BPT threshold for group companies

According to the Section 7 of the Business profit Tax Act (Law Number 5/2011), BPT is charged at 15% on the taxable profits exceeding MVR500,000 of all companies doing business in Maldives. In any case if the company is a holding company or a subsidiary of a holding company then the tax free threshold must be shared among the group companies equally.

For example if One Pvt Ltd owns 80% of shares in Two Pvt Ltd and 60% in Three Pvt Ltd, then the tax free threshold for the group would be MVR166, 667.

Whether a company is a holding company or a subsidiary company should be determined as per the International Financial Reporting Standards. In this regard, a holding company is a company that controls another company. 

One of the ways a holding company can control another company is to acquire more than half of the voting rights of that company. Even when more than half of voting rights is not acquired, control may be evident by exercise of power. For instance, if the parent has the power to appoint or remove majority of the board of directors it can be concluded that the parent controls the subsidiary. Hence, it is not only the percentage of shareholding that determines it’s a subsidiary or not.

Therefore, all the companies need to pay attention when preparing their BPT return as to whether the company is a holding company or a subsidiary of another company.