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Jurisdiction Special Focus: Malta

by the Investors Offshore editorial team, December, 2011
16 December, 2011


Malta is an independent nation, having split from the UK in 1964. The Maltese Islands are 100 km south of Sicily, with a population of 408,000; the climate is warm. Malta has a Westminster-style democracy, but has been politically fractious since independence. 15 years of post-colonial adolescent flirtation with Communism and the third world has however been succeeded by a more mature attitude.

Malta joined the EU in 2004, although as late as the spring of 2002, with EU accession negotiations almost completed, the opposition labour party was still hankering after a life as the 'Switzerland of the Mediterranean'. Eventually, Malta was invited to join the EU in December, 2002, along with Cyprus and 8 Eastern European ex-Soviet states. A referendum in March, 2003, approved EU entry, and after the government was returned to power in April, it signed the EU accession treaty in Athens. Finally, the Maltese Parliament ratified the accession treaty in July, 2003.

The official languages are English and Maltese. The British military and naval base once dominated Malta but since 1979, when the British left, the excellent port facilities have not yet been fully re-utilised. Tourism has become a major contributor to the economy, particularly visits by cruise ships. The airport has good connections with a wide range of European countries. Figures for 2010 show GDP per head of $25,600 which is low on the European scale and increases only slowly; for the same year inflation was at 1.5%; and unemployment at 7%.

As a politically-stable, English-speaking retirement destination, Malta has experienced a real estate boom, especially since joining the EU, followed by the adoption of the euro as from 1st January 2008.

Almost entirely lacking energy or other natural resources, and with a severe shortage of arable land, Malta is inevitably an import-hungry country. In the last 15 years, the Government has tried hard, and with some success, to create a high-technology manufacturing sector and to establish processing and distribution facilities around its rapidly growing Freeport. There are extensive investment incentives.

Manufacturing, tourism and shipping go some way towards paying for imports, but the gap cannot be closed without the development of a financial services sector. Maltese legislation for banking, mutual funds, insurance and trust services was relatively late in arriving, and while these sectors are growing, they are not on the scale of some other OIFCs. Malta has moderately high internal taxes, but offers low-tax regimes to companies and individuals. Malta phased out its 'designer tax' Offshore Companies, which the EU would never have accepted, and in 2006 had to give in to the EU by legislating away their replacements, the International Trading Companies.

There is a reasonably sophisticated business and professional infrastructure. Business sectors with offshore activity include banking, investment fund management (there is a stock exchange with a growing array of mutual fund listings), trust management, shipping (a particularly strong sector) and investment holding. Valletta, the administrative capital, is also the chief business centre.


Malta's Advantages

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 and foreigners are permitted 100% ownership of enterprises in almost all sectors.

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 10th for the soundness of its banks and 11th for financial market development by the World Economic Forum’s Competitiveness Index 2010.

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.

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.

However, 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 has entered into 57 double-tax treaties (unusually for a low-tax jurisdiction), with another one pending. Generally speaking, the treaty benefits are available to all Maltese companies other than Offshore Companies (now phased out, in any case). All the treaties other than the Swiss and USA treaties, which, until recently, were limited to air transport and shipping, follow the OECD Model Convention.

Maltese holding companies can be used for a variety of purposes, including holding real assets like property, shares and securities and intellectual property, and intangible assets such as copyrights and patents, and shareholders benefit from a full imputation system under which tax can be reduced to zero percent in certain circumstances. A Malta holding company is a company resident in Malta and pays 35% tax on its net income. However, 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. For a Maltese resident company to hold a “participating holding” in a company incorporated abroad, it must hold at least 10% of the equity shares in the non-resident company. To qualify for the participation exemption, the foreign subsidiary must satisfy one of three criteria: be resident in the EU; be subject to foreign tax of at least 15%; and not derive more than 50% of its income from passive income. When dividends are paid by trading companies to the shareholders, these shareholders are entitled to claim refunds of 6/7ths of the Malta tax paid by the company, resulting in an effective Maltese tax rate of 5%. Distributions made from profits derived from passive income such as interest and royalties, entitle the shareholder to reclaim 5/7ths of the tax paid by the company.

