MALTA GENERAL INFORMATION

Transcription

1 MALTA GENERAL INFORMATION

2 This guide is designed to provide interested investors and entrepreneurs to with some basic information about Malta. This guide does not purport to provide more than an overview. Readers interested in obtaining more information about the establishment of an entity in Malta or about any related topic are invited to make contact with our firm. October

3 CONTENTS Page 1. Introduction 4 2. Location 4 3. Languages 4 4. The Climate 5 5. Education and Workforce 5 6. Religion 5 7. History 5 8. Government 6 9. Foreign Investment and Incentives Economy Banking Taxation 8 Contacts 14 3

4 1. INTRODUCTION Malta, as an EU Member State, is recognized internationally as a safe and secure place, with high economic, legal and political stability, and low risk. An attractive cost- and tax-efficient base for financial services operators looking for an EU-compliant but yet flexible domicile which, enhances the country s attractiveness also a centre for international business in the Euro-Mediterranean region. 2. LOCATION Situated just 95 kms south of Sicily and 290 kms from the North African coast, Malta is right at the crossroads of Europe, North Africa and the Middle East. Malta s coastline is picturesque with many harbours, bays, creeks, sandy beaches and rocky covers. The main island, Malta is 27 kms long and its widest point measures 14 kms. Two much smaller islands, Gozo and Comino, form the Maltese Archipelago. The islands are characterised by a series of low hills with terraced fields on the slopes. It takes a mere 2 to 3 hours to get to Malta by air from most European cities. There are frequent and direct flights to Malta from London, Rome, Paris, Frankfurt, Brussels, Geneva, Athens, Amsterdam, Madrid, Munich and Vienna amongst other. Other frequent flights are also operated from North African and Middle East destinations. As an EU country, Malta s requirements on visas fall in line with EU policy. Malta also forms part of the Schengen travel area. Daily high speed catamaran services for passengers, cars and heavy vehicles connect Valletta, Malta and Sicily. Other ferry services connect Valletta with Italy and North Africa. 3. LANGUAGE The official languages of Malta are Maltese and English. Maltese, the national language, is of Semitic origin written in Latin script that over the centuries has incorporated many words derived from English, Italian and French. For official purposes, both Maltese and English are recognised and given equal status and use in Government. Likewise, most business correspondence is normally in English. Other languages, particularly Italian and French, are also spoken by the population. 4

5 4. THE CLIMATE Malta s climate is strongly influenced by the sea and is typical of the Mediterranean. The Islands have a very sunny climate with a daily average of five to six hours sunshine in mid-winter to around 12 hours in summer. Winters are mild and summers are hot, dry and very sunny. Annual rainfall is low, averaging 600mm a year, and the length of the dry season in summer is longer than in neighbouring Italy. Sea bathing is quite possible well in to the winter months, and the peak beach season can last until mid- to late October. 5. EDUCATION & WORKFORCE Malta operates a system of free education with school attendance being compulsory until the age of 16 years. Each year, Malta has a steady influx of undergraduates and new students entering further and higher education while many are also obtaining internationally recognised diplomas from the vocational college, the Malta College of Arts, Science & Technology (MCAST). Besides public schools, one also finds numerous private and international schools in Malta. Malta s comparatively low ancillary labour costs, an excellent work ethic and a highly-motivated workforce make it a very cost-effective location. There is a large pool of professionals, and law, management, communications and medicine are the dominant courses read at university. 6. RELIGION The Majority of the Maltese are Roman Catholic, but other religious denominations are also represented. There are small Anglican, Church of Scotland, Greek Orthodox, Jewish, Methodists and Muslim communities. Most services are available all day on Sundays, some churches offer services Saturday evenings and a couple offer services during the week first thing in the morning or in the evening. 7. HISTORY Malta has a rich history spanning of 7,000 years. Malta has often played a crucial role in the making of history due to its strategic location in the centre of the Mediterranean Sea. The Phoenicians, the Carthaginians, the Romans, the Byzantines, the Arabs and the Spanish all ruled the islands for varying lengths of time. Traces of the cultures that passed through Malta 5

