Malta — Reputable Business and Financial Centre in the Heart of the Mediterranean

Anastasia V. Mifsud

Situated in the centre of the Mediterranean Sea, Malta is a sovereign independent state enjoying traditional political, economic and social stability. The implementation of an authoritative legislative framework, together with accession to the European Union, have both stimulated significant developments in the island’s economy by boosting direct investment into the country. With its highly educated workforce and relatively low cost of professional services when compared with other EU countries, Malta has firmly established itself as a reputable business and financial centre, offering attractive business solutions for individuals and international corporations alike. Moreover, it has become a competitive jurisdiction for tax planning and corporate structures, offering a number of tax benefits and an extensive treaty network. Due to money laundering and professional secrecy legislation that complies with EU regulations, Malta is not perceived with suspicion and is, therefore, a trustworthy jurisdiction to carry on international business.

Corporate solutions

Malta can offer numerous benefits in an international tax strategy. One of the possible options is to set up an International Trading Company registered in Malta that can carry business solely with non-residents. There are, however, certain complementary activities in Malta that are allowed, namely purchases for export of Maltese goods that are not made from a 15% shareholder in the buying company; trade with companies registered in Malta under the Financial Services Centre Act 1988, trade with other International Trading Companies. The International Holding Company is in many ways similar to the International Trading Company except that, as its name implies, it holds participations in foreign companies and/or investments. The profits of the International Trading Company are passed on to the International Holding Company in the form of dividends where, due to the full imputation system, they are not taxed any further.

The standard tax rate for companies incorporated in Malta is 35%. Non-resident shareholders and international holding companies benefit from a refund equivalent to 6/7 of the tax paid by an International Trading Company upon distribution of profits.  Tax incurred by the trading company on dividend income is allocated as a deduction on tax due by the Holding.

One can also benefit from 0% on capital gains made from the disposal of a participating holding as well as 0% on dividends from participating holding if the definition of equity holding and of participating holding is satisfied subject to a foreign tax of at least 15%, or no more than 50% of its income is derived from passive interest or royalties. In case the said conditions cannot be fulfilled, dividends from a participating holding can still be exempt from tax if an equity holding is not a portfolio investment and is subject to tax of at least 15%.  Flat Rate Foreign Tax Credit (FRFTC) is also available to companies, which operate a Foreign Income account. Foreign passive income is allocated to this account and is grossed up at 25%. A credit equal to the FRFTC is then allowed against Maltese tax.

Furthermore, there is low registration and annual costs, no duty on documents, no exchange control restrictions, no exit costs upon liquidation, no thin capitalization rules, no debt to equity rules, no CFC rules, no withholding taxes and no capital gains tax on disposal of shares held by a non resident in a company. A non-resident shareholder has the advantage of 5% on dividends from non-participating holdings; 5% on trading income and 10% on passive income (interest and royalties).

Remote gaming

The above-mentioned tax advantages and reputable gaming license are just a few of the reasons why large amounts of remote gaming operators are flocking to Maltese shores. Even though it is EU's smallest state, Malta was the first of all European Union Member States to establish the freedom of online gaming and strong regulatory regime to set up its operations. It now occupies second place in the European Ranking for “Information and Communication Technology”. The remote gaming sector has developed rapidly in recent years. The high concentration of remote gaming operators on the island has led to an increase in the skilled workforce trained in odds compilation, game risk management and call centre support. Additionally, there are a considerable number of firms specializing in the provision of corporate services and in the delivery of remote gaming advice. An independent regulatory body, the Lotteries and Gaming Authority (LGA) was set up in 2001 and since the beginning of its operation, it has issued over 300 licenses held by 250 0perators.

In order to obtain the license as per the said regulations, an operator has to comply with a number of technical and operational rules and requirements to guarantee the successful operation as well as the protection of players. Among necessary procedures are due diligence test, auditing, supervision and last but not least proper certification of the software systems.

Operation of remote gaming or remote betting is subject to two types of direct taxation in Malta, being Gaming/ Betting Tax and Corporate Tax. Compared to other Member States, the former is considerably low. With regard to the latter, the standard corporate tax rate for companies incorporated in Malta is 35%, 6/7 of which is refunded at the end of the tax year.

