Onward Supply Relief (OSR) procedure and sea vessels in Malta
Procedure for the VAT-Free Importation of Non-EU Goods for Onward Supply to another Member State
The procedure allows for the exemption from VAT on the importation of goods into Malta from outside the EU VAT by a registered persons in Malta, which goods are released into free circulation in Malta and subsequently transported within 30 days to a VAT registered person in another EU Member State as an intra-community supply (triggering the requirement of including such transaction in the recapitulative statement).
Eventually, the transaction is reported as an intra-community acquisition of goods by the final purchaser, generally under the reverse charge mechanism, effectively resulting in no requirement of cash outflow of VAT.
The OSR – An Attractive Solution for sea vessels
The OSR is particularly an attractive solution when yachts and pleasure crafts are being imported into the EU, relieving the immediate payment of VAT on import, whilst achieving the release of the craft into free circulation within the EU borders.
In practice, since sea vessels travel on their own steam there is the difficulty of lack of transport documentation. The Maltese importer would be required to submit to the customs authorities, documentary evidence that the sea vessel will be sailing to another EU member state, such as the relevant berthing requests and permits for the next port of call in the member state of destination.
The importer will also be required to submit a bank guarantee amounting to 10% of the Malta VAT due on the value of the sea vessel (capped to a maximum amount to be decided by the Customs Authorities). The guarantee will be released upon presentation of documentary evidence that VAT had been paid or accounted for in another Member State and that the yacht had proceeded to another Member State, which may not be the Member State of final destination.
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Another ‘A’ Credit Rating for Malta by Fitch Ratings Inc.
Fitch, the global leader in credit ratings and research, has affirmed Malta’s rating at ‘A’ based upon key drivers such as the high national income per head when compared with the ‘A’ median, a vigorous economic growth and a large net external creditor position. Fitch has based its positive rating in view of a downward trajectory in the ratio between public debt/GDP and an outperformance with similarly rated peers in economic growth. The only restrictive condition to the ratings were the continuous structural bottlenecks as featured by the weak World Bank Ease of Doing Business indicator.
It is reported that the past year had a strong economic growth at 3.9% when compared with the first three quarters of 2015, boosted by robust private consumption. Fitch forecast a continuing growth in the Maltese economy at a faster pace than that of the ‘A’ median at an average of 3.3% over the years 2017/2018. Strong employment growth, rising disposable income due to continuous wage appreciation and the launch of new investment projects in the health, education and transportation sectors are all seen as prime drivers behind this growth of the Maltese economy.
A strong export performance in the pharmaceutical, remote gaming, financial services and tourism sectors will aid in sustaining a solid current account surplus over 2017-2018.
The rating agency also makes reference to the fall in the gross general government debt from 60.8% of GDP in 2015 to an estimate 59% of GDP at the end of 2016, mainly due to high revenues from excise duties, income tax and the International Investor Program. The report goes on to mention decreases of around 0.2% from 2016 to 2017 in the fiscal deficit, a boost in tax revenues brought by robust economic growth and additional indirect tax measures. Government-guaranteed liabilities which are amongst the highest in the EU at 14.8% of GDP are set to decrease to 11.9% of GDP at the end of 2017 when the temporary guarantee granted to ElectroGas expires.
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New Financial Reporting Requirements in Malta, Introduction to the General Accounting Principles for Small and Medium-Sized Entities (GAPSME)
The new year has brought about significant change to financial reporting requirements in Malta and the EU. The EU Single Accounting Directive 2013/34/EU, which has been transposed into Maltese law, replaced the fourth and seventh directive, bringing about a new set of financial reporting requirements and introducing, what is meant to be, a financial reporting framework that promoted comparability, simplicity and enhances the potential of SME businesses through the removal of unnecessary and disproportionate administrative costs.
The EU directive has been transposed into Maltese law through the introduction of the General Accounting Principles for Small and Medium-Sized Entities (GAPSME), as well as through amendments to the Maltese Companies Act. GAPSME simplifies the preparation of financial statements for ‘small’ companies, defined as those companies which satisfy two of the following three thresholds:
Malta Small and Medium-Sized Entities Threshold Small Threshold Mediuum Balance sheet total ≤ €4,000,000 ≤ €20,000,000 Revenue ≤ €8,000,000 ≤ €40,000,000 Average number of employees ≤ 50 ≤ 250
GAPSME reduces the amount of financial information that needs to be presented by small companies in their financial statements. Such companies need only present a balance sheet, an income statement and notes to the financial statements to comply with the new presentation framework. The statement of changes in equity and statement of cash flows are now only required in the case of medium-sized entities, also defined in the new legislation. GAPSME superseded the previous GAPSE framework, widening eligibility and reducing reporting requirements in the areas of Revenue, Property Plant and equipment, Investment Property, Intangible assets other than goodwill, Impairment, Leases, Government grants and Inventories for small companies. Additional disclosures are required for medium-sized companies.
