A frequent feature of international trade
and investment, particularly as between
advanced and less advanced countries,
is the transfer of technology or 'brand'
or intellectual property in return for
license, franchise or royalty payments.
Due to its network of double-tax
treaties and favourable taxation regime,
Malta is a suitable place in which to
locate an intermediary International
Holding Company company to handle
payment streams which might otherwise
be highly-taxed in the receiving country.
Such payments would normally be deductible
expenses in the originating country, and
under the tax treaties will be subject
to low withholding tax. The income received
in Malta will be taxed after deduction
of expenses at 12% or less, and where
there is a 10% participation, possibly
at a nil rate (see Offshore
Legal and Tax Regimes and below under
Financial Holding
and Investment Activities for comments
on the tax treatment of repatriated Maltese
profits in Western countries).
On
December 1, 2006, the Maltese government,
deposited its instrument of accession
to the Patent Cooperation Treaty (PCT)
with the World Intellectual Property Organisation
(WIPO).
The Treaty entered into force, with respect
to the Republic of Malta, on March 1,
2007.
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Malta Financial Holding
and Investment Activities
Many international investors choose Malta
as the location for financial holding
and investment companies, using the International
Holding Company form, due to the jurisdiction's
combination of tax
treaties and low-tax offshore regime.
Investment into most of the leading OECD
economies benefits from low treaty withholding
tax rates. Often it would be best for
the investment to have a high debt component,
since the interest is normally a charge
against profit in the destination country,
and the treaty rates of withholding tax
on interest payments are normally lower
than the withholding rate on dividends,
except in some cases where there is a
major (usually means 25%) participation.
Whatever the mix of interest and dividends,
the income once in Malta will be taxed
after deduction of expenses at an effective
rate of 12% or less, and if there is a
10% participation by the Maltese company
the rate will be zero as long as the profits
are distributed onwards to non-resident
persons. Distributions to some countries
will benefit from tax-sparing
credits. US investors will be able
to mix low-tax Malta income with high-tax
income, avoiding wastage of tax credits;
and even for countries like the UK which
have rules on the attribution of profits
from Controlled Foreign Corporations there
are benefits to be got from careful planning
of international financing structures.
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Malta
Banking
Maltese banking is conducted according
to the Banking Act 1994 (for credit institutions
aka commercial banks) and the Financial
Institutions Act 1994 (for non-lending
institutions, mostly meaning foreign exchange
bureaux). This legislation conforms to
current EU banking directives.
'International
Banking Institutions', seven of which
were licensed as offshore companies under
the Malta International Business Activities
Act 1988 now have to convert to 'credit
institution' status under the Banking
Act. Incoming banks are now licensed only
under the Banking Act. With the gradual
abolition of exchange controls, there
now remains little distinction between
'international' and 'local' banks, or
between 'offshore' or 'onshore' banks.
Maltese
and foreign banks are supervised by the
Malta Financial Services Centre; minimum
capital for a new bank is EUR5 million.
Foreign banks may operate through branches,
but are still subject to supervision by
the MFSC.
A
new organisation to promote Malta's financial
services sector to international investors
was officially launched by the government
in May 2007.
The new non-profit body, branded Finance
Malta, centralises promotional activities
previously carried out by the Malta Financial
Services Authority and private sector
organisations.
Parliamentary
Secretary Tonio Fenech noted that financial
services were playing an increasingly
important role in the Maltese economy,
accounting for about 12% of the country's
gross domestic product. The financial
sector’s gross added value component
reached EUR208 million by the end of 2006,
representing added value to the tune of
EUR40,000 per employee, Fenech added.
Meanwhile, the industry's productivity
grew by 37% in 2006, he revealed.
In
June 2008, the IMF highlighted that Malta's
banking system was well-placed to weather
the global financial turmoil. The IMF
report said that banks have healthy liquidity
positions and a good funding profile rooted
in domestic retail deposits, according
to the report. Additionally, they appear
to have no direct exposure to US subprime
mortgage-based assets.
As
a member of the EU, Malta is actively
strengthening its national and cross-border
crisis management framework in the light
of lessons from the recent international
financial turmoil, the IMF found.
Financial
services are playing an increasingly important
role in the Maltese economy, accounting
for about 7.5% of the country's gross
value added in 2010, representing added
value to the tune of EUR66,000 per employee.
