Why Malta?

Malta – the domicile of choice Positioned for trade and investment Why Malta - Grant Thornton

Located in the Mediterranean, midway between Europe and Africa, Malta is a highly cost competitive natural nexus for the greater Mediterranean region. The Island’s legislative and regulatory systems provide a solid yet flexible framework for business. For expatriates, the living costs in Malta are considerably lower than the main countries in central Europe, and the international schools reflect this low cost of living. In addition, the good climate and relaxed pace of life make it an attractive location for expatriates and their families. EU Membership and the adoption of the Euro have underscored the island’s stability.

Malta relies on foreign trade and given its location this is mainly with the EU, Asia and the US. Its economy is dominated by tourism, manufacturing, technology and finance. A strong technology infrastructure has attracted firms such as Lufthansa Technik and Dubai’s Tecom; while in terms of indirect investment, the island has become a firm favourite for hedge funds and is ideally positioned geographically and culturally as a financial centre in the EU and Eurozone.

The financial services regulator, passporting rights to the entire European market and strong investor safeguards are amongst the principal pillars which have helped increase Malta’s role as a financial centre and launching pad for hedge funds and investment products. Malta’s reputation as a hedge fund domicile has increased significantly following the revamping of the entire legislative system catering for professional investor funds (PIFs). Although still relatively small, many of the world’s leading asset managers now have fund listings on the Malta Stock Exchange (MSE). In addition a new Trust and Trustees Act removed the old cumbersome trust structure and replaced it with a more globally competitive product. Another significant advantage is the ability for companies to re-domicile themselves into the finance centre, possibly winning UCITS compliance and EU-wide passporting rights. In fact Malta’s government sees financial services as a key pillar of its economic expansion plans to expand this growing in ustry to Europe and the Arab world.

As an EU jurisdiction with favourable tax rates, an excellent infrastructure and a balmy Mediterranean climate, the combination looks set for Malta to establish itself as the place of choice for businesses. In addition, the dividend exemption and absence of transfer pricing and CFC rules attract groups to locate their holding companies in Malta.

Tax facts

A Maltese incorporated company is considered to be ordinarily resident and domiciled in Malta and is subject to Maltese tax on its worldwide income at the nominal rate of 35%. However, upon certain conditions being met, the shareholder of a Maltese company could be entitled to certain tax credits and refunds of all or part of the tax paid by the company on its profits.  Through the application of this refund mechanism, the combined overall tax burden in Malta can be reduced to between 0% and 10%.

Economic double taxation is relieved through the full imputation system. Malta also applies the participation exemption in respect of dividend income or capital gains received from a qualifying subsidiary and any overseas tax suffered by a Malta company would generally be eligible for relief against the Malta tax liability arising on the corresponding source of income.

Eligibility for the aforesaid refund depends on the nature and source of the income. Accordingly, a Maltese tax registered company is required to allocate its distributable profits into separate tax accounts according to the source and nature of the said profits, namely:
• Final Tax Account: allocation of profits which are not subject to further taxation including tax exempt profits
• Immovable Property Account: allocation of profits derived directly or indirectly from immovable property situated in Malta
• Foreign Income Account: allocation of income derived principally from investments situated outside Malta
• Maltese Taxed Account: allocation of income which is not allocated to the above three accounts
• Untaxed Account: allocation of residual taxable profits (difference between total distributable profits/accumulated losses and those amounts allocated to any of the other taxed accounts)

Upon distribution of dividends from profits allocated to the Foreign Income Account or the Malta Tax Account, a registered shareholder is entitled to claim a refund of the Maltese corporate tax on those profits.  The tax refund normally amounts to 6/7ths of the imputed tax credit on the dividend.  However, this may be reduced to 5/7ths when the dividend is paid out of passive interest and royalties.  The tax refund is revised to 2/3rds where the company has claimed double taxation relief.  In cases where the company opted to pay tax on dividends received from, and gains realised on, the transfer of participating holdings and subject to meeting certain conditions, a full refund of the underlying Malta tax applies.

Other facts and figures

• Total area: 316km2
• Capital: Valletta
• Population: 413,000
• Official languages: English and Maltese
• EU Member: 2004
• Currency: Euro (2008)
• GDP per capita: €13,900
• Inflation rate: 2.2%
• Unemployment: 6.2%