GAPSME is applicable to financial reporting periods starting on or after 1 January 2016.
The EU Directive also brought about amendments to the Maltese Companies Act including changes to the ‘small’ company thresholds to bring them in line with GAPSME rules, the removal of the requirement to produce a director’s report for small companies, the elimination of the financial holding consolidation exemption and the removal of the postponement of the filing deadline for companies whose activities are undertaken outside Malta.
More information can be provided on request. However, it must be noted that since some of the structures / issues may be technically complex, they are ideally discussed at a meeting with Focus Business Services’ Directors. For bespoke advice, please click here to contact one of our officers or send us an email on firstname.lastname@example.org
European Commission proposes modernization of tax rules to support e-commerce and online businesses in the EU
The European commission has recognized the need to update the current EU VAT rules following the rise in the use of the internet and a rapid increase in online sales especially cross-border sales. Online businesses and the digital economy will be encouraged to expand cross-border and eventually prosper as a result of this update.
One of the measures announced in order to improve the VAT environment for e-commerce businesses in the EU is the introduction of an EU wide portal for online VAT Payments known as the One Stop Shop. Once introduced this measure will save businesses across the EU EUR2.3 billion a year through a significant reduction in VAT compliance expenses. By means of these new rules the commission will also make sure that VAT is paid in the Member state of the end consumer thus resulting in a fairer dissemination of tax revenues amongst EU countries. The commissions’ plan is intended to aid Member States in recuperating the current estimate of EUR5 billion lost VAT on online sales yearly.
The key proposals include:
- New rules allowing companies that sell goods online to deal easily with all their EU VAT obligations in one place
At present online traders are required to register for VAT in every Member State they trade in, in many instances this is regarded as the main limitation to cross-border e-commerce and result in business expenditures of around EUR8,000 in every EU country in which they trade. The Commission is now proposing a single quarterly return made through the online VAT One Stop Shop for the VAT payable across all the Member States. This system is already in place for the sales of e-services such as mobile phone applications, and with an excess of EUR3 billion in VAT collections in 2015, making this system a proven success. This proposal will see a 95% cut on administrative costs for businesses, resulting in a global saving to EU business of EUR2.3 billion and a rise in VAT revenues for Member States by an estimated EUR7 billion.
- Simplifying VAT rules for micro-businesses and startups selling online
A yearly VAT threshold of EUR10,000 is being introduced to aid startups and micro-businesses. Under this threshold, cross-border sales by online businesses will be regarded as domestic sales and therefore VAT is paid to the home country tax authority. This is closely related to initiatives like the same invoicing and record keeping rules.
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Malta Retains Status As Preferred Funds Jurisdiction
Malta has been a favoured fund jurisdiction since joining the European Union. The fund industry has flocked to Malta due to the introduction of favourable, simple and efficient legislation which caters for the interests of both the fund business as well as the investors. Fund managers and promoters may choose from a set of frameworks available, including SICAVs, unit trusts, investment companies with a variable share capital and Professional Investor Funds (PIFs) in order to meet their objectives.
This, together with the fact that investment funds that are registered in Malta may be passported to any of the other twenty seven EU member states and a low cost and advantageous fiscal base have pushed the number of funds registered in Malta to well over six hundred.
Earlier in 2016, the Malta Financial Services Authority announced its intention to consolidate and reduce the number of fund frameworks which are available to fund promoters in terms of the Investment Services Act and the applicable Investment Services Rules. This aims at streamlining fund legislation, making it simpler for fund managers and promoters to find their way amongst the sometimes overlapping laws and better explaining the rights and obligations of all the players in the industry.
The authority is now seeking feedback from the industry on the proposals it is putting forward in an attempt to get everyone on board and make this exercise a truly collective one, ensuring that the changes are the best possible so as to take the industry forward and guaranteeing its long-term viability.
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Pharmaceutical Companies Registered in Malta and Growth of the Pharmaceutical Industry in Malta
The Pharmaceutical industry in Malta has developed and grown significantly in recent years, becoming a strong contributor to the local economy. This dynamic industry has taken advantage of the many positives that Malta has to offer. Apart from the obvious geographical advantages which provide for the development and manufacturing of medicines with the quick opportunity to infiltrate markets such as south Europe and North Africa, Malta offers linguistic skills with the promotion of multilingualism throughout the Maltese educational system, individuals with academic degrees in chemistry and skilled work labour force in the use of high-precision machinery.