E-Gaming

In the autumn of 2000 the Maltese government passed legislation enabling online betting centres to be set up in the country, and this legislation, coupled with provisions from the Income Tax Act written specifically for 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.

Malta became the first EU member state to regulate internet gaming in May 2004 with its Remote Gaming Regulations under the Lotteries and Other Games Act 2001. By the end of 2009 Malta had attracted 330 remote gaming companies and processed over 500 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 EUR52.5m in 2009.

The e-gaming industry in Malta is regulated by the Lotteries and Gaming Authority, which was established in 2002 and is responsible for the governance of all gaming activities in Malta including casino gaming, commercial bingo games, commercial communication games, remote gaming, sports betting, the National Lottery and non-profit games. According to its mission statement, the Authority's role is to ensure that "gaming is fair and transparent to the players, preventing crime, corruption and money laundering and by protecting minor and vulnerable players."

In 2002 the Malta Lotteries and Gaming Authority put together the legislative framework for a new licensing regime encompassing online casinos, sports betting, betting exchanges and lotteries, which came into effect in early 2003. Said the Authority: "This framework has the objective of providing regulation which is strong and serious but not unnecessarily bureaucratic, ensuring vigorous protection for users of online gaming, and dovetailing with Malta's long-established and reputable financial services sector."

There are four classes of licence available to operators in Malta, as follows:

  • Class1 - For operators managing their own risk on repetitive games. This class covers casino-type games.
  • Class 2 - For operators managing their own risk on events based on a matchbook. Under this class operators can offer fixed odds betting.
  • Class 3 - For operators taking a commission from promoting and/or betting games. This class includes peer-to-peer games, poker networks, betting exchanges and online lotteries.
  • Class 4 - To host and manage remote gaming operators, excluding the licensee themselves. This is intended for software vendors who want to provide management and hosting facilities on their gaming platform.

Licenses are granted for a period of five years and licensees must have the core part of their online operation physically located in Malta.

The amount of tax paid by online gaming companies located in Malta depends on the type of licence they hold: Class 1 licence holders pay EUR4,660 for the first six months, then EUR7,000 per month thereafter; Class 2 firms involved in fixed odds betting pay a 0.5% tax on the gross amount of bets accepted; Class 3 licence holders pay a 5% tax on real income; and Class 4 licence holder pay no tax in the first six months of operations, then EUR2,330 per month for the following six months, and EUR4,460 per month thereafter. The maximum amount of tax payable annually in respect of any one licence is EUR466,000. In 2011, application and annual licence fees are EUR2,330 and EUR8,500 respectively for all classes of licence.


Shipping and Yachting

With its location in the heart of the Mediterranean Sea, a centuries old maritime tradition and a respected and favourable regulatory and tax regime for shipping, it is no surprise that Malta has developed one of the world's largest ship registers in modern times, and in the face of stiff competition from other prominent maritime nations.

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, subsequently revised and amended in 1986, 1988, 1990 and 2000. The main legislation is also supplemented by a comprehensive set of rules and regulations. 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. By the end of 2010, a total of 5,249 ships, 2440 of which were pleasure yachts were registered under the Maltese Merchant Shipping Act.

All types of vessels from pleasure craft to oil rigs may be registered provided that they are wholly-owned by legally constituted corporate bodies, or by European Union citizens. There are no nationality requirements for shareholders or directors of Maltese companies, and neither are there any nationality restrictions on officers and crew employed on Maltese-flagged ships.

Maltese law provides for both bareboat charter registration of foreign ships under the Malta flag and also for the bareboat charter registration of Maltese ships under a foreign flag. Ships that are bareboat charter-registered in Malta enjoy the same legal privileges, and have the same legal obligations, as any other ship registered in Malta. Maltese law also allows for the registration of ships that are under construction.

