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Malta: Offshore Business Sectors

Introduction

In the late 1980s, and spurred on by the high unemployment and other financial woes that followed the departure of the British, the Maltese Government set about creating an offshore sector and becoming more welcoming to external investment by passing the International Business Activities Act 1988 under which the Malta International Business Authority was 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 accent was mostly on employment creation in manufacturing and shipping rather than the development of a financial services centre; but this has gradually changed, and there is now a modern legislative structure for most of the main financial sector activities.

In April 2001, the government amended the Industrial Development Act to incorporate new incentive packages to boost existing and new investment, primarily in the manufacturing sector which employs over 30,000 people and which, together with tourism and the services sector, is a key element 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 not only new tax incentives, with reduced rates of corporate tax which start from 5 per cent and move up to 15 per cent over a 15-year period, but also 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, the European Commission formally requested Malta under EC Treaty state aid rules to abolish the tax regime for Maltese Companies with Foreign Income (CFI) and the International Trading Companies (ITC) regime by the end of 2010 at the latest.

Competition Commissioner Neelie Kroes observed that: "The schemes provide sizable aid to companies that are owned by non-Maltese and produce revenues outside of Malta, and are therefore highly distortive without promoting growth of the Maltese economy."

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. The globally difficult economic situation during 2008 did not affect the sector as much as in most other countries. Malta was ranked 34th (out of 148 countries) by the World Economic Forum’s Competitiveness Index 2013-2014 for financial market development, while the banking system was reported to be the 14th soundest in the world.

Up to the end of 2011, the Authority had issued 225 new licences in all areas of financial services activity. The MFSA's Supervisory Council met 34 times in 2011 to approve new authorisations, enrolments and registrations to conduct financial services business.

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

 

 

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