Malta’s legal framework offers significant advantages to such organisations. It allows pharmaceutical companies to undertake all the preparatory work, including clinical trials and testing, for the purposes of obtaining regulatory approval or other commercial purposes prior to the expiration of the lifetime of an existent patent. Subsequently, once the patent expires, the Malta based generic pharmaceutical company may immediately put its newly developed product on the market without undue delay and before any of its competitors.
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Medicinal products which have been placed on the Maltese or EU market need to have a marketing authorisation as per the medicines act and the medicines regulations. Being a full member of the European Union, Malta employs the Mutual Recognition Procedure whereby once any one member state has been granted marketing authorisation by any local EU competent authority, this shall be held in common with other member states. Pharmaceutical companies established in Malta and looking to trade with the rest of the EU, are thus not required to attain further authorisations from any other competent EU authority as they benefit from the mutual recognition of marketing authorisations.
Pharmaceutical companies registered in Malta may also take advantage of the various tax refunds available to such companies, ultimately resulting in an ultimate tax leakage of just 5%.
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Malta registered Securitisation Vehicles obtain important VAT clearance
Following the publishing of Legal Notice No. 383 of 2016, Securitisation Vehicles will now also fall under the exemptions of investment scheme management services as provided by item 3(6), Part Two of the Fifth Schedule of the Malta VAT Act. This will mean that securitisation vehicles established or operating from within Malta will not need to be registered for VAT purposes and will not be charging any VAT on their services.
As defined under Chapter 484, Securitisation Vehicles may take the form of a company, a trust created by a written instrument or any other allowed legal structure. The term securitisation is defined by the same chapter as a transaction where assets are acquired, risks are assumed or secured loans are granted whereby these are financed through the issue of financial instruments/securities. Any type of asset may be securitised, be it moveable or immoveable, tangible or intangible, current or future. Securitisation brings about a number of advantages namely the closing in of financial and capital markets by converting financial assets into capital market commodities. Securitization allows for the reduction of funding costs, risks as well as the changing of illiquid portfolios into liquid stocks, which can be sold to many individual investors.
Securitisation Vehicles are generally not licensable in Malta, however there is the need for registration with the Malta Financial Services Authority. Such a vehicle is still subject to the provisions of Chapter 484 Securitisation Act. Public securitisation vehicles, i.e. securitisation vehicles which issue or plan to issue financial instruments to the public on a continuous basis, do however need to apply for a licence before commencing any activities.
The change in the VAT treatment will mean that, going forward, Securitisation Vehicles will benefit from a reduction in irrecoverable VAT costs associated with the function they provide.
Malta Passport and Citizenship by Investment Program (Malta Individual Investor Programme) grants successful applicants EU citizenship and Visa-Free travel to more than 160 countries.
According to the Passport Index 2016, Malta ranks ninth in the ‘Global Passport Power Rank 2016’ together with Iceland.
The index is based on the total Visa-Free score, which includes visa-free and visa on arrival privileges. The higher the Visa-Free score, the better global mobility its passport bearer enjoys.
Malta has been given a Visa-Free score of 150 (Visa-Free travel to more than 160 countries), sharing the 9th place with Iceland. In fact, there are 27 other countries with a better ranking spread over the top 8 spots, headed by Germany with a score of 158. This positive ranking attracts foreign individuals to make the Maltese passport and citizenship their preferred choice.
In 2014, Malta introduced the Individual Investor Programme (IIP) which grants citizenship to worldwide high net worth individuals (and their dependents) who contribute to the economic and social development of Malta, a respected EU Member State. The program has been the first of its kind to be recognized by the European Commission.
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The IIP program grants successful applicants EU citizenship by investment, nevertheless, to be considered eligible for the scheme, the main applicant must be at least 18 years of age and subject to a rigorous vetting and diligence process, including comprehensive background checks. The applicant must provide proof of residence in Malta for at least 12 months preceding the application.
Applicants must be covered by an international health insurance policy for the main applicant and each of the dependents.
The investment requirements include the acquisition of real estate with a minimum value of €350,000 to be held for at least 5 years or lease a residential immovable property in Malta for a period of 5 years at an annual rent of at least €16,000, an investment in a government approved financial instrument (stocks, bonds or special purpose vehicles) for a minimum value of €150,000 to be held for a minimum period of 5 years and making a contribution to the National Development and Social Fund as follows:
Malta National Development and Social Fund Contributions for IPP Contribution Amount Main Passport Applicant €650,000 Spouse Passport €25,000 Dependent Children Passport €25,000 each Children Aged 18-26 €50,000 each Dependents Aged 55 and Above €50,000 each
Over the past two years, Malta has received over 800 applications from over than 40 countries with almost 700 passports issued to high net worth individuals.