Yachts which do not carry cargo or more than 12 passengers may be registered as commercial yachts under Malta's Commercial Yacht Code 2006, which sets out standards on safety and pollution. The Commercial Yacht Code was developed in line with international regulations and other industry standards and caters for both small yachts and superyachts above 24 metres and up to 3,000 gross tons. The Code has been proving successful with major yacht and superyacht builders alike, with the number of commercial yachts certified in compliance with the Malta Code increasing considerably during the past years. The registration procedure for yachts is similar to that of other vessels, and a six month provisional registration is usually granted allowing time for the appropriate documents to be submitted and the registration finalized.


Wealth Management In Malta

Maltese banking is now conducted according to the Banking Act 1994 (for credit institutions aka commercial banks) and the Financial Institutions Act 1994 (for non-lending institutions, mostly meaning foreign exchange bureaux). This legislation conforms to current EU banking directives.

'International Banking Institutions', seven of which were licensed as offshore companies under the Malta International Business Activities Act 1988 had to convert to 'credit institution' status under the Banking Act. Incoming banks are now licensed only under the Banking Act. With the gradual abolition of exchange controls, there now remains little distinction between 'international' and 'local' banks, or between 'offshore' or 'onshore' banks.

Maltese and foreign banks are supervised by the Malta Financial Services Centre; minimum capital for a new bank is EUR5 million. Foreign banks may operate through branches, but are still subject to supervision by the MFSC.

A new organisation to promote Malta's financial services sector to international investors was officially launched by the government in May 2007. The new non-profit body, branded Finance Malta, centralises promotional activities previously carried out by the Malta Financial Services Authority and private sector organisations.

Parliamentary Secretary Tonio Fenech noted that financial services were playing an increasingly important role in the Maltese economy, accounting for about 12% of the country's gross domestic product. The financial sector’s gross added value component reached EUR208 million by the end of 2006, representing added value to the tune of EUR40,000 per employee, Fenech added. Meanwhile, the industry's productivity grew by 37% in 2006, he revealed.

In January 2011, the IMF highlighted that Malta's banking system has weathered the global financial crisis relatively well, but it noted that vulnerabilities are rising. The IMF found that telatively conservative funding models and little exposure to US toxic assets have kept spillovers from the global financial crisis to banks in Malta at bay. However, a long real estate boom contributed to a significant increase in private sector debt and as a result domestic credit risk.

In spite of the international situation, conditions in the banking sector had registered a marked improvement by the end of 2010, according to the Maltese Financial Services Authority. With less exposure to the international crisis than other banking jurisdictions, the sector continued to perform strongly in 2010, registering an overall 21% growth in assets. Profits also increased though not at the same rate recorded in 2009.

By the end of 2010, the total number of registered credit institutions was 25, two more than in the previous year. During 2010, two companies were licensed to carry out banking activities as credit institutions, namely FCM Bank Limited and IIG Bank (Malta) Limited. Another company, Deutsche Bank (Malta) Limited, had its license upgraded from a financial institution licence to a credit institution licence.

The Maltese government has set a target of 2015 for the jurisdiction to become one of the most important financial centres in the region.

The Commonwealth Bank of Australia was one of the first Australian banks to take advantage of the opportunities presented by Malta, with its CommBank Europe Ltd unit, holder of a Maltese banking licence since August 2005, becoming one of the island's largest financial institutions. CommBank Europe had $1.3 billion in capital and had $4.7 billion in assets in 2006.

For the Australian banks, it is the existence of the favourable double tax treaty between Malta and Australia that is a major cause of their interest in the jurisdiction. The Australian reported that CommBank Europe's Maltese operation, in combination with lower tax rates in New Zealand, Singapore and Britain, contributed to a 150 basis-point reduction in the effective tax rate for CBA's banking operations to 26.7%. Tax paid in Malta was $2.3 million - equivalent to a rate of 7.3%, although top-up tax was paid in Australia under that country's controlled foreign company rules, the report stated. The criticism levied at the bank for its Malta operation appeared to be taking its toll and by May 2010, there was widespread speculation that the bank's Maltese activities would be wound down. As of 2011 however, the bank still has a presence in Malta, from where it provides infrastructure and utilities solutions, corporate lending and asset finance solutions to clients throughout Europe.

