Lowtax Malta International Focus
By Lowtax Editorial
26 October, 2011
Located favourably in the Mediterranean, and a member of the European Union since 2004, Malta has a number of advantages which make it attractive to businesses both large and small, including a skilled and internationally-facing workforce, an advantageous tax regime, nevertheless developed with an eye to global standards in this area, and a flexible and cost-effective company formation regime.
With a population of just over 100,000, the Maltese Islands are about 100km south of Sicily and are politically stable. As an ex-British colony English is one of the countrys official languages alongside Maltese. A lack of natural resources and a shortage of arable land have led to the development of a high-technology manufacturing sector and the establishment of processing and distribution facilities around the rapidly-growing Freeport. The government has also been keen to foster a financial services sector, and legislation has been put in place in recent years for banking, insurance, mutual funds and trust services.
Foreign Direct Investment (FDI) figures show that the financial services industry is becoming increasingly important to Malta. According to the countrys National Statistics Office, FDI flows in Malta from the rest of the world amounted to EUR792.1m during 2010, an increase of EUR250.6m over 2009. Companies originating from outside the EU accounted for 68.8% of the increase. As in previous years, enterprises involved in financial intermediation were the largest contributors of FDI flows in Malta, accounting for 84.5% in 2010, while the same sector accounted for 76.6 per cent in 2009.
Malta, like Cyprus, has been obliged to dismantle its old 'offshore' companies regime as a trade-off for membership of the European Union, but this change has perhaps not been as detrimental to the Maltese business environment as first feared, and the jurisdiction has undoubtedly benefited from EU membership in many ways. Malta therefore remains one of the most favourable places in the EU to locate business.
Corporate tax in Malta is on the high side at 35%; indeed, a 2011 report by Eurostat, the European Unions statistical office, showed that Malta has the highest statutory corporate tax rate in the EU ahead of France and Belgium. However, there are a number of ways in which tax can be reduced for companies in Malta.
Malta imposes income tax on the world-wide income of companies resident in the country; this includes all companies incorporated or registered under any Maltese law if they are ordinarily resident, and any foreign company which is managed and controlled from Malta. However, by establishing a holding company in Malta, shareholders benefit from a full imputation system under which tax can be reduced to zero percent in certain circumstances.
Maltese holding companies can be used for a variety of purposes, including holding real assets such as property, shares and securities, and intellectual property intangible assets such as copyrights and patents.
Shareholders of Malta holding companies qualify for a full refund of the Maltese tax paid by the company on profits and gains arising from participating holdings when such profits are distributed. From January 1, 2008, Malta holding companies also qualify for a participation exemption subject to anti-abuse provisions introduced from the same date.
Maltese company law derives chiefly from civil or 'Roman' law, rather than common law. A new Companies Act 1995 replaced the old Commercial Partnerships Ordinance, and set up a new regime for commercial entities under the Registrar of Companies.
Maltese holding companies can be constituted as either a public or private limited company. The private limited company, (or 'partnership anonyme' in civil code terms), has the suffix 'Limited' or 'Ltd' and is formed by submission of the Memorandum and Articles to the Registrar (in English), together with the appropriate fee, which varies depending on the level of share capital. It is possible to form a Maltese company in as little as 24 hours.
Maltese companies can also benefit from the Maltas extensive network of double taxation treaties, which, at the time of writing, totalled 57 countries, including Australia, Canada, China, Cyprus, France, Germany, India, Italy, Malaysia, the Netherlands, the UK and the US.
The DTA with the United States was ratified in November 2010 and has effect from January 1, 2011. The provisions of the DTA include reduced source-country withholding tax on dividend, interest and royalty payments, a comprehensive limitation of benefits provision, and a comprehensive provision allowing for full exchange of information between the US and Maltese revenue authorities.
A DTA with Switzerland was signed on February 25, 2011 and was put before the Swiss parliament for approval in September 2011. Switzerland and Malta agreed withholding tax exemption for dividend payments in the case of related companies with a capital stake of at least 10% in the company making the payment. This exemption applies so long as the participating interest is held for at least one year. In addition, most-favoured-nation treatment of Switzerland was agreed in an arbitration clause.