The IIP program is capped at 1,800 participants, so we encourage you to act fast. The process of the IIP application is carried out by Accredited Persons or Approved Agents, including FBS Trust Limited.
Contact one of our officers to initiate the Maltese Passport and Citizenship Application procedure and start reaping full benefits of a reputable, low-tax EU jurisdiction. Simply fill in the contact box below or contact us by email on firstname.lastname@example.org or by calling at +356 2338 1500
Malta Aircraft Registration Tax Incentives. Malta Aviation – setting new highs.
In recent years, Malta has managed to put in place a well-defined strategy to become a reputable aviation centre by attracting and making available comprehensive airline services, comprising of aircraft and engine maintenance, repairs, overhaul, aircraft management, aircraft maintenance training and other ancillary support services. Subsequently this has been attracting enterprises involved within the industry to set up base in Malta with the Malta Aviation Registry registering continuous growth. As of September 2016, the aviation registry boasted the registration of 232 aircrafts, an increase of 13 aircrafts in just 5 months.
The attracting factors contributing to the aforesaid growth is Malta’s status as an EU Member State, an appealing corporate tax regime, the adoption of the provisions of the Cape Town Convention on International Interests in Mobile Equipment and its Aircraft Protocol (“the Convention”) into the Maltese legislation. The latter also maximises flexibility, integrating important provisions such as the adoption of the Recognition of Fractional Ownership (allowing an aircraft to be owned my multiple persons in specified fractions or percentages, with each part allowed to be consequently given as a security), the possibility of registering aircrafts under construction, the specific tax treatment for finance leases, no withholding tax on lease payments to non-tax resident lessor and reasonable depreciation period on aircraft/engine.
Registration of an aircraft in Malta is restricted to “qualified persons” which can be an individual or a company resident in any part of the world, meeting the criteria set.
In terms of taxation, a company incorporated outside Malta and managed and controlled in Malta deriving income from the ownership, leasing or operation of aircraft or aircraft engines is deemed as resident in Malta for tax purposes.
Income derived from the ownership, leasing or operation of aircraft or aircraft engines engaged in the international transport of passengers or goods is deemed to arise outside Malta for Maltese income tax purposes, irrespective of the country of registration of the aircraft/engines and whether the aircraft calls at or operates from Malta.
In terms of Malta’s remittance basis of taxation, foreign source income is not taxable in Malta unless it is remitted to Malta. The remittance basis of taxation applies to persons (individuals or incorporated entities) which are either resident or domiciled but not both.
Moreover other jurisdictions would not be able to tax such income since in terms of the double tax treaties signed by Malta, based on the OECD Model Convention, profits derived from the operation of an aircraft in international traffic are taxable only in the Contracting State in which the place of effective management of the enterprise is situated. Thus if the effective management of the company is situated in Malta, such profits are in terms of the tax treaty only subject to tax in Malta, which in any case would be exempt from tax unless received in Malta.
Malta Budget Measures for 2017
The Maltese finance minister, Edward Scicluna on the 17th of October presented the budget plans for the year 2017, with special focus on the areas of social justice and investment.
Budget Minister Scicluna reiterated his absolute and unequivocal support for the financial services sector and his reliability on Malta’s tax system declaring that the Maltese tax system is expected to be introducing numerous structures which include group tax consolidation and notional interest reduction. In order to ensure Malta’s competitiveness and compliance in an international landscape with fast evolvement, the government emphasized that is firmly committed to the advanced progress of its statutory framework.
A snippet of the key measures broadcasted:
- Tax credits for private pension schemes; companies which offer private pensions to their employees may now start considering their contribution to the scheme as a non-taxable expense. This measure aims at encouraging employers to make contributions to such schemes. Moreover, this measure will entitle employers to a tax credit of 15% for every EUR 1,000 contributed to the scheme. This new measure not only benefits the employer but also the employee who upon investment in the scheme is allowed a maximum tax reduction of EUR150 against his income, such reduction is dependent on the amount contributed.
- Group tax consolidation; the government will be looking at issuing regulations aimed at giving companies that form part of a group the option to work out their profits and losses jointly. The aforementioned comes as a recent enchantment to the Maltese tax system.
