Foreign Portfolio Investments
Since the 1970’s the Maldives economic landscape has welcomed foreign investments to the country. The primary legislation for governing foreign investments to the Maldives is the ‘Law on Foreign Investments in the Republic of Maldives’ (FI Act). This law came into effect in 1979 with the purpose of mainly governing foreign direct investments (FDI’s) in the newly introduced tourism sector. The Act requires all foreign investments to be registered and a foreign investment agreement to be signed with the sector relevant government authority.
Later in 2020, the government introduced the Foreign Direct Investment Policy (FDI Policy) with the aim of codifying existing practices and introducing new policies to develop the foreign investment regime within the country. While this policy primarily focuses on the entry requirements of FDIs, the policy also introduces the concept of foreign portfolio investors (FPI’s) to the investment landscape inviting investments to the securities market whether it be by way of shares, government or corporate bonds, convertible securities, and investment funds.
The FDI policy however does not identify any specific guidance or rules as to how the registration process of an FPI is to be conducted. This may lead to the implication that FPIs are to be treated akin to the requirements governing FDIs. The policy therefore, lacks in distinguishing the fundamental differences between FDIs and FPIs, ultimately disregarding that FDI’s have direct control over assets and activities of an entity while the FPI’s role is passive in nature with no control in assets or activities of an entity.
Currently, should the FPI follow the current FDI registration process, FPIs will be subjected to some of the below major implications:
Depending on the sector of investment, there are foreign ownership thresholds, capital investment requirements and minimum investment period thresholds primarily aimed at long term investments which would contradict with FPI’s which are solely for investments in financial assets and generally for short-term periods.
Each individual investor is to procure a letter of reference from a reputable bank and a business profile to prove financial capacity and credibility which may be a cumbersome and unnecessary process for passive investors.
Direct investments require a level of commitment to labour requirements of the proposed entity which is irrelevant for FPIs because they do not have impact on employment of labour and payment of wages.
Lastly, FDI’s require details as to the entity corporate structure and set up. However, matters relating to how the entity will be managed and operated may not be of relevance given that FPI’s have no involvement or control in the entity’s operations.
Ideally, the FPI registration process need not to be unduly burdensome. A fast-track registration and know-your-customer (KYC) process is essential to cater to the unique lifespan and nature of liquidity of FPIs by simplifying the entry requirements and exit rules.
For more information please contact
Shyma Shameem
Managing Partner
Nuzha Aleem
Partner