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Malta: Offshore Business Sectors

Introduction

In the late 1980s, spurred on by the high unemployment and other financial woes that followed the departure of the British, the Maltese Government started to create an offshore sector. With an aim to becoming more welcoming to external investment, the International Business Activities Act 1988 was passed. The Malta International Business Authority was then set up to develop offshore business sectors.

Alongside this initiative, the Malta Development Corporation began to offer a range of very attractive investment incentives. Initially the emphasis was mostly on job creation in manufacturing and shipping rather than the development of a financial services centre. This has gradually changed and there is now a modern legislative structure for the most important financial activities.

In April 2001, the Industrial Development Act was amended to incorporate new incentive packages. The aim was to boost new and existing investment, primarily in the manufacturing sector; this employs over 30,000 people and, together with tourism and the services sector, is the mainstay of Malta's economy.

The incentives on offer no longer depend on whether a company exports or not. They are meant to promote productivity growth regardless of where the product is sold. The new package contains both new tax incentives – with reduced rates of corporate tax which start from 5% – and investment tax credits, a value added incentive scheme, special provisions for small businesses, and other incentives related to training and job creation. These incentives are not only available to prospective investors, but also to existing ones ensuring that all companies can retain and increase their investment in Malta.

Following Malta's acceptance into the EU in 2004, the European Commission described seven 'harmful' tax measures that it wanted the Maltese government to abolish as part of its attack on tax measures in the ten acceding nations that it fears will distort the single market.

The first three measures identified by the Commission concerned offshore trading and non-trading companies, offshore insurance firms and offshore banking companies. In fact, Malta acted to abolish 'offshore' companies as such in 1996, although a transition period allowed the continuance of existing companies until 2004.

Other measures singled out by the Commission as harmful included International Trading Companies, which created an effective tax rate of 4.2% for non-residents, the beneficial tax treatment of dividends from companies with foreign income, the tax treatment of Investment Service Companies, and the deferral of tax on foreign income for non-resident companies.

In March 2006, according to EC Treaty state aid rules, the European Commission formally requested Malta to abolish the tax regime for Maltese companies with foreign income (CFI), and the international trading company (ITC) regime by the end of 2010 at the latest. In May, the Maltese government formally decided to gradually abolish the existing aid schemes.

Due to its extensive network of double tax treaties with almost all the important OECD countries, Malta is often chosen as a base by firms needing to set up an offshore holding or investment company or trading subsidiary.
Malta's financial services sector has continued to expand, attracting considerable interest from international sources. Malta was ranked 43rd (out of 137 countries) by the World Economic Forum’s Competitiveness Index 2017-2018 for financial market development and 37th overall.

This section of the site describes the most important types of offshore business activity carried out from Malta.

 

 

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