6 are still evident on the island. Furthermore, the main great influences in Malta have been predominantly the following: the Arabic period proved the basis of the Maltese language; the period of the Knights of St John shaped the islands culturally, socially, commercially and artistically, whereas the British period introduced British justice, a unified modern code of laws. 8. GOVERNMENT Malta is an independent parliamentary republic with a parliament-elected president as head of state, and a prime minister leading an elected government for five-year terms. The country has a long-established and strong democratic tradition with high levels of voter participation. It is a member of the European Union, the Council of Europe, the United Nations and the Commonwealth. The rule of law is respected in civil society and the power is smoothly transferred following, regular, fair and open elections. No one group or class dominates the society or the economy. 9. FOREIGN INVESTMENTS & INCENTIVES The Maltese Government has a tradition of encouraging foreign investors to establish operations in Malta and has always adopted policies that favour an open economy and direct investment. To that effect, the Malta Enterprise, as the agency responsible for the promotion of foreign investment and industrial development in Malta provides for a number of incentives (fiscal and non-fiscal) set to attract foreign direct investors and local enterprises with high value added or high employment potential. These fall under the following headings: a. Investment Aid; b. SME Development; c. Enterprise Support; d. Access to Finance; e. Employment and Training; and f. Research & Development. In terms of the Investment Aid Regulations 2008, Investment Tax Credits are available in respect of qualifying expenditure incurred on or after 1 st January 2008 by qualifying companies, i.e. businesses which carry on a trade or business which consists solely of one or more qualifying activities. Qualifying companies include companies engaged in all types of manufacturing activities (with the exception of production of certain commodities such as motor vehicles and synthetic fibres), information and communications technology, research and development and innovation, logistics operations and activities carried out by a company licensed under the Malta Freeports Act. Following an amendment to the regulations companies engaged in the management and operation of hotels, there are also eligible for the Investment Tax Credits as expenditure incurred as from 1 st January Eligible enterprises can benefit from tax credits (ranging from 15% to 35% depending on the size of the enterprise) calculated as a percentage of the value of capital investment or the value of wages. Any tax credits not utilised during a 6

7 particular year may be carried forward to subsequent years. Entreprises engaged in the management and operation of hotels are eligible for a tax credit rate of 15%, irrespective of their size. Tax credits calculated as a percentage of qualifying research and development (R&D) expenditure are available as a deduction from the tax liability. In addition to direct R&D expenditure, costs incurred for R&D-related training of personnel and hiring of new personnel may qualify. The credit is granted in addition to the normal deduction of the expenditure from taxable income. The applicable percentage varies from 10.5% to 35%, depending on the type of the R&D initiative and expenditure incurred, and whether the taxpayer is a small or medium-sized enterprise and whether the project is EU funded. Research and development activities are increasingly being considered an important sector of Malta s economy. In this regard, various incentives, including tax credits to stimulate enterprises to engage in R&D, are offered under guidelines issued in terms of the Malta Enterprise Act. Other form of assistance includes soft loans and loan interest rates subsidies which aim at supporting enterprise engaged in manufacturing through loans at low interest rates for part financing investments in qualifying expenditure. Soft loans are available to manufacturing enterprises and only after Malta Enterprise completes a due diligence exercise on the applicant and the proposed project. Soft Loans, granted by Malta Enterprise, usually cover 33% of an approved project but in any case may not exceeding 75% of the cost of plant, machinery and equipment. 10. ECONOMY With a population of around 421,000, Malta has a Gross Domestic Product (GDP) of 7.9 billion (as published by the National Statistics Office of 2014), generated by the following economic activities: agriculture and fishing; manufacturing; wholesale and retail trade; transportation and storage; accommodation and food service activities; information and communication; real estate activities; professional, scientific and technical activities; public administration; education; human health and social work activities; and arts, entertainment and recreation. Sustained by continued rapid growth, the Maltese economy retains a relatively low rate of unemployment. The economy is dependent on foreign trade, manufacturing (especially electronics and pharmaceuticals), and tourism. Economic recovery of the European economy has lifted exports, tourism, and overall growth. Major markets of Malta are Eurozone, USA and Singapore. Film production in Malta is another growing industry (approx. 35 million between 1997 and 2011), despite stiff competition from other film locations in Eastern Europe and North Africa, with the Malta Film Commission providing support services to foreign film companies for the production of feature cinema (Gladiator, Troy, Munich and Count of Monte Cristo, World War Z, amongst others, were shot in Malta over the last few years), commercials and television series. A relatively new sector is the aviation industry in Malta has been prompted, amongst others, through the face-lift of the aircraft legislation in Malta in 2010 relating to aircraft registration (the Aircraft Registration Act ) and the implementation of the Cape Town Convention on International Interests in Mobile Equipment and its Aircraft Protocol (the Cape Town 7