At the start of 2010, the MFSA adopted a new structure for the Supervisory Council in order to strengthen the regulatory and supervisory process. During the year, the Authority also conducted thirty-nine consultations on a variety of legislative initiatives particularly the transposition of EU Directives. Legislation implemented or under development in 2010 was related to, among others, the Capital Adequacy Directive, Payment Services, Electronic Money, UCITS IV, Contractual Funds, Limited Partnerships, Solvency II, Incorporated Cell Companies (see below) and the Trusts and Trustees Act.

Investment Funds

Investment Funds in Malta are licensed by the Malta Financial Services Centre under the Investment Services Act 1994. Licensed funds are exempt from taxation, although they can choose to pay tax at 25%, in which case generous deductions can be claimed against income and the fund has access to Malta's network of double taxation treaties.

The investment fund sector in Malta is quite small. However, the growing success of the stock exchange in attracting mutual fund listings may well lead to an increase in the number of funds actually based in Malta.

In December 2008, the Maltese Financial Services Authority revealed that newly licensed hedge funds were increasing two-fold on the island, thanks to the jurisdiction's competitive set up costs and recently implemented regulatory measures.

MFSA Chairman Joe Bannister spoke about the increase in funds at a roundtable debate on the subject, where he noted that the Undertakings for Collective Investment in Transferable Securities (UCITS) sector in Malta is also showing signs of further expansion, alongside the fund-servicing and fund administration sectors. The MFSA Chairman also emphasized that Malta’s first priority when it comes to licensing new funds remained quality rather than the quantity.

Among the reasons given for this growth in the investment funds sector was that being part of the European Union has allowed Malta to develop into a fully fledged funds domicile that provides competitive access to the European and international markets.

Bannister stated that the recent updates in legislation had been mainly inspired by developments at EU level and included the implementation of the EU Markets in Financial Instruments Directive (MiFID), the Capital Requirements Directive (CRD), UCITS III, and the new eligible assets regime. This legislation is directed at providing for a more integrated European financial market by allowing EU-based funds and their providers the freedom to compete on a level playing field.

Kenneth Farrugia, Vice-Chairman of FinanceMalta, who also spoke at the meeting, attributed Malta’s success in attracting funds to its high level of cost competitiveness. Citing recent research on the subject, he said: "on a comparative basis Malta is very cost competitive both at the set up stage in terms of setting up costs of a Scheme, as well as regards ongoing servicing costs such as custody and fund administration costs."

The net asset value of locally based Collective Investment Schemes stood at almost EUR8 billion at the end of 2010, an increase of 13.5% over the previous year end.

In 2010, the MFSA published a Guidance Note for Shariah Compliant Funds. The document explains how the legal and regulatory framework established under the Investment Services Act would apply to Shariah-compliant funds established under Maltese law.

The Guidance Note establishes that, whether set up as Professional Investor Funds, UCITS or non-UCITS Retail Funds, Shariah Funds may be regulated in the same manner as non-Shariah Funds. The level of disclosure and the applicable conditions would be the same as those that are applicable to the respective category of retail or professional funds. The Guidance Note therefore requires that funds presenting themselves as Shariah compliant are required to disclose all the relevant details in this respect in the fund prospectus or offering document as well as in their financial 
statements as part of their ongoing obligations.

The Guidance Note also explains the role of the Shariah Advisory Board in relation to that of the fund manager to ensure that the financial soundness of the manager’s decisions is not conditioned by non-financial considerations. It is however also the manager’s responsibility to ensure that the fund actually does satisfy the relevant Shariah principles and requirements as disclosed in the offering document.

In November 2011, a consultation document was published on draft Regulations that would govern the proposed introduction of Recognised Incorporated Cell Companies (RICCS) as an alternative to the Société d'Investissement À Capital Variable (SICAV) incorporated cell company form.

In an ICC structure, an entity is structured with incorporated cells, which are considered separate entities from one another for legal purposes. These cells may hold assets, sue and be sued in their own name. As a result, there is legal ring-fencing within an ICC structure which provides a stronger degree of certainty and protection of the assets of other cells.

