Doing Business in Malta - RSM International
Doing Business in Malta - RSM International
Doing Business in Malta - RSM International
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<strong>Do<strong>in</strong>g</strong> <strong>Bus<strong>in</strong>ess</strong><br />
<strong>in</strong> <strong>Malta</strong><br />
Better, Faster, Stronger
Foreword<br />
This guide has been prepared to assist those <strong>in</strong>terested <strong>in</strong> do<strong>in</strong>g bus<strong>in</strong>ess <strong>in</strong><br />
<strong>Malta</strong>. It is <strong>in</strong>tended as a general guide to answer certa<strong>in</strong> key questions that<br />
may arise. As legislation and bus<strong>in</strong>ess practices are subject to change and re<strong>in</strong>terpretations,<br />
it is sensible to seek local advice from appropriately qualified<br />
professional sources to deal with specific matters.<br />
The material <strong>in</strong>cluded <strong>in</strong> this guide was compiled on the basis of data and<br />
<strong>in</strong>formation available at 31 August 2009.<br />
<strong>RSM</strong> <strong>Malta</strong> is the Maltese member firm of <strong>RSM</strong> <strong>International</strong> (<strong>RSM</strong>i) and may be<br />
contacted through any of the member and correspondent <strong>RSM</strong>i firms around the<br />
world. The firm’s ma<strong>in</strong> service l<strong>in</strong>es <strong>in</strong>clude: assurance and bus<strong>in</strong>ess advisory,<br />
tax and corporate services and back office and IT.<br />
<strong>RSM</strong> <strong>International</strong><br />
<strong>RSM</strong> <strong>International</strong> is one of the largest network of <strong>in</strong>dependent account<strong>in</strong>g<br />
and consult<strong>in</strong>g firms each of which is <strong>in</strong>dependently owned and managed and<br />
practices <strong>in</strong> its own right. Member firms of <strong>RSM</strong> <strong>International</strong> are driven by a<br />
common vision of provid<strong>in</strong>g high quality professional services, both <strong>in</strong> their<br />
domestic markets and <strong>in</strong> serv<strong>in</strong>g the <strong>in</strong>ternational professional service needs of<br />
their client base. Member firms have a common work ethic of <strong>in</strong>novative th<strong>in</strong>k<strong>in</strong>g<br />
to develop and deliver high quality and timely results for their clients, backed by<br />
high skills and world class standards.<br />
<strong>RSM</strong> <strong>International</strong> has member firms <strong>in</strong> over 72 countries and is represented <strong>in</strong><br />
each of the top 40 major bus<strong>in</strong>ess centres throughout the world. The comb<strong>in</strong>ed<br />
organisation has more than 30,000 staff <strong>in</strong> more than 700 offices, plac<strong>in</strong>g it<br />
amongst the Top Seven <strong>in</strong>ternational account<strong>in</strong>g organisations world-wide.<br />
<strong>RSM</strong> <strong>International</strong> member firms serve clients <strong>in</strong>volved <strong>in</strong> virtually every<br />
<strong>in</strong>dustry, from manufactur<strong>in</strong>g, wholesal<strong>in</strong>g and retail<strong>in</strong>g, transport and m<strong>in</strong><strong>in</strong>g,<br />
f<strong>in</strong>ancial services to health and legal professions, service firms of all types and<br />
government agencies.<br />
<strong>RSM</strong> <strong>International</strong> does not exist <strong>in</strong> any jurisdiction as a separate legal entity.<br />
The network is adm<strong>in</strong>istered by <strong>RSM</strong> <strong>International</strong> Limited, a company registered<br />
<strong>in</strong> England and Wales whose registered office is at 11 Old Jewry, London EC2R<br />
8DU. Intellectual property rights used by members of the network <strong>in</strong>clud<strong>in</strong>g the<br />
trademark <strong>RSM</strong> are owned by <strong>RSM</strong> <strong>International</strong> Association, an association<br />
governed by articles 60 et seq of the Civil Code of Switzerland whose seat is<br />
<strong>in</strong> Zug.<br />
1
“Trust, discretion, performance<br />
and cont<strong>in</strong>uity are the foundations<br />
of our relationship with our clients.”<br />
2
Contents<br />
General 4<br />
<strong>Bus<strong>in</strong>ess</strong> entities 10<br />
Taxation of companies 15<br />
Taxation of <strong>in</strong>dividuals 22<br />
Tax treaties 31<br />
Indirect taxation 34<br />
Invest<strong>in</strong>g <strong>in</strong> <strong>Malta</strong> 35<br />
Employment 37<br />
Account<strong>in</strong>g and audit requirements 40<br />
<strong>RSM</strong> <strong>Malta</strong> 43<br />
3
General<br />
Geography and climate<br />
The Maltese Islands are located <strong>in</strong> the centre of the Mediterranean Sea, 93<br />
kilometres from the southern coast of Sicily and 290 kilometers from the shores<br />
of North Africa. The Maltese archipelago consists of three islands – <strong>Malta</strong>,<br />
Gozo and Com<strong>in</strong>o- cover<strong>in</strong>g a total area of 316 square kilometers. <strong>Malta</strong> is the<br />
ma<strong>in</strong> island <strong>in</strong> the archipelago and is approximately 15 kilometers wide and 27<br />
kilometers long. Gozo lies to the north-west, less than half an hour away by ferry.<br />
Com<strong>in</strong>o, which lies between <strong>Malta</strong> and Gozo is semi-un<strong>in</strong>habited.<br />
The Maltese coastl<strong>in</strong>e alternates between shelter<strong>in</strong>g <strong>in</strong>lets and cliffs. The coast<br />
of <strong>Malta</strong> is predom<strong>in</strong>antly rocky. <strong>Malta</strong>’s Grand Harbour is one of the largest <strong>in</strong>let<br />
on the Maltese shorel<strong>in</strong>e. Valletta, the capital city, lies on a promontory between<br />
the Grand Harbour and Marsamxett Harbour, <strong>Malta</strong>’s two ma<strong>in</strong> harbours.<br />
<strong>Malta</strong>’s climate is mild with an average of 500 millimetres of ra<strong>in</strong> expected<br />
each year, ma<strong>in</strong>ly dur<strong>in</strong>g October to February. Temperatures may vary from an<br />
average maximum of 30 C, <strong>in</strong> the peak summer months of July and August to an<br />
average m<strong>in</strong>imum of 9 C <strong>in</strong> January and February. There are about 300 days of<br />
sunsh<strong>in</strong>e each year.<br />
History<br />
<strong>Malta</strong> has been populated s<strong>in</strong>ce Neolithic times, over 8.000 years ago. Around<br />
2,000 BC, the island was conquered by the Phoenicians and subsequently<br />
Carthag<strong>in</strong>ians and Romans. In 60 AD, St Paul the Apostle, was shipwrecked <strong>in</strong><br />
<strong>Malta</strong> and <strong>in</strong>troduced the Christian Faith to the islands. <strong>Malta</strong> has s<strong>in</strong>ce rema<strong>in</strong>ed<br />
predom<strong>in</strong>antly a Christian (Roman Catholic) island. In 870 AD the Arabs <strong>in</strong>vaded<br />
<strong>Malta</strong> and ruled until 1090 AD when Count Roger of Normandy seized the island<br />
and made <strong>Malta</strong> part of the K<strong>in</strong>gdom of Sicily.<br />
The Order of Knights of St John (also known as the Knights of <strong>Malta</strong>) came to<br />
<strong>Malta</strong> <strong>in</strong> 1530, when Charles V of Spa<strong>in</strong> offered <strong>Malta</strong> to them <strong>in</strong> an attempt<br />
to strengthen the southern frontiers of his doma<strong>in</strong> aga<strong>in</strong>st Islam. The Knights<br />
improved liv<strong>in</strong>g conditions across the Island, stimulated trade and commerce<br />
and erected strong fortifications.<br />
In 1798 Napoleon’s army drove out the Knights of St John and conquered the island.<br />
The British Crown took over <strong>Malta</strong> <strong>in</strong> the early n<strong>in</strong>eteenth century and ruled the<br />
islands for the next 160 years. <strong>Malta</strong> became an <strong>in</strong>dependent sovereign state<br />
on 21st September 1964. In 1974 <strong>Malta</strong> was declared a republic. <strong>Malta</strong> became a<br />
European Union (EU) Member State <strong>in</strong> May 2004.<br />
The island is a member of the Commonwealth and of the United Nations.<br />
4
Population and language<br />
<strong>Malta</strong> is one of the most densely populated countries <strong>in</strong> Europe. <strong>Malta</strong>’s<br />
population <strong>in</strong> 2008 amounted to 413,000 with a population density of 1310 per<br />