8 Convention ), ratified in February A number of airlines, aircraft/aircraft engine owners and other aircraft operators are organizing their aviation activities in Malta including but not limited to aircraft financing, leasing and management of aircraft, insurance, brokerage, aircraft maintenance, classification and surveying (e.g. Lufthansa Technik). 11. BANKING The two largest commercial banks are Bank of Valletta and HSBC Bank Malta. However, Malta is also home to an international financial centre with several foreign offshore banks. Malta s banking system is well regulated by the Malta Financial Services Authority. On 1 st May 2004 the Central Bank of Malta joined the European System of Central Banks (ESCB) and on 1 st January 2008 it adopted the euro as the country s currency. The Central Bank of Malta has two key areas of responsibility: the formulation and implementation of monetary policy and the promotion of a sound and efficient financial system. 12. TAXATION Tax in Malta is levied on the basis of residence and is charged on all income and on certain capital gains. The combination of Malta s tax system and its extensive double tax treaty network (over 70) means that, with proper planning and structuring, investors can achieve considerable fiscal efficiency using Malta as a base. Businesses set up in Malta benefit from the application of the full imputation system and the refundable tax credit scheme on profits distributed to shareholders. Malta also offers an ideal tax residency status for individuals through a number of schemes to benefit non residents to base their tax status locally MALTA INDIVIDUAL TAXATION The tax liability of individuals depends on their residence, ordinary residence and domicile. Persons who are ordinarily resident and domiciled in Malta are subject to income tax in Malta on their worldwide income and certain capital gains. Persons who are either not ordinarily resident in Malta or are not domiciled in Malta are subject to Maltese income tax on their income arising in Malta and on their foreign income (but not foreign capital gains) that is received in Malta. Individuals temporarily resident in Malta do not pay tax on the income or capital gains arising outside Malta, whether remitted or not, but are only charged tax on income earned in Malta. 8

9 Malta enables married couples to fill a joint tax computation whereby the incomes of husband and wife are aggreagted and tax on the global income is calculated. The tax rates for married couples for 2014 are: Taxable income (EUR) Rate (%) up to 12, ,701 21, ,201 60, ,001 and over 35 The tax rates for resident individuals opting to be taxed on the single rates for 2014 is the following. Married individuals can also opt for asingle computation and use the following tax rates: Taxable income (EUR) Rate (%) up to 9, ,101 14, ,501 60, ,001 and over 35 Following recent amendments in the Maltese tax system, individuals who maintain a child under18 years of age, or under 21 years old if receiving full-time instruction at a tertiary education establishment, and which child does not earn income in excess of 2,400 from gainful occupation can benefit from the parent rates of tax, as follows. Taxable income (EUR) Rate (%) up to 10, ,501 15, ,801 60, ,001 and over 35 Individuals are subject to tax on income arising in a calendar year (the basis year). Such income is assessed to tax in the year following the year in which it arises (i.e. the year of assessment). For example, the income for the year ending on 31 st December 2014 is assessable to income tax in Tax on employment income is paid under the FS system whereby the employer deduct tax payments from wages paid to the employee. Income tax is chargeable in respect of gains or profits from any employment or office, including the estimated annual value of any quarters or board or residence. In the context of employment income, expenses are deductible only to the extent that they are wholly, exclusively and necessarily incurred in the performance of the duties of the employment or office. Fringe benefits payable to employees are taxable together with other employment income. With respect to dividends, in general, Malta operates a full imputation system under which dividends paid by a resident company carry a tax credit equivalent to the tax paid by the company on its profits out of which the dividends are distributed. Shareholders are taxed on the gross dividend at the applicable tax rates, but are entitled to deduct the tax credit attached to the dividend against their total income tax liability. This tax may be treated as a final tax at the taxpayer s option. 9