- Encouraging startups; startup companies whose turnover does not exceed EUR80,000 per annum now have the option of either benefiting from being exempted from having their financial statements audited for the first two years of their operation or choose to have the financial statements audited and then claim a tax deduction which amounts to a maximum of EUR700 per annum or 120% of the audit fee
Credit Agencies Upgrade Malta’s Rating
Malta Credit Rating Upgrade by S&P. The US based credit-rating agency Standard & Poor’s has recently revised its long term rating for Malta, raising it from BBB+ to A-. The improved rating is driven by consistent GDP growth which is expected to average 3% during 2016 to 2019, increases in the productive labour supply as well as growths in both exports and investment. The improvement economic performance will also have a knock-on effect on the Country’s fiscal performance with general deficit below 1% for the 2016 – 2019 period, sustainable current account surpluses that will average 1.9% of FDP and a general improvement in Malta’s balance of payments and external accounts.
In its report, S&P also singled out the effect of large-scale projects in education, healthcare, tourism, and transport industries, as well as energy projects, including the conversion of power stations to cheaper energy sources and the gradual integration of Malta’s power system into the European grid as other contributing factors. The credit-rating agency stated that the country is in the forefront of a strong medium-term economic expansion in the Eurozone, having had the second-highest average GDP growth rate between 2010 to 2015 and the third-highest expected real GDP growth in the 2016 – 2019 period. The stable outlook reflects S&P’s view that the upside potential of Malta’s economic and fiscal performance is counterbalanced by downside risks related to Brexit, external flows, and the structure of the financial sector, particularly the size of its banking sector. It must be however said that the latter’s significance to the local economy is, to say the least, very contained.
Malta’s economy has transformed itself over the past twenty years with the emergence of new economic sectors. Malta is today a highly industrialised, service based economy. Its strengths are derived from its strategic location, its fully developed open market economy, a multilingual population, a productive labour force, low corporate taxes and well developed finance and ICT clusters.
Malta to Have its First Development Bank
Malta is expected to have its first Development Bank after the government’s proposals have been given the green light by the European Commission. The proposals will be presented and voted upon in the Maltese Parliament where it is expected to be formally approved and implemented. The country will thus have another important tool in achieving its desired economic and social targets.
The Malta Development Bank will contribute to economic growth by funding sectors and projects that are not catered for by commercial banks. The Bank will be able to grant loans for specific national or regional projects to private or public bodies or may operate in conjunction with other financial institutions. This will result in the strengthening of the local financial base and a diversification of financing possibilities for local entrepreneurs and other economic operators. The Development Bank will also be particularly interesting for SMEs due to the difficulties that these face when trying to access funds. The bank will serve as the ideal platform to facilitate small businesses’ access to available funding as well as other projects related to strengthening the Maltese economy.
It will be within the bank’s remit to provide attractive wholesale financing and risk sharing facilities. The proposals include the possibility for the bank to be able to raise money by issuing bonds in order to finance projects. This would eventually attract wealth funds who are not interested in investing in projects to buy such bonds. This will be a powerful tool to bring to realisation more economically feasible projects.
The government-owned bank will have an authorised share capital of €200 million. This will allow it to eventually leverage this to around €1 billion in loans. The initial issued and paid-up share capital is expected to be around €30 million, with further allotments being made to accommodate the bank’s increasing needs.
Malta EU Presidency Under the Spotlight
Eyeballs will be on Malta in a few months’ time when it takes over the six-month presidency of the EU Council on 1 January 2017 for the first time. Reports suggest that Malta is well prepared to cope with the unprecedented administrative workload the EU presidency demands.
Over the last 12 years Malta has managed to capitalize on its EU membership, with significant growth in its general economy, including the vibrant financial sector, which is going from strength to strength. In 2015 Malta’s economy registered the second fastest growth within the EU, with the European Commission forecasting Malta’s GDP growth in 2016 and 2017 well above the forecasted figures for the EU as a block.
Malta adopts an EU-compliant regulatory framework, valuable for financial services firms and other organisations to be able to set up their base in Malta and conduct their business within EU and beyond. Complimenting this, other several factors attract such firms, such as the pool of talent and skilled labour, a sound legal system, an advanced financial environment, an adequately capitalised and healthy banking sector, tax incentives to attract foreign professionals, tax credits and favourable corporate and income tax rates.
Consequently, Malta’s unemployment rate dropped to 5.4% in 2015, well below the EU average of 9.4%. The reports for first quarter of 2016 show a further drop to less than 5%.
