Background
The concept of an island paradise is often a radiant wonder for most
travellers; the thought of winding away the weekend on the beach as the
sun descends under the horizon is the making of sublime memories.
However such concept is often also intertwined with the stigma of high
taxation, poor economy and narrow industrial portfolios.
Malta is an anomaly to this rule.
Taking advantage of a strong geographic position between three thriving
economies; the possibilities and security of membership to the European
Union; and a strong growth of GDP amid a time of global recession, Malta
offers a cost effective jurisdiction to conduct business affairs.
Legal Implications
Malta’s legal system is primarily based on Roman law but has evolved
through interactions with Common Law nations - Malta has a liberal
spirit and a strong rule of law. As a member of the European
Union, Malta has synchronised its laws to the European
Aquis and offers the protection of the European system to all its
settlers. In addition to the free movement for EU members, Malta is
party to the Schengen Agreement which allows free
movement of persons to its members - Malta can include two-thirds of the
European Economic Area and European Free Trade Association freely into
its borders.[1]
This culminates in a wider number of countries enjoying visa free travel
to Malta.
For those nations outside of these agreements the visa process in Malta is
not burdensome with a liberal visa process and residence permit.
Malta’s industry benefits from the business planning and expansion plans
of the EU with the protection of a multi-national regional system with
incentive payments to industry through the cohesion fund, and through
multi-national opportunities through research grants and projects which
share the burden of research projects between partners and increase
links and cohesion between states. Malta joined the single European
currency in 2008 making inter-European transactions easier and cheaper.
Through the Euro the commission charges which used to delay transactions
are nullified between two Euro adopting countries, this benefit has been
estimated at a 1% GDP saving. The savings can be increased through the
greater security with the removal of fluctuations in the exchange rate
which maintains the profitability of exports and increases trust between
trade partners for regularly maintain fair price structures and for
investor confidence in the market.
Malta’s national regulations and legislation are based on market
liberalism and through the Investment Services Act, the Companies Act
and the Competition Act the legal framework to ensure fair practice and
competition whilst promoting investment has been achieved.
The
Investment Services Act regulates investment business in
Malta including the management, advice and administration. To protect
the industry and hence the consumer the Malta Financial Services
Authority provides licences for companies to operate in this sector.
The
Companies Act and Competition Act provide the legal
framework to administer mergers and the transposition of EC Directive
2005/56/EC cross-border mergers are administered by setting up the
conditions to test the fairness of the merger on a European level. The
taxation of the merger is defined by the Directive on a common system of
taxation on mergers, transfers of assets and exchanges and so eliminates
tax obstacles which may arise through the different tax systems. These
protections may be the influence behind Malta’s high performance on
inward FDI flows performance.
Although largely dependent on FDI Malta has a positive track record of its
efficient use. The legislative framework provides the protection for
potential investors through anti-money laundering legislation and high
professional secrecy. However the most intriguing aspect of Malta’s FDI
inflows are based on the varying portfolio of industries that are
investing - from simple manufacturing operations to high
value outputs in pharmaceuticals, ICT and electronic goods.
Tax Implications
Malta offers a liberal tax
regime and recent enactments have provided greater flexibility for
(specific) sectors to benefit form a more favourable tax regime. Malta’s
corporate tax rate is at a very competitive 35% of worldwide income, and
shareholders can claim a refund of six-sevenths of the tax the company
paid to Malta. (vide
Malta
Company Tax System).
The main national Acts which benefit business are the
Malta
Enterprise Act, the
Business Promotions Act
and the Income Tax Act.
The
Malta Enterprise Act encourages investment in Malta through a number of
schemes, including investment tax credits which provide a credit on the
companies expenditure on tangible fixed assets and development of
intangible assets or as a percentage of wage costs of the first two
years of any job created through an investment scheme, that can then be
deducted from the tax due.
The Business Promotion Act promotes foreign
investment by widening the range of qualifying sectors than its
predecessor and increasing the amount of incentives, specifically for
sectors demonstrating growth and employment potential. The industries
that are benefitting the most are manufacturing and software
development, repairs, and maintenance works. The Business Promotion
Regulations provides sector specific tax incentives for businesses in
pharmaceuticals, plastics, biotechnology, electronic and electrical
equipment, including reductions in income tax which are staggered based
on duration of operation, starting at 5% for the first seven years and
can increase up to 15%.2 Profits that are
utilised for financing approved projects can get a lower tax rate of
15.75%, a saving of over half the usually 35% corporate tax rate.3
Expanding companies can benefit from the Business Promotions Act with
a 50% tax deduction on the purchase of certain machinery and a further
20% of qualifying buildings and premises, and also where an employee
falls within the criteria they can have a deduction from the chargeable
income over 100% of the relative wage cost.
The Income Tax Act also
provides reduced tax rates for foreign business and investors. Malta is
party to over 60
Double Taxation Agreements in all geopolitical regions
and includes agreements with nations like Australia, Canada, China,
Egypt, France, Germany, India, Libya, UAE, UK, and the USA.
The Flat Rate Foreign Tax Credit is available for tax that was paid
outside Malta and where the foreign income is deemed to have suffered
foreign tax equivalent to 25% of the income received in Malta. The
Income allocated to the foreign account is grossed up to 25% and taxed
at 35%, and from the sum of which 20% is given as a credit against their
tax liability.
