Fifth Amendment to the Income Tax Regulation (ITR) published in the Government Gazette on 12th September 2024 bring significant changes to the presentation currency of the tax returns and payment currency of the tax payments levied under the Income Tax Act (ITA).
Key changes which may impact taxpayers obligation includes:
Presentation currency of tax returns:
Taxpayers with functional currencies other than Maldivian Rufiyaa (MVR) are required to prepare their income tax returns including withholding tax returns, financial statements and other supporting documents in United States Dollars (USD) as per the amended section 106 of the ITR.
This is applicable to the income tax return and interim returns commencing from the tax year 2024 except for the first interim return 2024.
Withholding tax returns (employee withholding tax returns, non-resident withholding tax returns, and capital gains withholding tax returns) must be prepared in USD for periods ending on or after 31st October 2024.
Tax payment currency:
With the amendment to section 108 (b) of ITR, taxpayers with presentation currencies other than MVR are required to pay income tax payments and interim tax payments in USD effective from tax year 2024. This change is not applicable to the first interim payment for 2024.
In case of withholding tax payments (employee, non-resident, and capital gains), this change in payment currency will be effective to payments relative to periods ending on or after 31st October 2024.
Taxpayers whose presentation currency is in MVR, shall make the tax payments including withholding tax payments in either MVR or USD. When converting tax payments from MVR to USD, the exchange rate is fixed at MVR 15.42 per 1 USD.
Section 60 (b) of the ITR specifies the functional currency to be determined by applying the principles in IAS 21 - The Effects of Changes in Foreign Exchange Rates.
The standard defines the functional currency as the currency of the primary economic environment in which the entity operates and is normally the one in which it primarily generates and expends cash.
Functional currency can be determined using the following factors:
(b) the currency of the country whose competitive forces and regulations mainly determine the sales prices of its goods and services.
(c) the currency that mainly influences labor, material and other costs of providing goods or services (this will often be the currency in which such costs are denominated and settled).