By
the end of 2010, the Maltese banking sector
had grown considerably, consisting of
25 credit institutions (with a total of
136 offices and branches) with three of
these being majority Maltese-owned. The
other 22 are foreign credit institutions
with a physical presence in Malta. Of
these, 14 are from EU countries, six from
non-EU countries and another two are branches
from non-EU countries.
The
Maltese government has set a target of
2015 for the jurisdiction to become one
of the most important financial centres
in the region.
The
Commonwealth Bank of Australia was one
of the first Australian banks to take
advantage of the opportunities presented
by Malta, with its CommBank Europe Ltd
unit, holder of a Maltese banking licence
since August 2005, becoming one of the
island's largest financial institutions.
CommBank Europe had $1.3 billion in capital
and had $4.7 billion in assets in 2006.
For the Australian banks, it is the existence
of the favourable double tax treaty between
Malta and Australia that is a major cause
of their interest in the jurisdiction.
The Australian reported that CommBank
Europe's Maltese operation, in combination
with lower tax rates in New Zealand, Singapore
and Britain, contributed to a 150 basis-point
reduction in the effective tax rate for
CBA's banking operations to 26.7%. Tax
paid in Malta was $2.3 million - equivalent
to a rate of 7.3%, although top-up tax
was paid in Australia under that country's
controlled foreign country rules, the
report stated.
While Malta is supposedly designated a
"tax haven" by the Australian
tax authorities, its rules and regulations
have changed substantially with entry
into the EU, and with the drive to 'clean
up' offshore financial centres by the
OECD in the early part of the decade.
Incoming banks are now licensed only under
the Banking Act 1994, and with abolition
of exchange controls, there now remains
little distinction between 'international'
and 'local' banks, or between 'offshore'
or 'onshore' banks. Foreign banks, which
may operate through branches, remain subject
to supervision by the Malta Financial
Services Authority.
Legislation
regarding the supervision of banks and
other financial institutions was passed
by parliament in November 2010. The new
legislation, according to the MFSA "represents
an integrated approach to regulation and
supervision being provided through a single
Authorisation Unit, specialist Supervision
Units for Banking, Insurance and Occupational
Pensions and Securities and Markets, and
a Regulatory Development Unit."
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Malta Investment Fund
Management
Investment Funds in Malta are licensed
by the Malta Financial Services Centre
under the Investment Services Act 1994.
Licensed funds are exempt from taxation,
although they can choose to pay tax at
25%, in which case generous deductions
can be claimed against income and the
fund has access to Malta's network of
double taxation treaties (see Offshore
Legal and Tax Regime.and Double
Taxation Treaties.)
The investment fund sector in Malta is
quite small. However, the growing success
of the stock exchange in attracting mutual
fund listings may well lead to an increase
in the number of funds actually based
in Malta.
In
January, 2006, the
Malta Financial Services Authority licensed
its two largest hedge funds up to that
point, reinforcing the jurisdiction's
emergence as a well-regulated financial
services jurisdiction of international
stature.
The
MFSA granted licences to Altma Fund SICAV
plc, which has 29 sub-funds, and NBCG
Fund SICAV plc, which has 7 sub-funds,
to operate as Professional Investor Funds
promoting to Qualifying Investors.
Both
schemes have been set up as investment
companies with variable share capital
in terms of the relevant provisions of
the Companies Act.
The
newly-licensed funds brought the total
of Malta-based, Professional Investor
Funds (including sub-funds) to 58, and
the MFSA has said that it was considering
licence applications from a number of
other funds.
The
regulator said it was also working on
new Professional Investor Fund Guidelines
in an effort to improve the existing legislative
framework.
In
January 2008, Bermuda-based fund administrator,
Apex Group announced the launch of a new
fund administration subsidiary in Malta.
Apex
Fund Services (Malta) was to provide a
platform for developing the Group's business
in the European Union and surrounding
markets, and was expected to begin business
shortly after the announcement.
The
Apex Group was established in Bermuda
in 2003, but now has a presence on three
continents, USD5 billion in assets under
management, and has been named the second-fastest
growing fund administrator in a recent
global survey of fund administrators.
The
Malta subsidiary is regulated as a recognised
fund administrator by the Malta Financial
Services Authority under the Investment
Services Act.