According to the MFSA, the launch of the Incorporated Cell Company form of the SICAV in February 2011 generated a lot of interest across the fund sector generally with the consequence that the MFSA received many enquiries from companies with business models that due to their particular nature were not able to form structures under the ICC SICAV regime.

“Most of the demand revolved around a ‘platform’ model that would involve an ICC providing administrative services to any number of Incorporated Cells licensed as collective investment schemes,” the MFSA said. “As a result the MFSA is considering introducing a new Recognised ICC framework with a specific set of conditions that will cater for the above mentioned business models. The new framework is being proposed in the form of a legal notice and will be regulated by a separate set of Rules so that it will not be confused with the ICC SICAV regime.”

Conditions that will apply to the operation of a Recognised Incorporated Cell Company will include that a provider under the regime may only provide services of an administrative nature for which it is issued with a Recognition Certificate in terms of article 9A of the Investment Service Act. The services that may be permitted are those listed in the Schedule to the proposed regulations.

The new RICC structure proposed in the draft Regulations provides promoters with a structure that may be used as a vehicle to achieve various objectives including the setting up of a fund platform. Unlike the SICAV ICC, the Recognised Incorporated Cell Company must be established as a limited liability company and may not carry out any licensable activity.

An RICC may establish an incorporated cell by virtue of a resolution of its board of directors. The RICC framework is structured to allow incorporated cells to migrate in and out of the ICC they share with other incorporated cells and either relocate to another ICC or establish themselves as a separate independent schemes. The RICC itself may also undergo transformations excluding a transformation into a SICAV.


Obtaining Permission To Live And Work In Malta

As a member state of the European Union from May, 2004, Malta no longer applies restrictions to the movements of nationals of other EU member states.

As of December 21, 2007, Malta became part of the Schengen area. European Commission President José Manuel Barroso announced ahead of the enlargement of the area that:

"As from this week, people can travel hassle-free between 24 countries of the Schengen area without internal land and sea border controls - from Portugal to Poland and from Greece to Finland. I wish to congratulate the nine new Schengen members, the Portuguese presidency and all EU Member States for their efforts. Together we have overcome border controls as man-made obstacles to peace, freedom and unity in Europe, while creating the conditions for increased security".

Following enlargement, all citizens of the enlarged Schengen space benefit from quicker and easier travelling. From December 21, 2007 onwards, a citizen can travel from the Iberian Peninsula to the Baltic States and from Greece to Finland without border checks

Eight Visa Facilitation Agreements (VFAs) are in force between the European Union and certain third countries on the facilitation of the issuance of visas. The VFA sets the cost of a visa at EUR35 and shortens the processing period. The current VFAs cover Albania, Bosnia and Herzegovina, Moldova, Montenegro, Macedonia/FYROM, Russian Federation, Serbia and Ukraine. For other countries, a single-entry and transit visa charge of EUR60 applies. Visas are valid for 90 days.

Anyone who wishes to reside permanently in Malta must apply for a residency permit under the 1988 Residence Scheme. An applicant must provide evidence of a minimum annual income of EUR14,000 rising to EUR23,300 for married persons. These amounts do not include the cost of accommodation and a permit holder must buy or rent property on the island, but benefits from tax and import duty incentives.

Under a new law providing for dual citizenship, enacted in February 2000, 1,064 individuals who were Maltese citizens by birth but then lost their citizenship by emigrating were re-awarded their Maltese status in May 2001 after satisfying certain conditions.


Personal Taxation

It is necessary to consider both domicile and residence to establish the exact tax situation of individuals in Malta.

Maltese domicile is established on the basis of UK case law principles. Broadly speaking, an individual's domicile of origin (where he was born) can be changed if he establishes a permanent home elsewhere. He can only have one domicile.

Residence is defined as habitual presence in the country; ordinary residence means that an individual is present in Malta in the ordinary or regular course of his life.

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). The six-month test is likely to be definitive in establishing residence.

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.

'Returned migrants' are offered a special tax regime: a person born in Malta who returns can elect to pay 15% income tax on local income only; there are various conditions.