10 Profits distributed to a resident individual shareholder out of profits untaxed at the company level, are subject to a 15% withholding tax. The shareholder can opt to declare the dividends in the tax return, so that the dividends are taxed at the ordinary rates and a credit for the withholding tax is granted. Interest paid by Maltese banks, the government of Malta and public corporations and authorities may be subject to a final withholding tax of 15%, in which case the income will not be reported in the tax return. Alternatively, the recipient of this investment income may elect to receive the income without deduction of tax, in which case the income will need to be declared in the tax return and be subject to income tax in the ordinary way at the personal tax rate of the taxpayer. This does not apply to non-residents. THE GLOBAL RESIDENCE PROGRAMME RULES The Global Residence Programme Rules, 2013 ( GRP Rules ) introduced by virtue of Legal Notice 167 of 2013 (in force with effect from 1 st July 2013) have replaced the special tax status for High Net Worth Individuals for non-eu/eea and Swiss Nationals ( HNWI ) issued in Individuals who qualify under the GRP Rules are taxable at the rate of 15% on foreign source income remitted to Malta with the possibility to claim double taxation relief. Any other income of the aforementioned persons that is not covered by these Rules shall be charged at the rate of 35%. The following are the main points reflected in the newly introduced GRP Rules: Under the GRP Rules, the value of immovable property bought in Malta by foreigners has to be at least 275,000. However, when the property is in the south of Malta or in Gozo, the minimum value is set at 220,000; Applicants would also be eligible if they rent a property for a minimum annual rent of 9,600 in Malta and 8,750 in Gozo or the South of Malta; The minimum annual tax on income derived in Malta amounts to 15,000, which is payable by not later than the 30 th April of the year in which the income is received in Malta. Further information is available on our factsheet The Global Residence Programme Rules, 2013 THE HIGHLY QUALIFIED PERSONS SCHEME A scheme set 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 positions (particularly the financial services sector) where local expertise is lacking (such as Actuarial Professionals, CEOs, CFOs etc.). In principle, individual income from a qualifying contract of employment in an eligible office is subject to tax at a flat rate of 15% provided that the income amounts to at least 75,000 (seventy five thousand euro) adjusted annually in line with the Retail Price Index. The 15% flat rate is imposed up to a maximum income of 5,000,000 (five million euro), whereby the excess is exempt from tax. Further information is available on our factsheet Malta: Income Tax Incentives for Highly Qualified Persons 10

11 12.2. MALTA - CORPORATE TAXATION There is no separate system of corporation tax in Malta, and a company (set up to carry on any type of lawful activity whether locally or overseas) is subject to income tax at a flat rate of 35%. In general, a full imputation system is used whereby, dividends paid by a company registered in Malta carry a tax credit equivalent to the tax paid by the company on its profits out of which the dividends are distributed. This system applies to both resident and non-resident shareholders. Shareholders are taxed on the gross dividend at the applicable tax rates, but are entitled to deduct the tax credit attaching to the dividend against their total income tax liability. A company incorporated in Malta is, for Malta tax purposes, ordinarily resident and domiciled in Malta. That company would, accordingly, be taxed in Malta on a worldwide basis. On the other hand, a company incorporated outside Malta may be resident in Malta (but not ordinarily resident and domiciled in Malta) if its business is controlled and managed in/from Malta. Such a company would, as a result, be liable to tax in Malta: (i) on all chargeable income earned in or derived from Malta; (ii) on all chargeable gains realised in Malta; and (iii) on all chargeable income arising outside Malta to the extent that such income is remitted to Malta. The tax system distinguishes between taxed income and untaxed income. Taxed income is further allocated to different tax accounts: the Final Tax Account, the Immovable Property Account, the Maltese Taxed Account and the Foreign Income Account, depending on the nature of the income. The allocation of income or gains to the tax accounts is important for the purpose of determining the extent of: (i) the Malta company s entitlement to claim double taxation relief in terms of Maltese law; and (ii) the refund entitlement available at the level of the shareholders of the Malta company. The imputation system described above does not apply to distributions made out of the Final Tax Account. Companies are chargeable to tax in Malta at the flat rate of 35% although the combined overall Malta effective rate of tax applicable in respect of income or gains accruing to or realised by a company may be reduced substantially by application of the domestic participating holding regime or refundable tax credit system. DIVIDEND INCOME & GAINS A Malta company in receipt of dividends from a participating holding in a non-resident entity other than a Property Company may, at its option: apply a participation exemption such that the dividend income would be exempt from tax in Malta; or pay tax on the profits at the flat rate of 35%. In such circumstances, however, pursuant to a dividend distribution of suchprofits by the Malta company in favour of its shareholder/s, the said shareholder/s would be entitled, to a full (100%) refund of the Malta tax paid by the Malta company on the profits out of which a dividend was distributed. The same options would be available with respect to capital gains or other profits derived from the transfer by a Malta Company of a participating holding in either a resident or a non-resident entity which is not a Property Company. Malta company is deemed to have a participating holding in an entity if it holds at least 10% of the equity shares in that entity; or it 11

