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 now 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 5 million euros.
Foreign banks may operate through branches,
but are still subject to supervision by
the MFSC.
The
Maltese banking sector has remained largely
a domestic affair, with only a small number
of foreign banks establishing themselves
on the island, for a combination of reasons.
Given Malta's EU membership, the arrival
of HSBC and the growth of mutual fund
listings on the Stock Exchange, it would
not be surprising to see more international
banking activity in Malta in the near
future.
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.
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
Australian banking industry is reportedly
looking to Malta with growing interest
as a place to conduct business within
the European Union, but at a lower cost
in terms of taxation.
The Commonwealth Bank of Australia is
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, now one of the island's
largest financial institutions. CommBank
Europe now has $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.
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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 to date, 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 bring the total of
Malta-based, Professional Investor Funds
(including sub-funds) to 58, and the MFSA
has said that it is currently considering
licence applications from a number of
other funds.
The
regulator is also working on new Professional
Investor Fund Guidelines in an effort
to improve the existing legislative framework.
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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.
In
2005 the Maltese registry contained a
total of 1,148 ships (1,000 GRT or over)
of 22,791,072 GRT (36,951,514 DWT).
By
type the ships consisted of: 420 bulk
carriers, 311 cargo vessels, 93 chemical
tankers, 8 combination bulk, 8 combination
ore/oil, 57 container ships, 8 liquefied
gas carriers, 2 livestock carriers 2,
1 multi-functional large load carriers,
9 passenger ships, 1 passenger/cargo vessel,
144 petroleum tankers, 40 refrigerated
cargo vessels, 32 roll on/roll ferries,
6 short-sea/passenger vessels, and 15
vehicle carriers.
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. Azerbaijan, Belgium,
Cyprus, Gibraltar, Malta, Saudi Arabia
and Spain are new to the White List. In
all, the White List includes 34 flag states,
3 more than last year.
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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site describes the most important types
of offshore business activity carried out
from Malta. 