The increased demand on human capital has pushed the Maltese government to resort to measures to increase the country’s labour force. This includes measures aimed at increasing female participation into the work force. This demand has resulted also in a considerable increase of foreign workers in Malta.
Malta Confirms its High Investor Confidence Rating
During the first Financial Services Survey held in Malta between March and April of 2016, forty-four organizations from across a number of financial industries were asked to rate their performance and business prospects in comparison to their position six months before. Notwithstanding the various challenges being faced by the Financial Services industry, namely increased regulatory control, the EU’s push for increased tax harmonization and the aftermath of the so called Panama Papers, the survey shows 59% of respondents reporting increased business volumes.
Optimism and growth within the Maltese financial services sector remains strong. Within the banking sector, 33% of the respondents report being optimistic about the overall business situation in the sector. Within the insurance sector, 75% of firms reported increased volumes of business with 17% stating that they were more optimistic about the overall business situation in their sector. 55% of asset management firms report increased volumes of business and as much as 60% are expecting business volumes to continue increasing over the coming six months. Increased employment and payroll costs, regulatory compliance and spending on capital expenditure, particularly for IT systems have contributed to increased costs across the board.
The survey also asked respondents to widen their spoke and give their views on the overall situation of Malta’s financial services industry and its future prospects. Respondents retained their positive stance however acknowledged that a number of challenges had to be surpassed in order for the industry to be able to move forward. The general concerns highlighted by the respondents regard the impact of the proposed Base Erosion and Profit Sharing (BEPS) tax rules, the introduction of the Common Reporting Standard, the Brexit referendum and the negative light shed on financial centers across the globe due to the Panama Papers scandal. Respondents also noted the difficulty in opening and maintaining bank accounts locally as a challenging aspect of their business model.
Malta Confirms Appeal as Competitive Labour Market Hub
Malta maintains its position as one of the most stable and one with the lowest social security contributions and employment costs to businesses. On the other hand, the costs of social security and other employment costs have registered substantial increments for employers in other EU countries such as France and the Netherlands. Increased labour costs may act as catalysts for employers to lay off employees, thereby stifling job creation increasing unemployment, particularly youth unemployment.
In addition to the competitive labour market in Malta, the country is a host to and attracts a pool of talent and skilled labour which obviously are necessary to meet the requirements of the dynamic market demands.
There is a strong case for the increase in the social security contributions to sustain the pension system and the ageing population, however Malta has consistently adopted a no- more-costs-policy to employers, whilst at the same time tightening controls and eliminating abuse of the social welfare system. Furthermore, the welfare system is being boosted by the government’s ongoing efforts to create employment, through the implementation of a series of tax credits to employers and incentives to increase the work force, such as the popular free government-run childcare and women returning to work scheme. These implementations together with other tax appealing measures designed to attract foreign business and investment in Malta have managed to reduce unemployment levels to their lowest in the decades.
These sustained policies have over the medium longer term created a stable system which in turn has become a major contributor towards attracting businesses to set up companies and businesses in Malta.
Malta’s Option to Treat Partnership as Opaque as from Year of Assessment 2016
As from year of assessment 2016, the updated definition of “company” to the Income Tax Act has been extended to include any partnership en nom collectif and any partnership en commandite with its capital divided into shares, which would have elected to be treated as a company.
The definition of “dividend” has been updated to include distributions by a company to its shareholders or partners and any amount credited to the shareholders or partners. Consequently, the following change shall apply to partnerships electing to be treated, from a purely fiscal perspective, at par with companies:
- The special residence rules applicable to companies will now be applicable to partnerships which elect to be treated as companies;
- Such partnerships will no longer be considered transparent and instead of being subject to tax at the partners personal level, the partnership will be taxable on its income at the rate of 35%;
- Upon distribution of dividends from allowable profits, tax paid at the partnership level is deducted in full from the partners’ tax liability, such that income taxed at partnership level is not taxed again at the partners’ level (The Full Imputation System on distribution of dividends);
- Trading losses of such partnerships can be surrendered to other companies within the same group (group as defined by Malta tax laws);
- An additional double taxation relief, the Flat Rate Foreign Tax Credit (FRFTC), which is exclusively available to companies will be also available to such partnerships;
- Partners of such partnerships will be eligible to Tax refunds (up to 100%) under The Refundable Tax Credit System;
- The Participation Exemption will also be available to such partnerships, whereby dividends and capital gains received by such partnerships will be exempt from Malta tax, provided certain conditions are met.
Malta’s Economic Growth Continues to Impress
Economic growth in Malta increased by 5.2% during the first quarter of 2016 when compared to an already high rate of 6.3% recorded in the same quarter of 2015. The Maltese economy is estimated to have grown by 7.6% when considering that the EU and the Euro Area are growing at 1.8 and 1.7% respectively.
