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Maldives Introduces Thin Capitalization Rule

Friday, May 11, 2018

The Maldives Inland Revenue Authority (MIRA) has issued a ruling prescribing a thin capitalization rule to limit deductions for interest and payments economically equivalent to interest.

Under the ruling, issued on April 26, the total amount of interest paid or payable except to a bank or financial institution approved by MIRA that is deductible by a person in the computation of that person's taxable profit shall not exceed the lesser of:

  • the total amount of interest paid or payable except to a bank or financial institution approved by MIRA, calculated at a rate of six percent per year; or
  • the actual amount of interest paid or payable except to a bank or financial institution approved by MIRA.

The ruling further prescribes that interest payments exceeding 25 percent of profits shall not be deductible in the computation of taxable profit.

The ruling defines interest as: interest on all forms of debt; payments economically equivalent to interest; and expenses incurred in connection with the raising of finance, including arrangement fees and guarantee fees.

The ruling applies from the 2018 tax year. However, it does not apply to insurance, housing finance, and leasing companies.