Malta: Malta: Your Ideal Platform For International Business

ABOUT MALTA

Malta, an island with a history stretching back 7,000 years, has always been well-known for the role it plays on the international field due to its location right in the heart of the Mediterranean.

Situated about 100 KM south of Italy and 288 KM north of Africa, the Maltese archipelago consists of five islands, having a total area of 315 KM2. Identified as a hub for the carriage of goods in the past, it has since flourished exponentially as a financial centre, transforming itself into a reputable international business and financial centre sought by top end industry players.

The acclaim and repute Malta enjoys is consistent with the quality of the services it offers and its reliability and constancy even in times governed by global financial turmoil. Its robust legal and fiscal framework, its penchant for innovation, its skilled and multilingual work force, and its stable administrative and ICT infrastructure have all contributed to its substantial economic growth. Malta has been relatively unscathed by the financial crisis and in 2009 and 2010, the financial services industry has experienced a growth of over 20% per annum. This, coupled with the authorities' accessibility and a 'can do' business approach, has turned investors' plans into a reality; making Malta the jurisdiction of choice for multinationals and household names which have found doing business in Malta an efficient and effective experience.

With a legal and regulatory framework compliant with EU standards, fast time to market, and responsiveness, Malta has progressively developed into a premier financial centre: The City of London's Global Financial Services Index (2010) named Malta as one of the three financial centres expected to grow in importance over the coming years, and the World Economic Forum's Global Competitiveness Index 2010-2011 has ranked Malta as having the 10th soundest banking sector and 11th in financial market development. Moreover, in a study commissioned by the EU Commission in 2009, Malta placed 1st for online sophistication and full online availability.

The country is not only about financial services. Tourism, manufacturing and the services industry which includes the ports and Freeport/transhipment centre are major contributors to GDP.

Facts:

  • EU Member State since 2004
  • Currency: EURO
  • 2010, Real GDP increase by 3.4%
  • Language: English is an official language. All laws and contractual agreements are published in English
  • Politically and Economically stable
  • No bank failures during global financial crisis
  • Very attractive and competitive tax system
  • Legal system is civil, but public law including tax and commercial law
  • and regulatory laws are influenced by UK notions
  • Excellent links of communication and transport network with Europe and beyond
  • Mediterranean climate
  • Ideal hub for business and pleasure
  • Fast implementation of EU law and Directives.

MALTA`S TAX SYSTEM

With its unique tax system, Malta is the lowest tax jurisdiction in the EU.

Undoubtedly, Malta's tax system has been one of the key contributors to it maturing into the financial and international business centre that it is today. The taxation system is a fully integrated imputation system which completely avoids the economic double taxation of corporate profits by imputing onto shareholders the underlying corporate tax attaching to dividends. As part of this system the shareholder is entitled to claim a tax refund of the 35% corporate tax borne on distributed profits. The default tax refund is 6/7ths of the tax charge borne on the distributed profits before deducting any credits in respect of any foreign taxes. As a result the tax that would normally be borne in Malta after the tax refund is claimed is of 5% (1/7th of 35%) reduced by foreign taxes such that when foreign taxes are 5% or more of taxable income no tax will be borne in Malta. Though a different tax refund rate may be applicable depending on the circumstances, the overall tax in Malta after the tax refunds will normally be between nil and a maximum of 6.25%. This tax refund system is of universal application except for income derived from immovable property situated in Malta.

In addition, Malta has an attractive participation exemption regime which exempts from tax income (normally dividends) and all gains derived from a qualifying equity holding or from its disposal or part disposal. A qualifying holding is an equity holding of 10% or if less, one with an acquisition value of €1.165 million or which entitles the holder to appoint a director or to acquire the remainder of the capital.

The facility to account and pay tax in any convertible currency using IFRSs, the use of English in all legal and official documentation and the fact that the fundamentals of tax and company law are based on well-known UK principles all contribute to an efficient and effective business environment. Moreover, other tax rules, namely that there are no withholding taxes, no capital or net wealth taxes, no controlled foreign company rules, no thin capitalisation rules, no stamp duty on the issue or transfer of shares, no exit taxes, no transfer pricing rules, and no tax on sale of shares all contribute to peace of mind that there no hitches and allow companies to concentrate on their business, rather than worry about complex and costly tax rules.

Malta's Tax System - At a Glance

  • Full imputation with corporate tax rate of 35%
  • Tax refund system reduces tax borne to between nil and maximum of 6.25%
  • Tax refunds are guaranteed at law and paid within 2-3 weeks from application
  • Participation exemption
  • Tax system vetted and approved by the EU commission and the Code of Conduct Group
  • Use of IFRS functional convertible currency – for statutory capital, financials, tax and tax refund purposes
  • 60 double tax treaties based on the OECD Model
  • Revenue rulings are binding for 5 years or 2 years following change in legislation
  • Informal tax confirmations are also common
  • No withholding taxes on dividends, interest, royalties or other expenses
  • No transfer pricing, thin capitalisation or controlled foreign company rules
  • No Capital Taxes or Wealth Taxes
  • No stamp duty on share issues or transfers
  • No Exit Taxes
  • Attractive expatriate taxation

THE FINANCIAL SERVICES REGULATOR

The Malta Financial Services Authority (MFSA) is the single regulator for the financial services industry and is staffed by a team which is highly technical, yet in tune with developments. The regulator has been instrumental in ensuring that Malta develops as a reputable financial centre applying the highest standards and also that the legislation, directives and policies are in line with EU law and with the latest market developments and needs of the industry. This technical yet entrepreneurial attitude has indeed been a major success as evidenced by the substantial growth of the industry of over 20% in 2009 and 2010, in the face of the major global economic and financial crisis. Fuelled by the island's"can-do" approach to make financial services a major economic contributor, and our naturally warm Mediterranean hospitality, the MFSA's level of service is second to none. While the outlook to regulation and licensing is guided by the imperative that Malta's reputation must be safeguarded, the MFSA is open to understanding business needs and actively works with industry players and professionals to seek effective solutions.

The growth in Malta's financial services is no coincidence. It forms an integral part of Government's strategic long-term economic plans to increase the sector's contribution to GDP from the current 13% to 25% by 2015. More importantly this vision and support for the sector and the fiscal environment is shared across the political divide.

The MFSA

  • Single regulator, rigorous but fast and flexible
  • Reputation given paramount importance – attracts reputable industry players
  • Supervision is risk-based and minimally intrusive
  • Regulation is business sensitive
  • Licensing procedure is personalized
  • Regulator adopts open-door policy

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Authors
André Zarb
Juanita Brockdorff
David Caruana
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