Residence
The
Malta Permanent Residence Scheme
is probably the most attractive
residence scheme currently available to individuals seeking to transfer
their tax residence overseas to more attractive jurisdictions that are
warmer in climate, enjoy a high standard of living, provide a safe
environment for younger and older members of the family and a provide a
scheme for permanent residence that is selective, affordable and tax
friendly. Malta ticks all the boxes for an attractive permanent
residence jurisdiction and occupies the highest positions in respected
international indexes for quality living and retirement.
The financial qualifications are easy to
satisfy and permanent residents are entitled to the various benefits,
including no minimum stay requirements;
a low annual tax liability of a mere EUR4,230 (approx. US$4,900)
[more];
no world-wide income/wealth tax - tax only paid on income remitted to and
kept in Malta; no need to purchase property - only a minimum annual rent of EUR4,230;
no minimum investment requirements and no Inheritance/Wealth Taxes.
Settling in Malta is highly beneficial with an
advanced healthcare system, simple relocation prospects and lower tax
rate. Malta is categorised as ‘Very High in Human Development’ by the
Human Development Index and the New Economics Foundation rates Malta as
the 40th best country in the nexus of environmental sustainability and
human well-being.
The Malta Permanent Residence Scheme was passed with
the aim to attract high net worth people to Malta by transferring their
tax residence to a venue more conducive to their needs coupled with the
natural enticements of the Mediterranean. The attractiveness of this
scheme is down to a wide plateau of benefits, including no minimum stay
requirements, low annual tax liability of €4,230, no world-wide income
or wealth tax, no minimum investment requirements, and no inheritance
taxes.
However, an entrant to Malta can also apply under the
Ordinary Residence Permit which has low financial
qualifications and bestows its own bill of benefits for people wishing
to transfer their tax residence from a high-tax one to Malta, including
no minimum stay requirements, no requirement to purchase property, no
world-wide income or wealth tax, no minimum investment requirements, and
no inheritance taxes. Malta’s property costs are relativity low
in comparison to the rest of Europe and buying property in Malta is a
fairly simple and swift process for non-residents and is based on a
permit system based on the minimum value and description of the
property, as follows: Minimum value €113,000 villa or house Minimum
value €67,800 Apartment, flat or maisonette In addition the non-resident
can apply for a mortgage in the Maltese Islands. It is becoming also
very popular for historical buildings to be renovated and restored to
their former glories. Historical properties in Valletta, Senglea,
Cospicua and Vittoriosa are amongst the most prestigious on the island.
On the other hand, a non-resident of Malta can only be taxed on chargeable income
and capital gains which arise in Malta and is exempt from tax on
world-wide gains.
Conclusion - Business Environment
The Maltese business environment is one that has been marked
by change and diversification. From an agrarian base Malta has expanded
into bio-technology, pharmaceutical, healthcare, engineering, logistics,
aviation, maritime, electronics, hospitality, ICT and software
development, and financial services. Intense infrastructural
development and educational investment has provided Malta with a strong
core for business development and progress. Good communications through
air connections and maritime ports strategic position in the
Mediterranean coupled with a modern transportation system with a
Freeport and frequent air link to Europe, North Africa and the Middle
East, right in the centre of a strong localised hub of activity coupled
with a modern developed telecommunications system with wireless internet
connections, VOIP,
WiMax and 3G. To do business in Malta numerous
types of company set-ups are permitted. The liberal legal system permits
the definition of a company to include overseas branches of a foreign
company set up in Malta and also companies that are neither incorporated
nor resident in Malta if they register with the local tax authorities.
Outside of serious health risks most imports are unrestricted and
companies that require raw materials are free to access. Nor are there
many volume based quotas, however clearance is required for certain
products such as pharmaceuticals and livestock, as similarly found in
other European Countries. Where goods are imported from non-EU countries
a duty may be levied on top of VAT and is based on the transaction
value, transport cost, handling charge, and insurance to the place of
importation. However goods that enter through the Freeport or goods
under custom control are not subject to duty. There are also tax
incentives and subsidies for some actions of job creation, especially
when disadvantaged groups are employed, such as registered disabled,
single parents with a dependent, and those who have been long
unemployed. And through the Income Tax Act electronic commerce can also
benefit from tax credits on the value of their capital expenditure for
developing e-Business. [Our
ICT Law Practice]
Malta merges the line between business and pleasure. The strong and liberal
legal and tax frameworks have provided the necessary support and
protection of the industries without impeding the financial incentives
they have to offer. through the Schengen Agreement, serious licensing
regimes, various physical and monetary incentives attributed to
business, the favourable taxation
environment and the proficient and hardworking workforce, it is no wonder
that so many international business are relocating their international
businesses within our shores.
[1] The Schengen Agreement also includes one member of the EU Customs
Union, Monaco,
to the same privileges.
[2] This incentive does not apply to companies registered after 31
December 2008.
[3] The profits that are eligible for the 15.75% tax rate are required
to be kept in a reserve for a minimum 8 years.
For more information about the Malta
Residence Scheme, click
on the links on the left hand menu of this page.
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