Holders of Permanent Residence Permits issued under the Immigration Act 1970 can pay tax at a reduced rate on income arising in Malta plus remittances of foreign income. Such individuals are considered to be non-resident as regards investments in offshore and non-resident companies.

In April 2011, the Maltese government published the Highly Qualified Persons Rules, 2011, bringing into force tax incentives that were introduced to encourage non-resident highly-skilled workers to the island, and clarifying the parameters of the scheme.

Announced on April 19, 2011, the government said Legal Notice 106 - Highly Qualified Persons Rules, 2011, would serve to create a scheme to attract highly qualified persons to occupy 'eligible office' with companies licensed and/or recognized by the Malta Financial Services Authority.

'Eligible office' comprises employment in one of 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.
The rules for the scheme came into force with effect from January 1, 2010, and apply to income which is brought to charge in year of assessment 2011 (basis year 2010) and apply to individuals not domiciled in Malta.

The rules of the scheme are as follows:

  • Employment Income: Individual income from a qualifying contract of employment in an “eligible office” with a company licensed and/or recognised by the Malta Financial Services Authority is subject to tax at a flat rate of 15% provided that the income amounts to at least EUR75,000 (seventy five thousand euros) adjusted annually in line with the Retail Price Index. The 15% flat rate is imposed up to a maximum income of EUR5,000,000 (five million euros); the excess is exempt from tax. The 15% tax rate applies for a consecutive period of five years for the European Economic Area (ie EU countries plus Norway, Iceland and Liechtenstein) and Swiss nationals and for a consecutive period of four years for third country nationals. Individuals who already have a qualifying contract of employment in an “eligible office” two years before the entry into force of the scheme may benefit from the 15% tax rate for the remaining years of the scheme. This means that a national of the EEA and Switzerland who has a qualifying contract of employment in an “eligible office” starting in 2008 (basis year) will benefit for three years from the scheme, ie basis years 2010, 2011 and 2012, while a third country national will benefit from one less.
  • Qualifying Contract of Employment: An individual may benefit from the 15% tax rate if the person satisfies all of the following employment conditions:
    • derives employment income subject to income tax in Malta;
    • employment contract is subject to the laws of Malta and it is proved to the satisfaction of the Malta Financial Services Authority that the contract is drawn up for exercising genuine and effective work in Malta;
    • proves to the satisfaction of the Malta Financial Services Authority that he or she is in possession of professional qualifications and has at least five years' professional experience;
    • has not benefitted from deductions available to investment services expatriates with respect to relocation costs and other deductions (under article 6 of the Income Tax Act);
    • fully discloses for tax purposes and declares emoluments received in respect of income from a qualifying contract of employment and all income received from a person related to his employer paying out income from a qualifying contract as chargeable to tax in Malta;
    • proves to the satisfaction of the Malta Financial Services Authority that the activities performed are those of an eligible office; and proves that they are in receipt of stable and regular resources which are sufficient to maintain themselves and the members of their family without recourse to the social assistance system in Malta;
    • the applicant resides in accommodation regarded as normal for a comparable family in Malta and which meets the general health and safety standards in force in Malta;
    • they are in possession of a valid travel document; and,
    • they are in possession of sickness insurance in respect of all risks normally covered for Maltese nationals for themselves and the members of their family.
  • Exclusions from the Scheme: The individual income derived from employment in an 'eligible office' will not qualify for the 15% reduced rate if it is paid by an employer who receives any benefits under business incentive laws or is paid by a person who is related to the employer who received any benefits under any business incentive laws or if the individual holds more than 25% (directly or indirectly) of the company licensed and/or recognised by the Malta Financial Services Authority or if the individual is already in employment in Malta before the coming into force of the scheme either with a company not licensed and/or recognised by the Malta Financial Services Authority or not holding 'eligible office' with a company licensed and/or recognised by the Malta Financial Services Authority. The individual income derived from employment in an 'eligible office' will not qualify for the scheme if a claim is made for any relief, deduction, reduction, credit or set-off of any kind except for any income tax deducted at source. Provisions in respect of split contracts have been introduced. An arrangement in terms of which a beneficiary receives a payment from a person related to his employer and such payment is not declared for tax purposes in Malta is considered to be an artificial arrangement. Any rights are withdrawn with retrospective effect if a beneficiary is a third country national and either:
    • physically stays in Malta, in the aggregate, for more than four years; or
    • directly or indirectly acquires real rights over immovable property situated in Malta or holds a beneficial interest directly or indirectly consisting in, inter alia, of real rights over immovable property situated in Malta.
  • Application to Benefit from the Scheme: An application for a formal determination relating to eligibility under the Highly Qualified Persons Rules must be made to the Chairman, Malta Financial Services Authority on the appropriate form, found on the tax authority website. The benefit is exercised for each year of assessment by means of a declaration made on the RA17 form signed by the beneficiary and endorsed by the Malta Financial Services Authority. This form is to be attached to the income tax return and filed with the Inland Revenue Department by the tax return date.

