MIRA to curb tax evasion from tourism via offshore companies

The Maldives Inland Revenue Authority (MIRA) has announced special measures to prevent resorts from setting up offshore companies to transfer profits abroad and evade income tax.

MIRA recently released a compliance improvement plan aimed at enhancing taxpayer compliance. The plan includes steps to ensure the accuracy of tax payments, particularly within large industries.

Given that the tourism sector contributes the largest share of tax revenue, MIRA noted that resorts are not reporting income tax in proportion to industry growth. The reasons cited include high operating costs, increased use of taxable goods, offshore company setups in low-tax jurisdictions, and deliberate tax reduction strategies.

MIRA also highlighted that some tax return documents are not properly maintained, and certain information is withheld. To address these concerns, the authority plans to:

Over the next two years, MIRA will also take steps to ensure high-net-worth individuals report the correct amount of tax. The planned actions include:

MIRA further observed that while bed nights and occupancy rates in guesthouses and city hotels increased, reported revenues declined. The authority attributes this to overpricing of taxable goods, failure to report income from additional services, changes in business ownership, and improper record-keeping. To address these concerns, MIRA has introduced a special regulatory framework for the guesthouse sector.

In addition to the tourism sector, MIRA has included measures for the construction and real estate industries. The authority noted that businesses in these sectors report high interest deductions and incorrectly classify capital expenditures, leading to misreported income.

Food service businesses, including cafés, restaurants, and hotels, have also experienced significant growth, but their reported tax contributions do not reflect this expansion. MIRA plans to:

The compliance plan further includes measures to improve tax collection in the transport sector and strengthen income tax compliance among medical professionals, lawyers, and accountants.

MIRA has also prioritised increasing tax registration across industries, identifying unregistered businesses, and ensuring timely taxpayer enrolment.