This significant growth reflected strong increases in both investment and private consumption. In the first quarter of 2016, investment activity recorded a significant increase of 16.2% or €57.6 million and private consumption increased by 5.9% or €58.5 million, over the previous year. Exports of goods and services also registered an increase of 0.5%.
Another noticeable growth area was also recorded in the real estate sector which increased by 11.9% and the professional, scientific and technical activities sector which increased by 11.2%. Noticeable increases were also recorded in the information and communication sector, in the wholesale and retail trade, along with the mining and quarrying and the agriculture and fishing sectors. Another area recording strong and consistent growth was that of the manufacturing sector which recorded a significant increase of 6.79%.
Reflecting the dynamic performance in the labour market, compared to the corresponding quarter last year, the increase in GDP at current prices of €153.4 million is estimated to have been distributed into a €54.5 million increase in compensation of employees, a €65.4 million increase in gross operating surplus of enterprises, and a €33.6 million increase in net taxation on production and imports.
Minister for Finance Edward Scicluna remarked that the Government’s target to achieve a potential growth in Malta’s economy has been a success. He added that this was achieved by increasing labour force participation and measures to attract local and foreign investment by attaining economic and fiscal stability.
Malta Company Registry Records Steady Growth
As at the end of 2015, the Malta Registry of Companies counted active 87,971 companies. This is a net increase of 8,516 companies from the prior year, or 10.9% over 2014. 11,721 new businesses were constituted during 2015, with de-registrations of business units reaching 3,205. Data from the National Statistics Office (NSO) shows that 39,965 Companies are listed as having sole ownership or are constituted in the form of a partnership. Limited liability companies make up just over 50% of the population, while 3,251 are listed as ‘other’.
According to the data published, 85,673 are so called ‘micro’ companies, and employ less than 10 persons. 1,758 companies employ 10 to 49 people, 440 employ 50 to 249 and a 100 companies are classified as ‘large’ and employ more than 250 persons.
The NSO report also analysis the list of companies by sector and economic activity. Units in financial and insurance activities, professional, scientific and technical activities, administrative and support service activities, and construction amounted to 15.6, 11.3, 7.8 and 7.7 per cent respectively of the total registered units in 2015.
The increase in unit count is an encouraging figure in evaluating Malta’s economic performance during 2015. According to the last World Economic Forum Competitiveness report, Malta represents a good jurisdiction for doing business due to its attention to property rights; intellectual property protection; judicial independence; quality of port and air transport infrastructure; health and education; financial market sophistication and soundness of banks; and the availability of latest technologies and firm-level technology absorption. On the other hand, the government is working to reduce government inefficiencies and bureaucracy which is listed as the biggest hurdle to Malta’s competitiveness by the World Economic Forum.
Marked Increase in Super Yachts Registered Under the Malta Flag
The Malta Chamber of Commerce, via its Yachting Services Business Section has expressed satisfaction at the substantial increase that Malta has consistently registered within the yachting industry over the past years. The increase is not only restricted to registration and the choice of Malta as the flag of choice, but also to ‘value added’ services with a spill-over effect such as berthing, servicing and logistical services.
The Grand Harbour Marina which as of 2015, hosted 159 superyachts, another increase over the figures in 2014, has now further consolidated its position as a well-established player within the Mediterranean basis, with ever-increasing requests for berthing and related services.
As of February 2016, Transport Malta confirmed that the Malta flag had registered an increase of 10.8% over the previous year in the registration of super yachts of over 24 metres in length. The Malta flag is the largest in number worldwide in so far as commercial yachts over 24 metres in length are concerned. Length in excess of 24m also allows investors to consider the long-tested Yacht VAT leasing scheme, whereby crofts in excess of this length can benefit from an effective VAT rate of 5.4% (in lieu of the standard 18% VAT rate) – without distinction between sailing and motor yachts.
The reasons propelling such growth in the super yacht sector under the Malta flag may be summarised as follows:
- Yachts may be registered on behalf of legally constituted corporate bodies or entities irrespective of nationality.
- Low company formation, ship registration and tonnage tax costs.
- Possibility of registration for yachts that are being built or equipped.
- Attractive tax incentives to yachts and super yachts owners encouraging commercial operation.
- No restrictions on the sale or mortgaging of Maltese registered yachts and super yachts.
Malta Reiterates its Tax Position at ECOFIN Meeting
At the latest Ecofin meeting held in Brussels, Malta together with nine other member states expressed their intention to oppose the approval of a package aimed at stopping tax avoidance, to be discussed during a meeting of EU finance ministers next week.
The proposal’s seek to severely dilute member states’ abilities to make so-called ‘sweetheart tax deals’ with large multinationals, which the EU Commission equates to implicit illegal state aid deals, which can severely distort the common market and effectively give multinationals an unfair competitive advantage allowing them to consolidate and further their market share whilst hindering competition., to the detriment of the consumer and other market players.
Malta’s stance was that it does not engage in any such preferential tax schemes, thereby ensuring a level playing field. It would therefore be draconian and onerous to impose harmonised blanket tax rules under the guise of removal of ‘sweetheart tax deals’. Malta, does not allow any derogation from its tax rules. It employs an attractive tax regime that does not discriminate between one company and another, independently on size, origin of profits, negotiation power etc.
Malta also used the ECOFIN meeting to stress the need to respect primary EU law in the application of anti-abuse legislation. Following the conclusion of the meeting, Professor Scicluna, Malta’s Finance Minister, stated that efforts would continue in seeking and obtaining reassurances on Malta’s tax system.
Malta’s Prime Minister, Joseph Muscat, spoke about the importance of the financial services sector to the local economy, adding that a new approach was necessary to ensure that the local industry remains competitive and relevant in the global context. Speaking at Finance Malta’s ninth annual conference, Prime Minister Muscat concluded by saying that although Malta was in favour of regulations that addressed abusive tax avoidance practices, he urged EU regulators not to move towards a position of over regulation, imposing a one-size-fits-all over member states.
Malta Scores Highly on Residency Index
Malta has been ranked third best place to live worldwide, in a recent survey undertaken by InterNations , narrowly behind Ecuador and Mexico. Just under 15,000 expatriates on a worldwide basis were asked to participate in the survey, and to answer a series of question, ranging from the professional, to healthcare to personal financial and cost of living to establish which jurisdictions were better placed, in providing expatriates with what they perceived as being the optimal basis in an excellent standard of living.
Unsurprisingly, Malta scored highly with British expatriates, based no doubt on the linguistic proficiency of the natives (English is one of the official languages at par with Maltese). Other factors which scored highly was cost of living and friendliness towards foreigners.
Other factors, which scored highly on the list were the pleasant climate (the adage of 330 sunny days holds true), varied and rich heritage, comparatively low cost of living, skilled workforce, quality education, proximity and connections to mainland Europe and superb medical infrastructure. The lack of bureaucracy was also cited by many as one of the underlying reason for choosing Malta as a jurisdiction for the establishment of business, coupled with low labour costs, and multilingual staff.
Malta has a number of bespoke residence schemes, which allow expatriates (EEA and non-EEA) and their respective households to establish their residence in Malta. These schemes consist of a pledge of renting or owning property (the value of which varies on the location of property on the island) as well as a minimum tax endowment. Furthermore, there are a number of bespoke tax incentives for high ranking officers employed in key industries such as remote gaming, insurance, aviation and financial services.
Malta Launches Revamped New Residence Scheme
Following on the success of the Maltese Individual Investment Programme, leading to citizenship, the government of Malta has recently enacted changes to its residence scheme – with the launching of a new Residence and Visa Programme seeking to attract high-net worth individual investors. The new residence scheme, shall seek to provide a more definitive and long-lasting base to applicants, as compared to the Global Residence Programme, whereby residence was renewable on a yearly basis. The main applicants would be high net worth individuals, or retirees, seeking to make Malta their permanent base, whilst relocating to a stable and reputable jurisdiction, within the Schengen area.
Applicants of the new scheme must be persons over the age of 18 and with a clean police conduct. The latter requirement would also extend to his dependents. Eligibility criteria would also mandate the acquisition of immovable property for a value ranging from EUR 270,000 to EUR 320,000 (depending on location), or alternatively to a rental of immovable property ranging from EUR 10,000 to EUR 12,000 per year.
The application could also be eligible for residence, if he can shop an income of at least EUR 100,000 annually as well as own funds in excess of EUR 500,000. A condition to the attainment of the residence permit shall be the contribution of an investment of at least EUR 250,000 in approved government bonds, which need to be retained for a minimum of five years.
Contrary to the Maltese Individual Investment Programme, there would be no limitation on the number of applicants. Applications would be subject to the strictest probity, and must be channeled via approved government agents. Such residence permits, once approved, would extend to the applicant, and his immediate family, and would be retained, insofar that the residence conditions, and ‘fit and proper’ test would be adhered to on a continuous basis.