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E-Money Institutions

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E-Money Institutions in Malta

REGULATORY FRAMEWORK

Malta’s regulatory framework regulating EMIs is based on the provisions of the Banking Act (Chap 371 of the Laws of Malta) which has transposed the Electronic Money Directive. Article 2 of Malta’s Banking Act defines an Electronic Money Institutions (“EMIs”) as “any person other than a credit institution which issues means of payment in the form of electronic money.” EMIs cannot undertake lending or other bank related activities.

Electronic money is defined by the Act as: “the monetary value as represented by a claim on the issuer issuing such money which is:

(i) stored on an electronic device

(ii) issued on receipt of funds of an amount of not less in value than the monetary value issued

(iii) accepted as means of payment by undertakings other than the issuer.”

PERMITTED ACTIVITIES

Under their licence, EMIs can only undertake the business of issuing electronic money (as defined above) in and from Malta, together with related activities:

  • the provision of closely related financial and non-financial services such as the administering of electronic money by the performance of operational and other ancillary functions related to its issuance and the issuing and administering of other means of payment but excluding the granting of any form of credit; and
  • the storing of data on the electronic device on behalf of other persons or public institutions.

SHARE CAPITAL REQUIREMENTS

Besides various other systemic, organisational and operational requirements, undertakings considering applying for an EMI licence were until recently obliged to satisfy a minimum initial capital requirement of €1 million. The licensed EMI is obliged to ensure that its own funds will not fall below this amount of initial capital.

However, by virtue of Directive 2009/110/EC which has been transposed by Malta as of April 2011, there has been a relaxation of the rules, the most significant one being that the initial capital has been reduced from the current  €1 million to €350,000.

Furthermore, an EMI is required to maintain own funds amounting to at least 2% of the average outstanding electronic money (which percentage may be increased in proportion to the risk loss and risk management procedures presented by the applicant, and in the case of companies with no history, based on percentages of their business plan).

SMALL ELECTRONIC MONEY ISSUERS

Small EMIs, defined as companies

  • whose head office is in Malta; and
  • that issues electronic money in Malta; and
  • the total business activities of the institution generate an average outstanding electronic money that does not exceed two million euro (€2,000,000), and
  • none of the natural persons responsible for the management or operation of the business has been convicted of offences relating to money laundering or terrorist financing or other financial crimes

are subject to less stringent requirements. Where the small EMI generates average outstanding electronic money less than one million euro (€1,000,000), it shall be required to hold an amount of initial capital equal to fifty thousand euro (€50,000). Where an applicant small electronic money issuer generates an average outstanding electronic money between one million euro (€1,000,000) and two million euro (€2,000,000), it shall be required to hold initial capital amounting to one hundred thousand euro (€100,000). Such small EMIs must maintain at all times own funds, equal to or in excess of the applicable initial capital requirement.

Small EMIs may not passport their services into EU/ EEA Members State

MINIMUM LOCAL PRESENCE REQUIREMENTS & LICENSING PROCESS

The EMIs must be managed by at least two (2) individuals and all directors and qualifying shareholders must satisfy the “fit and proper” test and must submit a personal questionnaire for the assessment of their eligibility. An application form is to be submitted to the regulator with the following documents:

  • a programme of operations, setting out in particular the type of activities envisaged to be undertaken;
  • a copy of the Memorandum and Articles of Association of the proposed institution;
  • proposed level of initial capital (see above);
  • a business plan including the structure, organisation, management systems, governance arrangements and internal control systems of the institution. The plan shall incorporate all relative financial information required by the authority to enable it to establish the initial capital requirement and measures to be taken to safeguard payment service users’ funds;
  • a description of the internal control mechanisms which the applicant will establish in order to comply with obligations in relation to money laundering and terrorist financing;
  • a description of the structural organisation, including, where applicable, a description of the intended use of agents and branches and a description of outsourcing arrangements;
  • audited Financial Statements for the last three years, if applicable;
  • the identity of all officers and controllers of the institution;
  • the identity of all shareholders holding directly or indirectly a qualifying shareholding and the size of their holdings and evidence of their suitability, taking into account the need to ensure the sound and prudent management of the institution;
  • the identity of the individuals who will be effectively directing the business of the institution and, where relevant, persons responsible for the management of the activities of the institution, as well as evidence that they are of good repute and possess appropriate knowledge and experience;
  • where applicable, the identity of statutory auditors and audit firms;
  • the applicant’s legal status;
  • the address of the applicant’s head office;

Provided all the information is provided in an apt and complete fashion, the regulator is minded to process the application within three (3) months from submission thereof.

FEES

The fees payable to the regulator may be summarised as follows:

  • Application and processing fee  €1,200
  • Licensing Fee €1,800
  • Supervision Fee 0.000175 X Items in the Balance Sheet But not less than €2,500 or more than €50,000

TAXATION OF EMIs

Like all companies resident in Malta, EMIs would be subject to income tax on company profits at a rate of 35%. However, this is subject to Malta’s full imputation tax system, wherein tax paid by a company in Malta is, on the distribution of a final dividends, imputed to the shareholder as a tax credit against the shareholders’ tax liability. Therefore, a shareholder will, upon a distribution of the dividend, be entitled to a refund in part or in full of any advance tax levied on the distributing company. The full imputation tax credit thereby renders Maltese companies highly efficient tax vehicles, with a number of applicable refunds to shareholders possible. The default refund applicable to a fund administrator company in respect of active trading income, is a refund of 6/7ths, resulting in a tax leakage of just 5%.

Furthermore, foreign tax paid can be taken into account for purposes of the refund calculation, subject to the maximum refund not exceeding Malta tax paid. Effectively, it is possible to envisage situations where no Maltese tax leakage would be suffered by the EMI in the manner set forth below:

Maltese Company No Foreign Tax With Foreign Tax
Net Foreign Income 2000 2000
Grossing up with Foreign Tax 0 105
Chargeable Income 2000 2105
Tax at 35% 700 737
Credit- Double Tax Relief 0 105
Malta Tax Payable
(tax at 35% less tax credit)
700 632
Shareholder of Maltese Company
Refund on distribution
(6/7 of Malta Tax Payable)
600 632*
Effective Tax Paid in Malta 100 0
Effective Tax leakage in Malta on Net Income 5% 0%

*632 (6/7ths of 737)

View Malta Company taxation page for full understanding of corporate tax in Malta.

Contact one of our officers to initiate the licensing process for a Maltese Electronic Money Institution 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 enquiries@fbsmalta.com or by calling at +356 2338 1500

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