12 made a minimum equity share investment representing a total value of 1,164,000 and held the same for an uninterrupted period of 183 days. Equity shares are shares which entitle the holder to any TWO of the following rights: (i) voting rights; (ii) dividend rights and (iii) an entitlement to assets available for distribution in the event of a winding up. Furthermore, the Commissioner of Inland Revenue is entitled to establish that an equity holding exists even where there is no holding of share capital, but where it can be demonstrated that in substance there is at any time an entitlement to any two of the above rights. In terms of anti-abusive provisions, the participation exemption or full refund mechanism would only be available in respect of dividends received from a participating holding provided that the non-resident entity in which the participating holding is held: 1. is resident or incorporated in an EU country or territory; or 2. is subject to any foreign tax at a rate of at least 15%; or 3. derives less than 50% of its income from passive interest or royalties. Should none of the above-listed three conditions be satisfied, two alternative cumulative conditions may be satisfied instead: 1. the holding by the Malta company must NOT be a portfolio investment; and 2. the non-resident entity or its passive interest or royalties must have been subject to any foreign tax at a rate of at least 5%. TAX REFUNDS A shareholder in receipt of a dividend distributed by a company resident in Malta out of profits allocated to its Foreign Income Account (typically foreign source passive income) and/or its Maltese Taxed Account (typically trading income or domestic source passive income) would be entitled to claim a refund of a portion of the Malta tax suffered or paid on the profits out of which the dividend was distributed. The said refund would typically be of six sevenths (6/7) of the Malta tax suffered at the level of the Malta company on profits allocated to its Foreign Income Account or its Maltese Taxed Account and out of which the dividend was distributed. 12

13 However, the said refund is reduced to five sevenths (5/7) of the Malta tax suffered at the level of the Malta company on profits allocated to its Foreign Income Account and out of which the dividends were distributed in the event that such profits consist of passive interest or royalties or of dividends derived from a participating holding when the anti-abuse provisions are not satisfied. Alternatively, the refund entitlement would be reduced to two-thirds (2/3) of the Malta tax paid by the Malta company on profits allocated to its Foreign Income Account and out of which the dividends were distributed in the event that the Malta company would have claimed relief for double taxation in respect of the said profits. INCENTIVES Shipping: Shipping organizations are exempt from income tax on income derived from shipping activities as defined in the Merchant Shipping Act. Instead, they are subject to an annual tax based on tonnage. Non-resident shipping companies are taxable on all profits from the carrying of passengers, mail, livestock or goods shipped in Malta, but not on profits arising from the goods that are brought solely into Malta for trans-shipment or by a casual call in the port. In effect, most nonresident shipping companies are exempt on a reciprocal basis. Aviation: Income derived from the ownership, leasing or operation of an aircraft used in the international transport of passengers or goods, is deemed to be sourced outside Malta and it is not subject to tax in Malta in the hands of a resident non-domiciled person, provided such income is not received in Malta. PROCEDURES The income tax year is the calendar year (year of assessment). Corporate profits are assessable on the basis of the immediately preceding accounting year (basis year). For example, the profits of the year ending on 31 st December 2013 (basis year) are assessable to income tax in 2014 (year of assessment). An accounting date other than 31 st December may be used with the consent of the Inland Revenue and subject to the conditions imposed by it. A company must file a tax return, with supporting financial statements, by 9 months after the end of the accounting date or 31 st March of the relevant year of assessment, whichever is later. Companies must make three provisional tax payments that have to be effected by 30 th April, 31 st August and 21 st December of each basis period. Furthermore, any unsettled tax must be settled by the due date of the tax return. The tax due on the profits of a company which has more than 90% of its business interests outside Malta or on foreign-source profits is payable 18 months after the end of the relevant accounting period or on the date of distribution of such profits, whichever is earlier. 13

14 12.3. VALUE ADDED TAX (VAT) Malta VAT is levied on the supply of goods and services made in Malta for consideration by a taxable person acting as such, on intra-community acquisitions, acquisitions of new means of transport and excise goods as well as on importations. Malta VAT Legislation, as EU Member State is in line with EU Directives and Regulations, save any derogations agreed with the EU on accession. A standard rate of 18% applies to all taxable supplies of goods and services, all importations and intra-community acquisitions of goods which are not expressly taxable at other rates or exempt from VAT. Goods and services outlined in Schedule 8 of the VAT Act are taxed at a reduced rate of either 5% or 7%. The zero rate applies to those goods and services outlined in Schedule 5 Part 1 of the VAT Act, which deals with supplies of goods and services that are exempt with credit. The zero rate is, in general, applied to exports and like transactions; international goods traffic; intra-community supplies, international transport and ancillary services; certain supplies by brokers or other intermediaries; supplies of sea vessels, aircraft, gold, food, pharmaceutical goods; certain transport services and supplies of goods on board cruise liners. CONTACTS For further information please contact: Karl Cini Partner karl.cini@nexiabt.com 14

15 Nexia BT, The Penthouse, Suite 2, Capital Business Centre, Entrance C, Triq taz-zwejt, San Gwann SGN3000. MALTA Tel: Fax: