Companies Act

Part 2 - Foreign Investment Corporations

The Maldives parliament has passed a new Companies Act 7/2023 (the “Act”) which has recently been assented to by the president. The law is set to replace the existing framework for company laws in Maldives and comes in force on 1 January2024.

Existing companies under the old law are automatically recognized and subject to the new law. Immediate action isn’t required, but certain actions outlined in the sections below must be taken within one year of the law coming into effect.

This memo series by S&A explores some of the key changes which has been brought by this Act. This memo series will be split up as follows with a separate memo for each of the following:

• Private Limited Companies.
• Foreign Investment Corporations.
• Public Companies.
• State Owned Entities; and
• Local Authority Companies.

Foreign Investment Corporations

Key Considerations

Types of FICs

1. Maldivian companies with foreign shareholding.
2. Companies incorporated abroad re-registered in the Maldives. 

Directors

The board can be entirely foreign, but one director must be locally resident. Sole directors are allowed; however, a full-time managing director must be appointed.

Local Agent and Local Service Address

Re-registered FICs must appoint a local agent who will be personally accountable for compliance with the new Act.

Local Agent should meet the criteria including.

• no involvement in bankruptcy / liquidation proceedings.
• no unspent convictions for crimes involving dishonesty.
• not have reneged on a fine for any company; and
• they cannot serve as the company’s auditor, liquidator, or be barred from directorship bylaws or personal agreements.
• The local agent, unless otherwise specified by the company, will receive all formal communications on behalf of the company.

They must also disclose a local services address where all formal communications will be delivered.

Foreign Investment Approval

FICs undergo foreign investment approval.

Industry-specific limits apply to foreign shareholding, with tourism allowing 100% ownership.

Other sectors have varying restrictions; for instance, retail is closed to foreign investment, and construction allows up to 65% ownership, negotiable up to 100% for government projects.

Shareholders

Save for industry specific restrictions, there are no restrictions on shareholders in FICs. FICs must declare UBOs and PSCs.

UBO is a natural person who is the beneficiary of the shares held through corporates.

A PSC is someone with over 25% shares or votes, or influence over pecuniary or strategic matters. An individual with authority to hire or fire a majority of the board or influence company policies and direction is deemed a PSC.

Shareholders may appoint a proxy to attend general meetings and vote as instructed.

Company secretary, seal, and annual fee abolished.

FICs no longer need to appoint a company secretary or maintain a seal if it’s not a requirement in their country of original incorporation.

The annual fee is abolished and replaced with a services-based fee regime.

Application for FICs

Applications to register FICs must contain:

• Foreign Investment Approval documents from Ministry of Economic Development.
• Company name, number, and registered address (HQ address if different).
• Details of all shareholders, including body corporates, and their shareholders.
• Details of all directors, including body corporates, and their shareholders.
• Details of company shares and authorized share capital.
• Information about the appointed local agent including consent letter and compliance statement.
• Constitutional documents of the company; and
• Local service address details.

The Act anticipates subordinate legislation to be introduced which may require additional documents for submission.

FICs must keep all information updated with the registrar; any changes must be submitted within 30 days.

Winding up of FICs

FICs must be wound up if;

1. they close operations in Maldives and remain without trading for 1 year.
2. foreign investment approval expires or is revoked; or
3. shareholders pass a winding up resolution.

The act envisages further subordinate legislation to govern winding up of FICs.

Beneficial ownership of FICs

Maldives law is evolving on beneficial ownership. Traditionally, Maldives didn’t distinguish legal and beneficial ownership, but recent Supreme Court decisions now recognize constructive trusts in cases where they differ.

The new Act requires disclosure of UBOs and PSCs. Uncertainty arises for companies with local legal ownership but foreign beneficial ownership, and vice versa. While the Act hints at deeming the former as FICs and the latter as local entities, the current provisions lack clarity, possibly to be addressed in forthcoming regulations.