Apex
Malta provides a wide range of fund administration
services to traditional funds, fund of
funds, hedge funds and private equity
funds, with online web reporting access
for investors and fund managers through
the ApexFundsNet platform, the first of
its kind in Malta.
In
December 2008, the Maltese Financial Services
Authority revealed that newly licensed
hedge funds were increasing two-fold on
the island, thanks to the jurisdiction's
competitive set up costs and recently
implemented regulatory measures.
MFSA
Chairman Joe Bannister spoke about the
increase in funds at a roundtable debate
on the subject, where he noted that the
Undertakings for Collective Investment
in Transferable Securities (UCITS) sector
in Malta is also showing signs of further
expansion, alongside the fund-servicing
and fund administration sectors. The MFSA
Chairman also emphasized that Malta’s
first priority when it comes to licensing
new funds remained quality rather than
the quantity.
Among
the reasons given for this growth in the
investment funds sector was that being
part of the European Union has allowed
Malta to develop into a fully fledged
funds domicile that provides competitive
access to the European and international
markets.
Bannister
stated that the recent updates in legislation
have been mainly inspired by developments
at EU level and included the implementation
of the EU Markets in Financial Instruments
Directive (MiFID), the Capital Requirements
Directive (CRD), UCITS III, and the new
eligible assets regime. This legislation
is directed at providing for a more integrated
European financial market by allowing
EU-based funds and their providers the
freedom to compete on a level playing
field.
Kenneth
Farrugia, Vice-Chairman of FinanceMalta,
who also spoke at the meeting, attributed
Malta’s success in attracting funds
to its high level of cost competitiveness.
Citing recent research on the subject,
he said: "on a comparative basis
Malta is very cost competitive both at
the set up stage in terms of setting up
costs of a Scheme, as well as regards
ongoing servicing costs such as custody
and fund administration costs."
In
December, 2010, it was announced by the
FSA that Deutsche Bank had been granted
a Category 4 Investment Services License
allowing the bank to provide custody and
trustee services for collective investment
schemes. “The availability of global
custody services is key to the future
development of Malta’s financial
services sector. Recent events have focused
attention on the asset safety aspects
surrounding the funds industry and Malta’s
efficient re-domiciliation procedures,
strong regulatory structures and competitiveness
have combined to make it more attractive
as an EU fund servicing location. This
has in turn put pressure on the demand
for custody services and the MFSA has
been working intensively for the past
year to ensure wider capacity and choice
in this area,” the MFSA said.
By
the end of June 2011, the total number
of licenses stood at 109, up 7 in the
first six months of the year.
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Malta Ship Management
and Maritime Operations
See Offshore
Business Review – Shipping for
a more general treatment of offshore shipping
registries.
Malta
is one of the top ten shipping registries
worldwide. The original Merchant Shipping
Act 1973 based on English law has been
adapted and modernised in 1986, 1988 and
1990; and further improvements are planned.
The Merchant Shipping Directorate of the
Malta Maritime Authority supervises the
sector and has developed a world-wide
network of surveyors and inspectors. Malta
adheres to all the major international
maritime conventions.
The
Maltese registry accepts all types of
vessel, from pleasure yachts to oil rigs.
Bareboat charter registration is allowed
both of foreign ships under the Maltese
flag and of Maltese ships under a foreign
flag. There are no restrictions on the
nationality of crew in Maltese law, and
no age limit for ships. The shipping laws
are flexible with regard to sale or mortgaging
of ships.
By the end of 2011, a total of 5,830 ships,
with a total of 45.6 million tonnes were
registered. The register generated more
than EUR12 million in revenue .
In
early 2012, Malta was confirmed as the
country with the largest ship register
in Europe.
In
January, 2006, Malta was one of four flag
states that attained the highest quality
ranking following the Paris Memorandum
on Port State Control's latest inspections.
The
Paris MoU White List represents quality
flags with a consistently low detention
record. Finland, France, Isle of Man,
and the United Kingdom, are placed highest
in terms of performance. In all, the White
List includes 33 flag states.
In
order to register a ship in Malta, it
must be owned by a company incorporated
in Malta. In most circumstances, Maltese
shipping companies are exempt from taxes.
See Offshore
Legal and Tax Regimes and Law
of Offshore for further details.
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