square kilometer. Population growth <strong>in</strong> 2008 was fairly modest at 0.2 %.<br />
Maltese and English are the two official languages <strong>in</strong> <strong>Malta</strong>. Maltese is a Semitic<br />
language <strong>in</strong> structure, written <strong>in</strong> Lat<strong>in</strong> script.<br />
Maltese and English are compulsory subjects taught at both the primary and<br />
secondary school levels. Most Maltese are bil<strong>in</strong>gual and fluent <strong>in</strong> both languages.<br />
Italian is also widely spoken.<br />
Official publications, <strong>in</strong>clud<strong>in</strong>g laws, are published <strong>in</strong> both Maltese and English.<br />
Most bus<strong>in</strong>ess and commercial related correspondence, official or otherwise, is<br />
<strong>in</strong> English.<br />
Political and legal systems<br />
<strong>Malta</strong> is a parliamentary democracy with general elections held every five years.<br />
Maltese citizens aged 18 years or over have the right to vote. The head of state<br />
is the President, who is appo<strong>in</strong>ted by Parliament. The President of <strong>Malta</strong>’s role<br />
is ma<strong>in</strong>ly ceremonial.<br />
The Maltese Parliament (House of Representatives) has the power to legislate.<br />
The Prime M<strong>in</strong>ister is the leader of the party that obta<strong>in</strong>s the majority of votes<br />
<strong>in</strong> an election. The Prime M<strong>in</strong>ister selects and appo<strong>in</strong>ts cab<strong>in</strong>et M<strong>in</strong>isters from<br />
amongst elected representatives.<br />
The Maltese Constitution establishes the structures and powers of the court and<br />
lists the fundamental human rights and freedoms of <strong>in</strong>dividuals. <strong>Malta</strong> recognizes<br />
the right of <strong>in</strong>dividual petition to the European Courts of Justice.<br />
The legal system <strong>in</strong> <strong>Malta</strong> is firmly based on the rule of law and <strong>in</strong>dependence of<br />
the Judiciary. Judges are appo<strong>in</strong>ted by the Government and cannot be removed<br />
before retirement age, except for proven <strong>in</strong>ability to exercise their duties<br />
properly. Removal requires a two-thirds vote <strong>in</strong> Parliament.<br />
Most f<strong>in</strong>ancial, fiscal and commercial legislation is based on British laws.<br />
Economy<br />
The Maltese economy, which is based on the free enterprise system, has<br />
expanded <strong>in</strong> particular dur<strong>in</strong>g these past five years, follow<strong>in</strong>g <strong>Malta</strong>’s accession<br />
to the European Union. Membership <strong>in</strong> the EU provides for the freedom of<br />
movement of goods, services, citizens and capital between <strong>Malta</strong> and the other<br />
5
EU member states, thus creat<strong>in</strong>g a s<strong>in</strong>gle market of cont<strong>in</strong>ental dimensions.<br />
In January 2008 <strong>Malta</strong> adopted the Euro as its official currency.<br />
<strong>Malta</strong>’s record of political, economic and social stability over the years has<br />
resulted <strong>in</strong> a steady <strong>in</strong>crease <strong>in</strong> foreign <strong>in</strong>vestment. The Maltese Government<br />
encourages free enterprise with no restrictions on foreign ownership of bus<strong>in</strong>ess<br />
and repatriation of capital and <strong>in</strong>come.<br />
<strong>Malta</strong> has a diversified economy which relies ma<strong>in</strong>ly on tourism, manufactur<strong>in</strong>g<br />
and f<strong>in</strong>ancial services that collectively accounted for around 60 % of the GDP <strong>in</strong><br />
2008.<br />
In 2008 <strong>Malta</strong>’s GDP per capita <strong>in</strong> real terms stood at 312,000. The GDP <strong>in</strong><br />
real terms grew at an average of 4.3% dur<strong>in</strong>g the period 2006 to 2008 and<br />
contracted by 2.6% <strong>in</strong> the first six months of 2009. The <strong>in</strong>flation rate at April<br />
2009 stood at 4.36% whereas unemployment stood at 4.7 % of labour supply.<br />
Around 28% of the ga<strong>in</strong>fully occupied persons are <strong>in</strong> the public sector.<br />
The greater part of the economy is privately controlled however public utilities<br />
are provided by state controlled enterprises.<br />
Industrial climate<br />
<strong>Malta</strong>’s modern <strong>in</strong>frastructure, flexible and educated labour supply, good work<br />
ethics, political and <strong>in</strong>dustrial stability and geographical location are but some of<br />
the factors that make <strong>Malta</strong> a very attractive location for <strong>in</strong>dustrial <strong>in</strong>vestment.<br />
<strong>Malta</strong>’s sectors contribut<strong>in</strong>g to the GDP <strong>in</strong>clude: services (80.6%), <strong>in</strong>dustry<br />
(18%) and agriculture (1.4%).<br />
The manufactur<strong>in</strong>g sector consists of a mixture of large, foreign owned<br />
enterprises and numerous, smaller family run companies. Target sectors <strong>in</strong> the<br />
manufactur<strong>in</strong>g <strong>in</strong>dustry <strong>in</strong>clude pharmaceuticals, electronics, light eng<strong>in</strong>eer<strong>in</strong>g,<br />
healthcare and other areas generat<strong>in</strong>g high value added per employee. A<br />
Government owned entity, <strong>Malta</strong> Industrial Parks, provides modern factory<br />
build<strong>in</strong>gs <strong>in</strong> public <strong>in</strong>dustrial estates, at commercially attractive rates.<br />
All products exported to the EU have full tariff free access. <strong>Malta</strong> also benefits<br />
from trade agreements with an extensive network of non-member countries and<br />
trad<strong>in</strong>g blocs.<br />
The <strong>in</strong>dustrial sector benefits from a wide rang<strong>in</strong>g fiscal <strong>in</strong>centives package.<br />
Tourism is another important sector <strong>in</strong> the local economy and accounts for<br />
around 30% of the GDP. Recent years were marked with improvements <strong>in</strong><br />
tourist numbers and quality follow<strong>in</strong>g the <strong>in</strong>vestment made <strong>in</strong> new, up market<br />
hotel properties and conference facilities ma<strong>in</strong>ly managed by <strong>in</strong>ternational five<br />
star cha<strong>in</strong>s. In these last years annual tourist visitor levels hovered around<br />
6
one million mark. Recent Government policy <strong>in</strong> this sector concentrated on<br />
diversification of the tourist product from the typical ‘sun and sea’ dest<strong>in</strong>ation<br />
to the more cultural and historical dest<strong>in</strong>ation and the establishment of niche<br />
markets. The advent of low cost carriers <strong>in</strong> these past years has helped to boost<br />
the passenger seat capacity to <strong>Malta</strong> and open up new markets.<br />
The F<strong>in</strong>ancial Services sector has grown significantly s<strong>in</strong>ce it was established <strong>in</strong><br />
the early 1990’s and today accounts for around 12% of the GDP. Government<br />
is committed to double this sector by 2015 by plac<strong>in</strong>g emphasis on <strong>in</strong>surance,<br />
<strong>in</strong>vestment services, call centers, e-commerce and others.<br />
The on-l<strong>in</strong>e bett<strong>in</strong>g <strong>in</strong>dustry is a new sector established a few years ago which<br />
has experienced steep growth <strong>in</strong> these last three years. <strong>Malta</strong> is estimated to<br />
host around 10% of the worlds’ on l<strong>in</strong>e gam<strong>in</strong>g websites. Through a successful<br />
comb<strong>in</strong>ation of various factors <strong>in</strong>clud<strong>in</strong>g a well established regulatory framework,<br />
good communications <strong>in</strong>frastructure and a skilled labor force the island is today<br />
regarded as a premier on-l<strong>in</strong>e gam<strong>in</strong>g jurisdiction with<strong>in</strong> the EU.<br />
Transport, communications and the media<br />
Entry to <strong>Malta</strong> is either by sea or air. <strong>Malta</strong>’s <strong>in</strong>ternational airport had a total<br />
of 3 million people pass<strong>in</strong>g through it <strong>in</strong> 2008. The Grand Harbour cruise l<strong>in</strong>er<br />
term<strong>in</strong>al <strong>in</strong> Valletta regularly accommodates large passenger cruise l<strong>in</strong>ers.<br />
<strong>Malta</strong> has a Freeport term<strong>in</strong>al <strong>in</strong> the south which handles around 1.5 million TEUs<br />
annually. The island’s geographic position <strong>in</strong> the centre of the Mediterranean<br />
makes it a key player <strong>in</strong> the global warehous<strong>in</strong>g and logistics cha<strong>in</strong>. <strong>Malta</strong> Freeport<br />
is the third largest transshipment and logistics centre <strong>in</strong> the Mediterranean and<br />
is currently run by Marseille based CMA CGM.<br />
Public transport services <strong>in</strong>clude buses, m<strong>in</strong>i-buses, taxis and ferries.<br />
<strong>Malta</strong> boasts an excellent communication system. Communication by post,<br />
telephone, fax and <strong>in</strong>ternet is of a standard comparable with the best <strong>in</strong> Europe.<br />
The island has a sophisticated telecoms <strong>in</strong>frastructure with large bandwidth<br />
networks provid<strong>in</strong>g high capacity to and from the country. Networks are<br />
completely digital and <strong>in</strong>ternational connections have been expanded through<br />
satellite technology and high capacity fibre optic cables l<strong>in</strong>k<strong>in</strong>g <strong>Malta</strong> to Europe.<br />
<strong>Malta</strong>’s mass media <strong>in</strong> 2009 <strong>in</strong>cluded over three daily and seven weekly local<br />
newspapers, some of which are published <strong>in</strong> English. There are a number of<br />
electronic newspapers, radio stations and TV stations.<br />
<strong>Malta</strong> stock exchange<br />
In <strong>Malta</strong> there is currently one small stock exchange operated by <strong>Malta</strong> Stock<br />
Exchange plc (MSE) which is a public limited company <strong>in</strong>corporated <strong>in</strong> <strong>Malta</strong> and<br />
licensed by the <strong>Malta</strong> F<strong>in</strong>ancial Services Authority to provide the services of a<br />
regulated market and a central securities depository.<br />
7
The exchange manages the trad<strong>in</strong>g of a handful of important stocks of Maltese<br />
registered companies and is the marketplace for <strong>Malta</strong>’s bond market. <strong>Malta</strong><br />
Stock Exchange Index at 30 December 2008 stood at 3208.215. The MSE<br />
currently lists 19 equities, 34 corporate bonds and 34 government bonds. There<br />
are also a number of hedge funds listed.<br />
The MSE recently received recognised exchange status from the Inland Revenue<br />
<strong>in</strong> the United K<strong>in</strong>gdom which has sparked <strong>in</strong>terest <strong>in</strong> list<strong>in</strong>gs from foreign and<br />
local companies because of the tax relief that such status offers <strong>in</strong>vestors.<br />
Entry visas and work permits<br />
S<strong>in</strong>ce 2008 <strong>Malta</strong>’s requirements on visas fall <strong>in</strong> l<strong>in</strong>e with EU policy and Schengen<br />
regulations. <strong>Malta</strong> jo<strong>in</strong>ed the Schengen area <strong>in</strong> January 2008. Details of visaexempt<br />
countries and visa application procedures for citizens outside of the EU<br />
are available on the M<strong>in</strong>istry of Justice and Home Affairs website at:<br />
www.mjha.gov.mt.<br />
Work permits are issued <strong>in</strong> <strong>Malta</strong> by the Department of Citizenship and Expatriate<br />
Affairs and are usually granted to those who are able to contribute skills or<br />
expertise not available <strong>in</strong> the local market. Employers <strong>in</strong>terested <strong>in</strong> engag<strong>in</strong>g<br />
foreigners (whether EU citizens or otherwise) have to make an application to<br />
obta<strong>in</strong> the permit <strong>in</strong> respect of the prospective employee.<br />
Applications relat<strong>in</strong>g to EU citizens are usually fast tracked and processed <strong>in</strong> an<br />
efficient manner. Applications <strong>in</strong> all other cases are considered on a case-by-case<br />
basis. Work permits are generally valid for one year and renewable thereafter.<br />
Applications for work permits must be submitted us<strong>in</strong>g the appropriate form<br />
supplied by the Employment and Tra<strong>in</strong><strong>in</strong>g Corporation (ETC), together with<br />
three passport size photos and detailed curriculum vitae.<br />
<strong>International</strong> time<br />
Maltese time is the Central European Time (CET) which is one hour ahead of the<br />
Greenwich Mean Time (GMT). In l<strong>in</strong>e with the CET, <strong>Malta</strong> goes on Summer Time,<br />
which is one hour ahead of normal time, dur<strong>in</strong>g the last week of March to the<br />
last week of October.<br />
Miscellaneous <strong>in</strong>formation<br />
Weights and measures are based on the metric system.<br />
Dates are written <strong>in</strong> the sequence of day, month and year.<br />
In writ<strong>in</strong>g numbers, commas denote thousands and po<strong>in</strong>ts denote fractions.<br />
8
<strong>Bus<strong>in</strong>ess</strong> hours and statutory holidays<br />
With few exceptions, employees generally work a 5-day, 40 hour week.<br />
There are 14 public holidays <strong>in</strong> <strong>Malta</strong> which <strong>in</strong>clude:<br />
New Year’s Day January 1<br />
Feast of St. Paul’s Shipwreck February 10<br />
Feast of St. Joseph March 19<br />
Freedom Day March 31<br />
Good Friday<br />
Variable<br />
Workers’ Day May 1<br />
Sette Giugno June 7<br />
Feast St .Peter and St Paul June 29<br />
Feast of the Assumption August 15<br />
Feast of Our Lady of Victories September 8<br />
Independence Day September 21<br />
Feast of the Immaculate Conception December 8<br />
Republic Day December 13<br />
Christmas Day December 25<br />
9
<strong>Bus<strong>in</strong>ess</strong> entities<br />
Types of bus<strong>in</strong>ess entities<br />
<strong>Malta</strong>’s Company Act of 1995 is pr<strong>in</strong>cipally based on English company law and<br />
is <strong>in</strong> conformity with EU Directives. The law contemplates the follow<strong>in</strong>g types of<br />
bus<strong>in</strong>ess entities, which under Maltese Law acquire a dist<strong>in</strong>ct legal personality as<br />
soon as they are <strong>in</strong>corporated and registered under the Companies Act:<br />
Limited Liability Company, which is the most preferred vehicle for do<strong>in</strong>g<br />
bus<strong>in</strong>ess <strong>in</strong> <strong>Malta</strong> due to its separate legal personality and limited liability. The<br />
limited liability company can either be of a public nature (Plc) or of a private<br />
nature (Limited or Ltd). The m<strong>in</strong>imum number of shareholders for a Plc and<br />
Ltd is two, however an Ltd may also be formed as a s<strong>in</strong>gle member firm. This<br />
is allowed as long as the sole shareholder and sole director are not themselves<br />
corporate entities and the objects clause is restricted to one ma<strong>in</strong> activity. The<br />
Ltd company cannot have more than 50 shareholders. The Limited Liability<br />
company is formed by means of capital divided <strong>in</strong>to shares. The liability of the<br />
shareholders is limited to the amount of unpaid share capital.<br />
‘Partnership en commandite’, which is a partnership with at least one unlimited<br />
(general) partner and other limited partners. This entity has its obligations<br />
guaranteed by the unlimited and jo<strong>in</strong>t and several liability of its general partners<br />
and by the liability limited to the contribution of the limited partners.<br />
‘Partnership en nom collectif’ which is an unlimited partnership where its<br />
obligations are guaranteed by the unlimited and jo<strong>in</strong>t and several liability of all<br />
its partners.<br />
The Companies Act also contemplates a jo<strong>in</strong>t venture (association en<br />
participation) which is not required to be registered and is not vested with a<br />
separate legal personality.<br />
The Companies Act provides for the sett<strong>in</strong>g up of <strong>in</strong>vestment companies with<br />
variable share capital (SICAVs) and companies with share capital denom<strong>in</strong>ated <strong>in</strong><br />
a foreign currency. It allows the possibility of a nom<strong>in</strong>ee sharehold<strong>in</strong>g <strong>in</strong> Maltese<br />
companies, as long as the nom<strong>in</strong>ee functions are exercised by an entity licensed<br />
by the <strong>Malta</strong> F<strong>in</strong>ancial Services Authority.<br />
A foreign entity can carry on its bus<strong>in</strong>ess <strong>in</strong> <strong>Malta</strong> through a branch that must be<br />
registered under the Companies Act. The branch is not considered as a separate<br />
entity and is not <strong>in</strong>corporated as such. The branch must be registered with<strong>in</strong><br />
10
one month of establish<strong>in</strong>g the place of bus<strong>in</strong>ess <strong>in</strong> <strong>Malta</strong> and must submit the<br />
follow<strong>in</strong>g documentation to the Registrar of Companies:<br />
• Copy of the charter of the company;<br />
• List of officers of the company;<br />
• Names and addresses of one or more <strong>in</strong>dividuals resident <strong>in</strong> <strong>Malta</strong> who<br />
are authorized to represent the overseas company locally;<br />
• Return with details of the branch <strong>in</strong>clud<strong>in</strong>g name, address and activities.<br />
Share capital<br />
The m<strong>in</strong>imum authorised and issued share capital <strong>in</strong> a Limited Liability Company<br />
under Maltese law is as follows:<br />
• Private companies - 31,165 with at least 20% thereof paid up upon<br />
subscription;<br />
• Public companies - 346,587 with at least 25% thereof paid up upon<br />
subscription.<br />
It is necessary to deposit the amount of the paid-up capital <strong>in</strong> a bank account<br />
entitled ‘Company Name – Company <strong>in</strong> Formation’ before register<strong>in</strong>g the<br />
company with the Registrar of Companies.<br />
The company’s share capital may be denom<strong>in</strong>ated <strong>in</strong> any currency. <strong>Malta</strong> does not<br />
impose any exchange control restrictions and this facilitates the use of Maltese<br />
corporate vehicles for <strong>in</strong>ternational bus<strong>in</strong>ess. Exchange risk is further m<strong>in</strong>imised<br />
by the fact that the company’s <strong>in</strong>come tax is paid <strong>in</strong> the same currency of the<br />
share capital. Any tax refunds are also given <strong>in</strong> the same currency.<br />
Company registration<br />
The registration of a company is done by submitt<strong>in</strong>g the necessary documentation<br />
to the Registrar of Companies. The documentation <strong>in</strong>cludes the Memorandum<br />
and Articles of Association (M&A) together with an identification document of the<br />
subscribers, and proof that <strong>in</strong>itial share capital has been paid up. The M&A must<br />
be signed by the subscribers or their attorneys, but need not be executed <strong>in</strong> front<br />
of a notary public. This enables subscribers to set up a company without actually<br />
hav<strong>in</strong>g to physically come to <strong>Malta</strong>; however, due diligence documentation with<br />
respect to Know Your Client (KYC) procedures is required. The Registrar of<br />
Companies usually completes the company <strong>in</strong>corporation or registration of<br />
entities with<strong>in</strong> 24 hours of receipt of all the documentation required.<br />
A registration fee is payable to the Registrar of Companies and depends on the<br />
amount of authorised share capital. The fee ranges between a m<strong>in</strong>imum of 3350<br />
and a maximum of 31,747.<br />
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<strong>Malta</strong> has a fully fledged trustee regime and shares <strong>in</strong> Maltese companies may be<br />
held by licensed trustees <strong>in</strong> a fiduciary capacity for and on behalf of subscribers.<br />
Directors and company secretary<br />
The bus<strong>in</strong>ess of a Limited Liability Company is conducted by its directors, who<br />
are appo<strong>in</strong>ted by the shareholders. Companies must have at least one director<br />
and one company secretary. The director may be a corporate entity but the<br />
company secretary must be an <strong>in</strong>dividual. As a rule, a sole director cannot occupy<br />
the post of company secretary as well unless the company is a s<strong>in</strong>gle member<br />
company. The director and company secretary, both of whom are officers of<br />
the company, need not be resident <strong>in</strong> <strong>Malta</strong>. In general, a director may not carry<br />
on any bus<strong>in</strong>ess <strong>in</strong> competition with the company and may not receive loans<br />
from the company. The Companies Act assigns various duties, responsibilities<br />
and obligations on directors who are normally jo<strong>in</strong>tly and severally liable for<br />
damages aris<strong>in</strong>g from any breach of these duties.<br />
Shareholders meet<strong>in</strong>gs<br />
The general meet<strong>in</strong>gs of the shareholders, which must be held each year and not<br />
later than 15 months from the date of the previous annual general meet<strong>in</strong>g, need<br />
not be held <strong>in</strong> <strong>Malta</strong> but may be done via a telephone or video conference. The<br />
bus<strong>in</strong>ess of an annual general meet<strong>in</strong>g would normally <strong>in</strong>clude the consideration<br />
of the directors’ and auditors’ reports, approval of the f<strong>in</strong>ancial statements of<br />
the company, confirmation of any dividends proposed by the directors, election<br />
of the auditors and directors (where latter hold a periodical term) and the fix<strong>in</strong>g<br />
of the auditors and directors remuneration.<br />
F<strong>in</strong>ancial statements<br />
Every company has to prepare f<strong>in</strong>ancial statements which are to be audited <strong>in</strong><br />
accordance with the provisions of the Companies Act. The directors are required<br />
to present these audited f<strong>in</strong>ancial statements, that are to <strong>in</strong>clude an <strong>in</strong>come<br />
statement, a statement of f<strong>in</strong>ancial position, a statement of cashflows and any<br />
other statement and notes as required <strong>in</strong> terms of the appropriate report<strong>in</strong>g<br />
framework to the shareholders at the general meet<strong>in</strong>g.<br />
Audited f<strong>in</strong>ancial statements must be laid before, and approved by, the general<br />
meet<strong>in</strong>g of the company and eventually submitted to the Registrar of Companies.<br />
A company may opt for a f<strong>in</strong>ancial year end other than 31 December as long as<br />
the first period is not less than six months and not more than eighteen months.<br />
The time allowed for the submission of accounts before the general meet<strong>in</strong>g is<br />
ten months after the f<strong>in</strong>ancial year end for private companies and seven months<br />
after the f<strong>in</strong>ancial year end for public companies.<br />
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Annual statutory fil<strong>in</strong>g<br />
Companies must submit an annual return upon each anniversary of the<br />
company’s registration date. The annual return, which must be signed by one<br />
of the directors or company secretary, <strong>in</strong>cludes the follow<strong>in</strong>g <strong>in</strong>formation:<br />
registered office of the company, summary of share capital and debentures, list<br />
of shareholders and particulars of directors. An annual fee which depends on the<br />
level of authorised share capital and varies from 385 to 32,000 per annum is<br />
payable, and this together with the annual return are to be submitted with<strong>in</strong> 42<br />
days from the anniversary of the registration date of the company.<br />
Cont<strong>in</strong>uation of companies<br />
Cont<strong>in</strong>uation of companies or Redomiciliation is the process whereby a company<br />
registered <strong>in</strong> a foreign jurisdiction may opt to migrate to or be cont<strong>in</strong>ued <strong>in</strong> <strong>Malta</strong><br />
without the need to be wound up. Redomiciliation does not create a new entity<br />
or affect the property of the company which shall reta<strong>in</strong> all its rights, assets and<br />
liabilities.<br />
In order to qualify for redomiciliation <strong>in</strong>to <strong>Malta</strong>, the entity must be a “body<br />
corporate” which is similar to a company <strong>in</strong> terms of Maltese law and must be<br />
<strong>in</strong>corporated <strong>in</strong> an approved jurisdiction as may be established from time to time<br />
by the local Registrar of Companies. Furthermore the laws of the jurisdiction<br />
must allow for the migration of companies and the company must be authorised<br />
to migrate <strong>in</strong> terms of its statute or constitutive document.<br />
A company wish<strong>in</strong>g to migrate should make a request to the Registrar of<br />
Companies present<strong>in</strong>g the follow<strong>in</strong>g documents together with the appropriate<br />
registration fee:<br />
• resolution whereby the decision is taken for the Foreign Company to be<br />
cont<strong>in</strong>ued <strong>in</strong> <strong>Malta</strong>;<br />
• statute of the Foreign Company, revised and amended to <strong>in</strong>clude the<br />
requirements for registration <strong>in</strong> accordance with the provisions of the<br />
Companies Act 1995;<br />
• a certificate of good stand<strong>in</strong>g <strong>in</strong> respect of the Foreign Company or<br />
some other documentary evidence to show that the Foreign Company<br />
satisfies the registration requirements of the country <strong>in</strong> which it was<br />
<strong>in</strong>corporated;<br />
• a declaration of solvency signed by at least two directors or two persons<br />
vested with the company’s adm<strong>in</strong>istration or representation;<br />
• a list of the directors and company secretary (or alternatively list of<br />
persons vested with adm<strong>in</strong>istration) of the Foreign Company;<br />
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• a declaration signed by at least two directors or two persons vested with<br />
the company’s adm<strong>in</strong>istration or representation of the Foreign Company<br />
confirm<strong>in</strong>g certa<strong>in</strong> details about the Foreign Company;<br />
• such material as the Registrar may require to ascerta<strong>in</strong> that the request<br />
for migration is permitted by the laws of the jurisdiction where the<br />
company is <strong>in</strong>corporated.<br />
Should the Foreign Company be a public company or carry out activities which if<br />
conducted <strong>in</strong> or from <strong>Malta</strong> require licens<strong>in</strong>g or authorisation such as companies<br />
provid<strong>in</strong>g Investment Services, Insurance or Credit Institutions, additional<br />
documentary and licens<strong>in</strong>g requirements will apply.<br />
Liquidation<br />
A company resolution or order of the Court is necessary to <strong>in</strong>itiate liquidation<br />
procedures and dissolve the company. A liquidator is appo<strong>in</strong>ted by the<br />
shareholders of the company or by application to the court. Liquidation may<br />
take the form of a shareholders’ or creditors’ w<strong>in</strong>d<strong>in</strong>g up. The former is only<br />
possible <strong>in</strong> the case of a solvent company. A company may also be wound up by<br />
the court.<br />
The Companies Act also <strong>in</strong>cludes provisions on company reconstructions and<br />
recovery procedures.<br />
14
Taxation of companies<br />
As a member of the EU, <strong>Malta</strong> has adopted all EU tax directives which <strong>in</strong>clude the<br />
parent subsidiary directive, the mergers directive and the <strong>in</strong>terest and royalties’ directive.<br />
Basis of taxation<br />
Companies <strong>in</strong>corporated under Maltese laws are automatically deemed to be<br />
resident and domiciled <strong>in</strong> <strong>Malta</strong> for tax purposes. Such companies are taxed on<br />
their worldwide <strong>in</strong>come.<br />
Companies <strong>in</strong>corporated under foreign laws are regarded as resident <strong>in</strong> <strong>Malta</strong> <strong>in</strong><br />
those cases where their control and management are exercised <strong>in</strong> <strong>Malta</strong>. These<br />
companies are subject to tax on a source and remittance basis ie. subject to tax<br />
on <strong>Malta</strong> source <strong>in</strong>come (<strong>in</strong>clud<strong>in</strong>g capital ga<strong>in</strong>s) and on <strong>in</strong>come aris<strong>in</strong>g outside<br />
<strong>Malta</strong> (exclud<strong>in</strong>g capital ga<strong>in</strong>s) and remitted to <strong>Malta</strong>.<br />
Companies that are not resident <strong>in</strong> <strong>Malta</strong> are taxable on chargeable <strong>in</strong>come and<br />
capital ga<strong>in</strong>s aris<strong>in</strong>g <strong>in</strong> <strong>Malta</strong>, although a number of exemptions may apply <strong>in</strong><br />
respect of certa<strong>in</strong> <strong>in</strong>come.<br />
Companies that are redomiciled to <strong>Malta</strong> from another jurisdiction should be<br />
considered <strong>in</strong>corporated <strong>in</strong> <strong>Malta</strong> from the date of redomiciliation and should be<br />
deemed to be resident and domiciled <strong>in</strong> <strong>Malta</strong> with effect from such date.<br />
The chargeable <strong>in</strong>come of a company, which <strong>in</strong>cludes its taxable <strong>in</strong>come and<br />
capital ga<strong>in</strong>s, is taxed at 35%.<br />
Taxable <strong>in</strong>come<br />
Taxable <strong>in</strong>come of a company is the profit reported <strong>in</strong> the company’s audited<br />
f<strong>in</strong>ancial statements subject to certa<strong>in</strong> adjustments necessary to arrive at taxable<br />
profits. Adjustments would typically <strong>in</strong>clude the write back of depreciation and<br />
a deduction for statutory capital allowances, the write back of expenses that<br />
are not deductible for <strong>in</strong>come tax purposes such as: amortisation <strong>in</strong>clud<strong>in</strong>g<br />
amortisation of goodwill, provision for bad debts, donations, pre-trad<strong>in</strong>g expenses<br />
and unrealised differences on exchange. The general rule for the deductibility of<br />
expenses for tax purposes is that expenses are only deductible when they are<br />
<strong>in</strong>curred wholly and exclusively <strong>in</strong> the production of the <strong>in</strong>come.<br />
Trad<strong>in</strong>g tax losses <strong>in</strong>curred by the company may be carried forward <strong>in</strong>def<strong>in</strong>itely<br />
until offset aga<strong>in</strong>st taxable profits. Capital losses may not offset trad<strong>in</strong>g profits;<br />
however capital losses may be carried forward and offset aga<strong>in</strong>st future capital<br />
ga<strong>in</strong>s. Trad<strong>in</strong>g losses may be offset aga<strong>in</strong>st capital ga<strong>in</strong>s.<br />
15
In the case of a group of companies, the trad<strong>in</strong>g losses <strong>in</strong>curred by one company<br />
may be surrendered to another company or companies with<strong>in</strong> the same group.<br />
For <strong>in</strong>come tax purposes companies belong to the same group when: each is<br />
resident <strong>in</strong> <strong>Malta</strong> and not resident <strong>in</strong> any other country; and one is a subsidiary of<br />
the other or both are subsidiaries of the same parent company resident <strong>in</strong> <strong>Malta</strong>.<br />
The company surrender<strong>in</strong>g the losses and the company receiv<strong>in</strong>g the losses<br />
(claimant) must have account<strong>in</strong>g periods that beg<strong>in</strong> and end on the same dates.<br />
Group relief for a particular year may only be claimed with respect to losses<br />
<strong>in</strong>curred <strong>in</strong> that same year; however once losses are surrendered, the claimant<br />
company can cont<strong>in</strong>ue to carry them forward <strong>in</strong>def<strong>in</strong>itely or until fully absorbed.<br />
Capital losses do not qualify for group relief.<br />
Capital ga<strong>in</strong>s<br />
Tax on capital ga<strong>in</strong>s is levied on ga<strong>in</strong>s aris<strong>in</strong>g from the transfer of securities,<br />
bus<strong>in</strong>ess, goodwill, a beneficial <strong>in</strong>terest <strong>in</strong> a trust and <strong>in</strong>tellectual property rights.<br />
Capital ga<strong>in</strong>s are added to the taxpayer’s <strong>in</strong>come for the year and tax is charged<br />
on the total amount. Provisional tax is payable at the time of such transfers at<br />
the rate of 7% of the consideration.<br />
Transfers of immovable property situated <strong>in</strong> <strong>Malta</strong> are subject to a f<strong>in</strong>al<br />
withhold<strong>in</strong>g tax of 12% of the transfer value (or of the ga<strong>in</strong> with respect to<br />
certa<strong>in</strong> transfers). However, a transferor of immovable property may, <strong>in</strong> certa<strong>in</strong><br />
circumstances, opt to be taxed at the standard rates on the ga<strong>in</strong> aris<strong>in</strong>g on the<br />
transfer rather than be subject to the f<strong>in</strong>al withhold<strong>in</strong>g tax. The provisional tax<br />
paid will be allowed as a credit aga<strong>in</strong>st the tax due. A refund is paid by the Inland<br />
Revenue <strong>in</strong> the case of excess credit.<br />
Provisional tax paid on transfer of immovable property is not f<strong>in</strong>al except when<br />
immovable property was acquired by the transferor by <strong>in</strong>heritance prior to 25th<br />
November 1992. The capital ga<strong>in</strong>s are to be <strong>in</strong>cluded <strong>in</strong> the tax return and subject<br />
to tax at the normal rates applicable.<br />
There is an exemption from capital ga<strong>in</strong>s tax <strong>in</strong> the case of transfers made<br />
between companies <strong>in</strong> the same group or companies controlled and beneficially<br />
owned directly or <strong>in</strong>directly as to more than 50% by the same shareholders.<br />
Moreover, there is an exemption from tax on capital ga<strong>in</strong>s accru<strong>in</strong>g to persons<br />
not resident <strong>in</strong> <strong>Malta</strong> (where such persons are not owned and controlled by,<br />
directly or <strong>in</strong>directly, nor acts on behalf of <strong>in</strong>dividuals who are ord<strong>in</strong>arily resident<br />
and domiciled <strong>in</strong> <strong>Malta</strong>) aris<strong>in</strong>g from the transfer of shares <strong>in</strong> a company which<br />
is not deemed to be a property company.<br />
Full imputation system<br />
<strong>Malta</strong> operates a full imputation system <strong>in</strong> respect of the taxation of dividends<br />
thereby avoid<strong>in</strong>g economic double taxation. Under the full imputation system<br />
16
dividends paid by a company resident <strong>in</strong> <strong>Malta</strong> carry a tax credit equal to the<br />
tax paid by the company on the profit out of which the dividends are paid.<br />
Shareholders are taxed on the gross dividend at the regular rates, but are<br />
entitled to deduct the tax credit attached to the dividend aga<strong>in</strong>st their total<br />
<strong>in</strong>come tax liability.<br />
As a result no further Maltese tax is due by the shareholder on a distribution of<br />
dividends made by a company registered <strong>in</strong> <strong>Malta</strong>.<br />
Tax account<strong>in</strong>g and tax refunds<br />
Companies are subject to tax <strong>in</strong> every year of assessment on the <strong>in</strong>come derived<br />
<strong>in</strong> the preced<strong>in</strong>g calendar or f<strong>in</strong>ancial year. A company may opt to have a f<strong>in</strong>ancial<br />
year end that is not 31 December however the approval of the Inland Revenue is<br />
required <strong>in</strong> such cases.<br />
The Maltese <strong>in</strong>come tax system utilises different tax accounts for different<br />
sources of <strong>in</strong>come, namely the F<strong>in</strong>al Tax Account (FTA), the Immovable Property<br />
Account (IPA), the Foreign Income Account (FIA), the Maltese Taxed Account<br />
(MTA) and the Untaxed Account (UA).<br />
The attribution of chargeable <strong>in</strong>come to the different tax accounts is an<br />
important aspect of the Maltese tax system as this determ<strong>in</strong>es the possibility<br />
of tax refunds upon a distribution of profits. Distributions from the FTA, the IPA<br />
and the UA do not give rise to any tax refunds <strong>in</strong> the hands of the shareholders;<br />
however, a distribution from the FIA and MTA entitles the shareholder to claim<br />
a refund which is equivalent to 2/3rds, 5/7ths, 6/7ths, or 100% of the company<br />
<strong>in</strong>come tax.<br />
Profits attributed to the FTA <strong>in</strong>clude <strong>in</strong>come that has been subject to a f<strong>in</strong>al<br />
withhold<strong>in</strong>g tax, profits aris<strong>in</strong>g from capital ga<strong>in</strong>s on immovable property which<br />
has suffered the property transfers tax, certa<strong>in</strong> <strong>in</strong>vestment <strong>in</strong>come and certa<strong>in</strong><br />
tax free profits. Profits attributed to the IPA are those profits result<strong>in</strong>g from<br />
the use of immovable property situated <strong>in</strong> <strong>Malta</strong> and which have not suffered<br />
the f<strong>in</strong>al withhold<strong>in</strong>g tax, profits from the rent, accommodation revenue by<br />
hotels and similar establishments, management fees and annual rental value of<br />
immovable property <strong>in</strong> <strong>Malta</strong>.<br />
A company’s trad<strong>in</strong>g or passive <strong>in</strong>come which is not attributable to the FTA and<br />
IPA, is allocated to the FIA or the MTA depend<strong>in</strong>g on the source of such <strong>in</strong>come. A<br />
distribution from the FIA or MTA enables the shareholder to apply for a tax refund<br />
of the <strong>Malta</strong> tax paid at the level of the company. Shareholders are required to<br />
be registered to receive such refunds, and the extent of tax so refunded depends<br />
on the type and source of <strong>in</strong>come derived by the Maltese operat<strong>in</strong>g company.<br />
The standard refund is equivalent to 6/7ths of the <strong>Malta</strong> tax paid <strong>in</strong> the case of<br />
<strong>in</strong>come allocated to the FIA and MTA, result<strong>in</strong>g <strong>in</strong> a <strong>Malta</strong> effective rate of tax<br />
of 5%.<br />
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The 6/7ths refund may not be availed of <strong>in</strong> the follow<strong>in</strong>g circumstances:<br />
a) when the dividend is paid out of profits that qualify as passive <strong>in</strong>terest<br />
or royalties the refund due will be 5/7ths of the tax paid <strong>in</strong> <strong>Malta</strong> (gross<br />
of any double taxation relief claimed <strong>in</strong> <strong>Malta</strong> <strong>in</strong> respect of tax paid<br />
outside <strong>Malta</strong> on the taxed profits). The term passive <strong>in</strong>terest or royalties<br />
<strong>in</strong>cludes <strong>in</strong>terest or royalties which are not derived, directly or <strong>in</strong>directly,<br />
from a trade or bus<strong>in</strong>ess and on which no foreign tax was suffered or any<br />
foreign tax suffered thereon is less than 5%.<br />
b) if the dividend is paid out of profits allocated to the FIA and <strong>in</strong> respect of<br />
which the company had claimed double taxation relief, the refund should<br />
amount to 2/3rds of the tax paid <strong>in</strong> <strong>Malta</strong> (gross of any double taxation<br />
relief claimed <strong>in</strong> <strong>Malta</strong> <strong>in</strong> respect of tax paid outside <strong>Malta</strong> on the taxed<br />
profits).<br />
The refund <strong>in</strong>creases to 100% when the profits distributed are derived from a<br />
participat<strong>in</strong>g hold<strong>in</strong>g, A participation hold<strong>in</strong>g is def<strong>in</strong>ed as a sharehold<strong>in</strong>g by a<br />
Maltese company <strong>in</strong> a non-resident company or a qualify<strong>in</strong>g body of persons and<br />
where it:<br />
• has at least 10% of the equity shares <strong>in</strong> the non-resident company; or<br />
• is an equity shareholder <strong>in</strong> the non-resident company and is entitled to<br />
purchase the balance of the equity shares of the non-resident company,<br />
• is an equity shareholder <strong>in</strong> the non-resident company and is entitled to<br />
either sit on the Board or appo<strong>in</strong>t a person on the Board of that subsidiary<br />
as a director; or<br />
• is an equity shareholder which <strong>in</strong>vests a m<strong>in</strong>imum <strong>in</strong> the non-resident<br />
company of 31,164,000 (or the equivalent <strong>in</strong> a foreign currency) and such<br />
<strong>in</strong>vestment is held for a m<strong>in</strong>imum <strong>in</strong>terrupted period of 183 days; or<br />
• holds the shares <strong>in</strong> the non-resident company for the furtherance of its<br />
own bus<strong>in</strong>ess and the hold<strong>in</strong>g is not held as trad<strong>in</strong>g stock for the purpose<br />
of a trade.<br />
Furthermore the non-resident company <strong>in</strong> question must either satisfy any one<br />
of the follow<strong>in</strong>g three conditions:<br />
• it is resident or <strong>in</strong>corporated <strong>in</strong> the EU,<br />
• it is subject to foreign tax of a m<strong>in</strong>imum of 15%,<br />
• it does not derive more than 50% of its <strong>in</strong>come from passive <strong>in</strong>terest and<br />
royalties;<br />
18
or, if none of the above conditions are met, the hold<strong>in</strong>g must satisfy both of the<br />
follow<strong>in</strong>g conditions:<br />
• the shares <strong>in</strong> the non-resident company must not be held as a portfolio<br />
<strong>in</strong>vestment; and<br />
• the non-resident company or its passive <strong>in</strong>terest or royalties have been<br />
subject to tax at a rate which is not less than 5%.<br />
A ‘portfolio <strong>in</strong>vestment’ is an <strong>in</strong>vestment <strong>in</strong> securities held as part of a portfolio<br />
of similar <strong>in</strong>vestments for the purpose of risk spread<strong>in</strong>g and where such<br />
an <strong>in</strong>vestment is not a strategic <strong>in</strong>vestment and is done with no <strong>in</strong>tention of<br />
<strong>in</strong>fluenc<strong>in</strong>g the management of the underly<strong>in</strong>g company. It is important to note<br />
that the hold<strong>in</strong>g of shares by a Maltese company <strong>in</strong> a foreign body of persons<br />
which derives more than 50% of its <strong>in</strong>come from portfolio <strong>in</strong>vestments is deemed<br />
a portfolio <strong>in</strong>vestment.<br />
At the option of the Maltese hold<strong>in</strong>g company, any dividends derived from a<br />
participat<strong>in</strong>g hold<strong>in</strong>g may be omitted from the chargeable <strong>in</strong>come of the<br />
company (subject to the anti-abuse provisions mentioned above) <strong>in</strong> terms of the<br />
participation exemption.<br />
In most cases, the participation exemption or 100% tax refund referred to above<br />
also apply to ga<strong>in</strong>s on a disposal of a participat<strong>in</strong>g hold<strong>in</strong>g even when such ga<strong>in</strong>s<br />
are of a trad<strong>in</strong>g nature. However, the anti-abuse conditions referred to above do<br />
not apply to ga<strong>in</strong>s on the disposal of a participat<strong>in</strong>g hold<strong>in</strong>g.<br />
Relief of double taxation<br />
<strong>Malta</strong> grants relief for double taxation by way of treaty relief, unilateral relief<br />
(<strong>in</strong> cases where tax is suffered on <strong>in</strong>come received from a country with which<br />
<strong>Malta</strong> does not have a treaty), commonwealth relief and the flat-rate foreign tax<br />
credit (FRFTC). Double taxation relief applies on the basis of the ord<strong>in</strong>ary credit<br />
method on a source-by-source and country-by-country basis.<br />
The FRFTC takes the form of a notional tax credit equivalent to 25% of the<br />
<strong>in</strong>come, for foreign taxes deemed to have been paid on <strong>in</strong>come which is allocated<br />
to the Foreign Income Account. The <strong>in</strong>come with respect to which the FRFTC is<br />
claimed is grossed up by the amount of the available credit. The grossed up<br />
<strong>in</strong>come less any allowable expenses is subjected to 35% tax and the taxpayer is<br />
then entitled to a credit aga<strong>in</strong>st the tax so determ<strong>in</strong>ed, amount<strong>in</strong>g to the amount<br />
by which the <strong>in</strong>come was grossed up, but the credit shall <strong>in</strong> no case exceed 85%<br />
of the tax payable.<br />
19
The examples below illustrate the mechanics of the full imputation system<br />
applicable <strong>in</strong> <strong>Malta</strong> and the related tax refunds:<br />
Passive Income<br />
Hav<strong>in</strong>g Hav<strong>in</strong>g No PH Passive<br />
PH PH Interest Trad<strong>in</strong>g<br />
claims claims and Income<br />
FRFTC FRFTC Royalties<br />
Company EUR EUR EUR EUR EUR<br />
Profit before tax 1,000.0 1,000.0 1,000.0 1,000.0 1,000.0<br />
Gross up for the FRFTC - 250.0 250.0 - -<br />
1,000.0 1,250.0 1,250.0 1,000.0 1,000.0<br />
Tax thereon at 35% 350.0 437.5 437.5 350.0 350.0<br />
Credit for FRFTC - 250.0 250.0 - -<br />
Tax Payable 350.0 187.5 187.5 350.0 350.0<br />
Shareholder<br />
Gross dividend received 1.000.0 1000.0 1000.0 1000.0 1000.0<br />
Tax charged at 35% 350.0 350.0 350.0 350.0 350.0<br />
Credit for tax at source 350.0 350.0 350.0 350.0 350.0<br />
full full 2/3rds 5/7ths 6/7ths<br />
Refund to shareholders 350.0 187.5 125.0 250.0 300.0<br />
Effective tax rate 0% 0% 6.25% 10% 5%<br />
Income tax is paid <strong>in</strong> the same currency as the company’s share capital, which<br />
is also the currency <strong>in</strong> which the company prepares and submits its audited<br />
f<strong>in</strong>ancial statements. The tax refund is also paid <strong>in</strong> the same currency, thus<br />
elim<strong>in</strong>at<strong>in</strong>g any currency exchange risks. In terms of the provisions of the <strong>in</strong>come<br />
tax legislation, a tax refund must be paid by the Inland Revenue Department<br />
with<strong>in</strong> 14 days from the end of the month <strong>in</strong> which it falls due.<br />
A tax refund is considered to fall due when the company’s audited f<strong>in</strong>ancial<br />
statements (show<strong>in</strong>g the dividend distribution) and a complete and correct<br />
<strong>in</strong>come tax return are submitted to the tax authorities, the tax liability is paid <strong>in</strong><br />
full and an application for refund on a prescribed form, together with the dividend<br />
certificate, is submitted by the shareholder or his attorney or representative.<br />
20
The tax refund system and the application of the tax account<strong>in</strong>g is applicable to<br />
both companies <strong>in</strong>corporated <strong>in</strong> <strong>Malta</strong> as well as foreign companies resident <strong>in</strong><br />
<strong>Malta</strong> and registered as such with the tax authorities.<br />
Advance revenue rul<strong>in</strong>gs<br />
Certa<strong>in</strong>ty can be sought on important aspects through the request of an<br />
Advance Revenue Rul<strong>in</strong>g from the <strong>International</strong> Tax Unit of the Inland Revenue<br />
Department. Such rul<strong>in</strong>g is valid for a period of five years and is renewable<br />
for a further five-year period. The rul<strong>in</strong>g is not mandatory however it not only<br />
confirms the tax authorities’ <strong>in</strong>terpretation but also serves to preserve the same<br />
tax treatment for two years should there be a change <strong>in</strong> legislation which may<br />
affect the company or its tax treatment.<br />
21
Taxation of <strong>in</strong>dividuals<br />
An <strong>in</strong>dividual who is both ord<strong>in</strong>arily resident and domiciled <strong>in</strong> <strong>Malta</strong> is subject to<br />
tax on worldwide <strong>in</strong>come, that is, on <strong>in</strong>come and capital ga<strong>in</strong>s aris<strong>in</strong>g <strong>in</strong> <strong>Malta</strong> or<br />
abroad, whether or not received <strong>in</strong> <strong>Malta</strong>. An <strong>in</strong>dividual, who is either resident<br />
<strong>in</strong> <strong>Malta</strong> or domiciled <strong>in</strong> <strong>Malta</strong>, but not both, is subject to tax on <strong>in</strong>come aris<strong>in</strong>g<br />
<strong>in</strong> <strong>Malta</strong>, on <strong>in</strong>come aris<strong>in</strong>g abroad but received <strong>in</strong> <strong>Malta</strong>, and on capital ga<strong>in</strong>s<br />
aris<strong>in</strong>g <strong>in</strong> <strong>Malta</strong>. Individuals who are neither resident <strong>in</strong> <strong>Malta</strong> nor domiciled <strong>in</strong><br />
<strong>Malta</strong> (temporary residents) are subject to tax only on <strong>in</strong>come and capital ga<strong>in</strong>s<br />
aris<strong>in</strong>g <strong>in</strong> <strong>Malta</strong>.<br />
In general, <strong>in</strong>dividuals are considered to be resident <strong>in</strong> <strong>Malta</strong> if they spend more<br />
than 183 days <strong>in</strong> a calendar year <strong>in</strong> <strong>Malta</strong>. Individuals are considered ord<strong>in</strong>arily<br />
resident if <strong>Malta</strong> is their habitual place of residence.<br />
A resident <strong>in</strong>dividual of <strong>Malta</strong> means an <strong>in</strong>dividual who resides <strong>in</strong> <strong>Malta</strong>, except<br />
for such temporary absences that the Commissioner of Inland Revenue believes<br />
are reasonable and not <strong>in</strong>consistent with the claim to be resident <strong>in</strong> <strong>Malta</strong>.<br />
Residence <strong>in</strong> a foreign country does not establish non residence <strong>in</strong> <strong>Malta</strong> because<br />
an <strong>in</strong>dividual may be resident <strong>in</strong> more than one country simultaneously. An<br />
<strong>in</strong>dividual physically present <strong>in</strong> <strong>Malta</strong> for 183 days (not necessarily consecutive)<br />
