenue. Option for USD 500 per tourist is no longer available.
• Category B establishments (guesthouses, hotels, liveaboards): 20 percent or USD 25 per tourist.
• Category C (non-tourism): 40 percent. For 100% Maldivian-owned businesses, the requirement is 7 percent.

The two regulations publicized on Thursday by the MMA are the Regulation on Registration under the Foreign Exchange Act and the General Regulation on Foreign Exchange, both of which have been amended in accordance with the recent amendments to the Foreign Currency Act.

According to the regulation on registration, if a business—excluding financial institutions and those operating in the tourism sector—earns at least USD 25 million per year by selling goods or providing services, that business must register with the MMA.

The general regulation specifies the circumstances under which foreign currency transactions can be conducted and the procedures to follow when obtaining the MMA's permission for such matters. It states that the budgeted expenditures to be settled in foreign currency must be submitted to the MMA 30 days prior to the start of each year.

The regulation also outlines the procedure for applying for leniencies regarding the obligations to deposit and exchange, as well as for reviewing the mandatory exchange amount.

The leniencies granted under the Foreign Exchange Act cover various specific obligations. These include taxes and other obligations payable to the government in foreign currency, as well as debt payable in foreign currency to foreign financial institutions operating within or outside the Maldives. Furthermore, leniencies apply to foreign currency obligations mandated by a court judgment or order, a tribunal decision, or a ruling under a dispute resolution mechanism such as arbitration, alongside any other foreign currency obligations permitted by the MMA.

The government stated that the amendments brought to the law were intended to strengthen the Maldives' foreign exchange system. However, the government has been accused of introducing the changes without  proper consultation with the tourism sector and in an unsustainable manner.