New Currency Exchange Law Comes into Effect in the Maldives

A new law requiring tourist establishments and select businesses to exchange a portion of their US dollar (USD) revenue at local banks took effect yesterday, marking the start of the new year.

The Foreign Currency Bill, ratified by President Dr Mohamed Muizzu on 14 December, replaces a prior Maldives Monetary Authority (MMA) regulation implemented on 1 October 2023. The regulation mandated fixed USD exchanges based on the number of tourists, requiring resorts to exchange USD 500 per guest and guesthouses USD 25 per guest.

advertisement

The earlier regulation faced criticism from tourism industry leaders, who argued that the fixed exchange model disregarded key factors such as room rates, length of stay, guest demographics, and promotional discounts. Industry representatives also highlighted the sector’s heavy reliance on USD for operational expenses.

Responding to these concerns, the MMA announced the development of a foreign currency bill on 26 November. Following consultations with stakeholders, the final bill introduced more flexible provisions, allowing tourist establishments to choose between the fixed exchange requirement or a percentage of their monthly revenue.

The law categorises tourist establishments into two groups:

• Category A: Registered resorts, integrated tourist resorts, and private islands. These establishments must exchange either USD 500 per tourist or 20% of their monthly revenue.
• Category B: Registered tourist vessels, tourist hotels, and guesthouses. These businesses must exchange either USD 25 per tourist or 20% of their monthly revenue.

Exceptions apply to tourists spending less than 24 hours at an establishment, guests under the age of 12, those hosted on a complimentary basis, and government-hosted tourists.

The legislature underwent significant revisions during its review by the Parliament’s Public Accounts Committee. Originally exempting tourists under the age of two from the exchange requirement, the threshold was raised first to 10 years and later to 12 years in the final version.

The committee also introduced provisions allowing establishments facing financial constraints to exchange less than 20% of their revenue, subject to MMA’s approval on a case-by-case basis.

The law extends its scope to non-tourism businesses generating over USD 15 million in annual USD revenue, lowering the threshold from USD 20 million in the draft bill. These businesses are now required to exchange a portion of their monthly revenue and register with the MMA.

The new law aims to alleviate a persistent USD crunch in the Maldives, injecting more foreign currency into the banking system and stabilising the nation’s economy.