Income is comprehensively defined, under the same headings as for business income, and permitted deductions also follow the corporate model. Capital gains are also treated in the same way, and included in taxable income.

Apart from the special situations described above, the rates of income tax as of 2011 are as follows for residents:

Married
Single
Income, Euros
Tax rate
Income, Euros
Tax rate
0 - 11,900
nil
0 - 8,500
nil
11,901 - 21,200
15
8,501 - 14,500
15
21,201 - 28,700
25
14,501 - 19,500
25
over 28,700
35
over 19,500
35

For non-residents, the rates are as follows:

Income, Euros
Tax Rate
0 - 700
nil
701 - 3,100
20
3,101 - 7,800
30
over 7,800
35

An exemption from tax on capital gains realised from the sale of inherited property was removed in 2004.


Malta Social Security Taxes

Employers and employees make social security contributions in Malta on a graduated scale: at the maximum weekly pay the employee and employer each pay 10%. The employer deducts the social security contribution along with income tax. The self-employed also make contributions.

Stamp Duty is levied on various transactions in Malta; the most important are:

  • share transfers at 2% of the consideration;

  • share issues at 0.4% of the nominal value;

  • transfers of immovable property: 5%.

Companies licensed under the Investment Services Act 1994 (ie investment funds) are exempt from stamp duty on share transfers and issues. Maltese companies with predominantly foreign income can also obtain exemption.

A Final Withholding Tax of 12% of the sale value of property was introduced on November 1, 2005.

The government's rationale for switching to a withholding tax was to cut down on under-declarations of selling price and to boost the housing supply by encouraging those who have held on to property for long periods to sell.

"We expect more honest declarations: Under capital gains you paid 35 per cent on each lira declared, now you would only pay 12 per cent, so there is less incentive to cheat," Parliamentary Secretary Tonio Fenech said.

"We also believe that there are a number of people who were hoarding property because the value would have gone up considerably over the years. They would have been reluctant to sell because they would have had to pay so much under the capital gains regime," he added.

In February, 2006, Malta's Parliamentary Secretary, Tonio Fenech, unveiled a number of amendments to the property tax in an attempt to head off criticism. The measures included provisions for taxpayers being allowed to elect to have the sale taxed at the applicable marginal rates on the gain or at the rate of 12%. No tax is payable if the property was owned and occupied for at least three years immediately following the purchase and if it is sold within one year of vacating the premises.


Conclusion

So, is Malta a good final destination for you, your assets or your business? Unfortunately, on the first question, no definitive answer can be given, as the answer will depend very much on your personal circumstances, wealth, qualifications, and family situation.

On the issue of whether Malta is a good location in which to locate your assets and/or personal service company, however, there really isn't much dispute. Although obviously there are no guarantees in the offshore world, especially with the OECD vacillating on various issues, Malta, in common with the other EU low-tax jurisdictions, has a reasonably calm relationship with the major multilaterals, is politically stable, experienced in the areas of trust management, company formation and administration, and banking, and should present no problems in the areas of telecommunications or support services. It isn't the cheapest jurisdiction in which to locate an offshore vehicle, but neither is it one of the most expensive; all in all, Malta strikes a good balance. And it's a lot warmer than many other possible destinations!




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