Companies located in the Freeport, at Marsaxlokk Bay may also take advantage of fiscal and other incentives under the Malta Freeports Act 1989, which are guaranteed for a period of 15 years. They include exemption from customs duties, stamp duty, withholding tax (except for distributions to Maltese residents), exchange control and death duties. Employees of Freeport companies have a (small) income tax reduction, and may import personal items duty and tax free for the first six months of their stay. In order to gain a Freeport license, a company must be incorporated in Malta and must be carrying on certain types of business, including the labelling, packaging, sorting, warehousing, storage, exhibition or assembly of any goods, materials, commodities, equipment, plant or machinery.
Malta has also developed one of the world's largest ship registers in modern times, in the face of stiff competition from other prominent maritime nations. Malta applies a tonnage tax system to vessels on its register which varies from EUR875 for ships not exceeding 2,500 net tons, up to EUR6,780 for vessels exceeding 50,000 net tons (plus 5 cents for every net ton above this threshold). However, the amount of tax due can be lower or higher depending on the age of the ship.
Vessel registration under the Malta flag and the operation of the Maltese ships is regulated by the Merchant Shipping Act, a law based in the main on United Kingdom legislation. Malta is additionally a party to most of the major International Maritime Conventions and Malta-flagged ships are obliged to strictly adhere to the provisions of these international conventions. In January, 2006, Malta was one of only four flag states that attained the highest quality ranking following the Paris Memorandum on Port State Control's annual inspections. The Paris MoU White List represents quality flags with a consistently low detention record. By the end of 2008, a total of 5,015 ships, 2,311 of which were pleasure yachts, were registered under the Maltese Merchant Shipping Act.
Away from the sea, the Maltese government has been keen to embrace e-commerce, and in 2000 it became the first EU jurisdiction to pass legislation enabling online betting centres to be set up in the country. This legislation, coupled with the tax provisions designed to attract international companies, made Malta an attractive location for casino and sportsbook operations.
A large number of companies from around the world expressed interest in Malta, including Stanley Leisure, William Hill, Ladbrokes, Paddy Power, Unibet, GC Sports, International Allsports, and Eurofootball and the jurisdiction has subsequently attracted more than 250 remote gaming companies and issued over 350 licences. These businesses employ about 5,200 people in Malta, and service around 10% of the world's internet gaming market. They generated tax revenues for the government of EUR26.9m in 2008 and EUR52.5m in 2009.
For individual taxpayers, rates of tax in Malta are low relative to most EU member states, but not especially low when compared with other low tax jurisdictions and offshore financial centres. Both resident and non-resident taxpayers pay income tax at progressive rates up to 35%. However, while the top rate kicks in for resident taxpayers on income over EUR28,700, for non-residents, the 35% rate applies on income of more than EUR7,800 per year.
Broadly speaking, individuals who are domiciled and ordinarily resident in Malta pay income tax on their world-wide income. Individuals who are domiciled elsewhere, and who are resident but not ordinarily resident in Malta pay tax on their income arising in Malta, or remitted there (but not capital gains, whether remitted or not).
Non-resident individuals pay tax on their Malta-source income only; but local interest and royalty income are exempt from tax, as are capital gains on holdings in collective investment schemes or on securities as long as the underlying asset is not Maltese immovable property. The rules are complex, however.
In April 2011, the Maltese government published the Highly Qualified Persons Rules, 2011, bringing into force a 15% tax rate designed to attract highly qualified persons to live and work in Malta.
The tax scheme is available to employees of companies licensed and/or recognized by the Malta Financial Services Authority in the following positions: Actuarial Professional; Chief Executive Officer; Chief Financial Officer; Chief Insurance Technical Officer; Chief Investment Officer; Chief Operations Officer; Chief Risk Officer; Chief Technology Officer; Chief Underwriting Officer; Head of Investor Relations; Head of Marketing; Portfolio Manager; Senior Analyst (including Structuring Professional); and Senior Trader/Trader.
So, in summary, while Malta may have had to trade its highly attractive offshore company regimes in return for membership of the EU, there are still plenty of reasons to establish a presence in the island. The international holding company regime offers advantages to corporate investors in a number of sectors, and there are opportunities for companies in financial services, e-gaming and shipping industries, as well as an attractive tax regime for key foreign employees.
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