Maldives enacts law compelling tourist establishments to exchange USD at local banks

Maldives has enacted legislature compelling tourist establishments to exchange a portion of USD revenue at local banks.

The foreign currency bill was ratified by President Dr. Mohamed Muizzu on Saturday – two days after it was passed by the Parliament.

The new legislature is set to take effect next year.

The foreign exchange regulation introduced on October 1 required tourist establishments to exchange a fixed amount of USD per tourist in local banks. Resorts were required to exchange USD 500 per tourist while guesthouses were required to exchange USD 25 per tourist.

It received pushback from tourism industry giants who argued that a fixed USD exchange requirement, regardless of room rate, duration of stay, the age of guests or special offers, is unfair to tourism establishments with varied market segments. They also argued that it disregards the fact that many of the expenses are paid in USD.

On November 26, the MMA announced the formulation of a foreign currency bill. This draft bill, which was shared with tourist establishments for comment, maintained the USD 500 requirement for resorts, but also offered certain concessions in foreign currency exchange.

The final bill submitted to the Parliament on December 9 gave tourist establishments a choice between exchanging the fixed amount per tourist as required under the regulation or exchanging 20 percent of the monthly revenue.

It categorizes tourist establishments into two types.

Category-A tourist establishments are classified as registered resorts, integrated tourist resorts and private islands. Such establishments will need to either exchange USD 500 per tourist or 20 percent of the monthly revenue.

Meanwhile, Category-B tourist establishments are classified as registered tourist vessels, tourist hotels and tourist guesthouses. Such establishments will need to either exchange USD 25 per tourist or 20 percent of the monthly revenue.

Meanwhile, tourist establishments will not be required to exchange USD for tourists who spend less than 24 hours at the establishment, tourists under the age of 12 years - higher than the originally proposed two years, tourists hosted by establishments on a complimentary basis, and tourists hosted by the government.

The legislature had undergone several revisions during the review by the Parliament’s Public Accounts Committee. The draft bill had proposed that tourist establishments would not need to exchange USD for tourists under the age of two years. The age was raised to 10 years in the final bill, and raised to 12 by the committee.

The committee also revised the bill to allow tourist establishments that can provide proof of financial constraints to exchange lower than 20 percent of the monthly revenue. However, this concession is subject to a case-by-case review by the MMA.

The legislature also requires non-tourism businesses that generate over USD 15 million in annual USD revenue – lowered from the USD 20 million proposed in the draft bill - to exchange a percentage of its monthly revenue. Such businesses will also need to register with the MMA.

The law seeks to address a USD crunch in the Maldives and inject more foreign currency into the banking system.