To operate remote gaming, an operator requires a valid license of a particular class. There are four classes of remote gaming licenses. The Online Gaming Licenses (CLASS 1) are issued for operators who take part in unlimited risk on games depending on repetitive occurrences. Class 2 refers to an online betting office or online betting exchange and applicable for the operators who manage their risk on a singular event; Class 3 — Online promotion and/or support gaming from Malta — for operators who receive a commission; Class 4 — Hosting and managing online gaming operators, excluding the licensee himself — for platform operators or software vendors. Such a license is valid for five years with possible extensions following the continued compliance by the operator, who has to apply for a renewal at least 2 months prior to expiry of the license.

Banking

For an establishment to qualify as a bank or credit institution in Malta its main objective should be to take deposits from Maltese residents and should carry out banking activity in terms of the Banking Act and the subsidiary legislation thereunder, overseen by the Malta Financial Services Authority. It can either be a private or public liability company, with minimum issued share capital of EUR 5 million. Furthermore, the possibility exists of creating a bank that provides services entirely to non-Maltese residents.

There are four types of credit institutions that can operate in Malta, namely an institution that is originally licensed in Malta by the MFSA, an EU credit institution passporting its rights to set up a branch, a non-EU licensed bank establishing a branch of the same bank in Malta, a representative office of a bank licensed in another jurisdiction. There are currently 25 credit institutions, nine of which operate in retail banking.

During the World Economic Forum in 2009, Malta’s banking system was placed 13th in the world. The liquidity position of the banking sector was generally untouched by the financial crisis due to the low dependence of Maltese banks on interbank funding and their high reliance on retail deposits. Banks in Malta remain sufficiently capitalized, irrespective of registered lower profits due to valuation losses.  The current EU-wide stress tests have established that the major banks in Malta are well capitalized by international standards and capable of seeing them through a stress situation. This has been attributed to the quality of assets that the banks hold, coupled with a prudent dividend policy.

Maritime services

Malta’s strategic location in the heart of the Mediterranean, its natural harbors and extensive range of maritime services such as shipbuilding and repair, bunkering and towage services, Freeport, as well as ship supplies, have all contributed to making Malta a leading maritime hub. The Maltese flag has gained the reputation of trustworthy ship owners, ship financiers and ship management companies, which is proved by the fast-growing registered tonnage. The Maltese Registry is now amongst the largest in the world. Malta is a party to most major International Maritime Conventions, the provisions of which are strictly adhered to by Malta flagships. Malta also boasts a number of bilateral maritime agreements with other maritime nations.

Holders of vessels registered under the Maltese flag benefit from low company formation and ship registration costs. Exemption from income tax, donation and succession duty; duty on transfers and assignments is automatically granted to Maltese vessels of 1,000 net tons and over. Maltese vessels under 1,000 net tons can also be exempt from the above-mentioned taxes under certain circumstances.

Any vessel including oil rigs, platforms and barges, as well as vessels under construction and mortgages can be registered. There are no restrictions on the nationality of the master, officers and crew, nor is there a limit on the nationality of shareholders and directors of Maltese shipping companies.  Restrictions on the sale and mortgaging of Maltese ships, on the sale or transfer of shares of a company owning Maltese ships are also absent, as are any trading restrictions and preferential treatment to Maltese ships in certain ports.

Residence

Maltese permanent residents are exempt from customs duty on importation of used personal effects and one motor vehicle within the first six months of arrival in Malta to take up residence. They can benefit from the income tax rate, chargeable on income arising in or remitted to Malta. No minimum stay in Malta is required, apart from the one time visit to Malta within a year from the date of issue of the permit. Furthermore, the holders of the Maltese resident permit can benefit from repatriation of capital and income and complete freedom of movement without any visa requirements. Death duties are not payable and transfer duty under the Duty on Documents and Transfers Act is only charged on the deceased resident’s immovable property in Malta and shares in any locally registered company. Additionally, proceeds from the sale of immovable property in Malta can be repatriated without restriction.