<strong>in</strong> a calendar year is generally considered to be resident <strong>in</strong> that particular year,<br />
regardless of the <strong>in</strong>dividual’s nationality.<br />
The concept of domicile is not def<strong>in</strong>ed <strong>in</strong> local legislation but is a term of private<br />
<strong>in</strong>ternational law. Individuals are normally regarded as domiciled <strong>in</strong> that country<br />
that they regard as their permanent home and to which they <strong>in</strong>tend to return one<br />
day. An <strong>in</strong>dividual may not have more than one domicile at a time. Domicile of<br />
orig<strong>in</strong> is acquired at birth and is the strongest type of domicile an <strong>in</strong>dividual may<br />
have. Domicile of orig<strong>in</strong> may be replaced by domicile of choice if an <strong>in</strong>dividual<br />
has spent extensive time <strong>in</strong> another country and if it can be proved the <strong>in</strong>dividual<br />
has the <strong>in</strong>tention to live and settle permanently <strong>in</strong> that country.<br />
Income subject to tax<br />
An <strong>in</strong>dividual’s chargeable <strong>in</strong>come is composed of an <strong>in</strong>dividual’s aggregate<br />
<strong>in</strong>come from all sources, after omitt<strong>in</strong>g exempt items and deduct<strong>in</strong>g allowable<br />
expenses.<br />
Employment <strong>in</strong>come<br />
Income tax is imposed on earn<strong>in</strong>gs from employment of office, <strong>in</strong>clud<strong>in</strong>g pensions.<br />
Employment <strong>in</strong>come <strong>in</strong>cludes the value of any fr<strong>in</strong>ge benefits, determ<strong>in</strong>ed <strong>in</strong><br />
accordance with the Fr<strong>in</strong>ge Benefit Rules. Such rules contemplate that any<br />
benefit provided by reason of employment by an employer or related company<br />
to an employee or to a member of his family is deemed to constitute a fr<strong>in</strong>ge<br />
benefit. Some of the fr<strong>in</strong>ge benefits regulated by the said rules <strong>in</strong>clude: use of<br />
22
a company car or car allowance, use of company property, provision of free or<br />
subsidised board and free non-bus<strong>in</strong>ess travel.<br />
No deductions are allowed aga<strong>in</strong>st employment <strong>in</strong>come. The gross amount<br />
of <strong>in</strong>come (<strong>in</strong>clusive of social security contributions) earned from full-time<br />
employment and from part-time employment that is not subject to the f<strong>in</strong>al<br />
withhold<strong>in</strong>g tax of 15% (see Part-Time Income further on) is taxed at the normal<br />
<strong>in</strong>come tax rates.<br />
Employment <strong>in</strong>come, <strong>in</strong>clud<strong>in</strong>g the value of fr<strong>in</strong>ge benefits, is subject to deduction<br />
at source under the f<strong>in</strong>al settlement system.<br />
Self- Employment and bus<strong>in</strong>ess <strong>in</strong>come<br />
<strong>Bus<strong>in</strong>ess</strong> <strong>in</strong>come <strong>in</strong>cludes any ga<strong>in</strong>s or profits from a trade, bus<strong>in</strong>ess, profession,<br />
or vocation, <strong>in</strong>clud<strong>in</strong>g profits aris<strong>in</strong>g from the sale of any property acquired by<br />
an <strong>in</strong>dividual for the purpose of mak<strong>in</strong>g a profit through a sale, undertak<strong>in</strong>g or<br />
scheme.<br />
Trad<strong>in</strong>g profits are calculated <strong>in</strong> accordance with generally accepted account<strong>in</strong>g<br />
pr<strong>in</strong>ciples, and are adjusted to arrive at chargeable <strong>in</strong>come. For details regard<strong>in</strong>g<br />
allowable deductible bus<strong>in</strong>ess expenses, see <strong>Bus<strong>in</strong>ess</strong> deductions further on.<br />
Taxable self- employment and bus<strong>in</strong>ess <strong>in</strong>come is aggregated with other <strong>in</strong>come<br />
and taxed at the rates set out <strong>in</strong> Rates section further on.<br />
Rental <strong>in</strong>come<br />
Rental <strong>in</strong>come is taxed with other <strong>in</strong>come at the rates set forth <strong>in</strong> Rates section<br />
below. Bank <strong>in</strong>terest, license fees and rents payable may be deducted if <strong>in</strong>curred<br />
<strong>in</strong> the production of rental <strong>in</strong>come. Each property is treated as a separate source<br />
of <strong>in</strong>come. Losses from one property may not be offset aga<strong>in</strong>st <strong>in</strong>come from<br />
another.<br />
Allowable deductions aga<strong>in</strong>st rental <strong>in</strong>come <strong>in</strong>clude <strong>in</strong>terest, license fees and<br />
ground rents payable. An additional 20 % ma<strong>in</strong>tenance allowance, calculated<br />
on the difference between rents receivable less license fees and ground rents<br />
payable, is also allowed.<br />
Investment <strong>in</strong>come<br />
Investment <strong>in</strong>come <strong>in</strong>cludes the follow<strong>in</strong>g items:<br />
• bank <strong>in</strong>terest;<br />
• <strong>in</strong>terest, discounts or premiums payable by the Maltese government;<br />
• <strong>in</strong>terest, discounts or premiums payable by a corporation or authority<br />
established by law;<br />
• <strong>in</strong>terest, discounts or premiums payable <strong>in</strong> respect of a public issue <strong>in</strong><br />
<strong>Malta</strong> by a company, entity or other legal person, whether resident <strong>in</strong><br />
<strong>Malta</strong> or otherwise;<br />
23
• capital ga<strong>in</strong>s aris<strong>in</strong>g on the disposal of shares or units <strong>in</strong> a collective<br />
<strong>in</strong>vestment scheme licensed under the Investment Services Act , if the<br />
collective <strong>in</strong>vestment scheme redeems, liquidates or cancels such shares<br />
or units; and<br />
• capital ga<strong>in</strong>s aris<strong>in</strong>g on the surrender or maturity of units and similar<br />
<strong>in</strong>struments relat<strong>in</strong>g to the long- term bus<strong>in</strong>ess of <strong>in</strong>surance.<br />
Resident <strong>in</strong>dividuals may opt to pay 15% f<strong>in</strong>al withhold<strong>in</strong>g tax on <strong>in</strong>vestment<br />
<strong>in</strong>come. This may be treated as a f<strong>in</strong>al tax at the recipient’s option, and need<br />
not be disclosed <strong>in</strong> the <strong>in</strong>dividual’s personal <strong>in</strong>come tax return. However, the<br />
recipient may declare such <strong>in</strong>vestment <strong>in</strong>come, and apply the normal tax rates.<br />
The recipient of <strong>in</strong>vestment <strong>in</strong>come may <strong>in</strong>form the payor not to withhold tax. In<br />
such circumstances, the recipient must declare the <strong>in</strong>vestment <strong>in</strong>come <strong>in</strong> his or<br />
her personal tax return and apply the normal tax rates.<br />
Interest and royalties paid to non-residents are exempt from tax <strong>in</strong> <strong>Malta</strong>, unless<br />
they are effectively connected to a permanent establishment <strong>in</strong> <strong>Malta</strong> through<br />
which the non-residents engage <strong>in</strong> a trade or bus<strong>in</strong>ess.<br />
Dividends<br />
Dividends <strong>in</strong>clude the follow<strong>in</strong>g:<br />
• bonus shares;<br />
• distributions made by a partnership en commandite, whose capital is<br />
divided <strong>in</strong>to shares, or by a limited liability company, to its partners or<br />
shareholders, respectively, and any amount credited to them as partners<br />
or shareholders; and<br />
• distributions made by a cooperative society to its members and any<br />
amount credited to them as members, <strong>in</strong>clud<strong>in</strong>g any patronage refund,<br />
bonus certificate or bonus shares, made, paid or allotted.<br />
<strong>Malta</strong> operates a full imputation system under which dividends paid by a company<br />
resident <strong>in</strong> <strong>Malta</strong> carry a tax credit equal to the tax paid by the company on the<br />
profit out of which the dividends are paid. Shareholders are taxed on the gross<br />
dividend at the regular rates, but are entitled to deduct the tax credit attached<br />
to the dividend aga<strong>in</strong>st their total <strong>in</strong>come tax liability. The full imputation system<br />
applies to both resident and non-resident shareholders. If a dividend is paid to<br />
resident <strong>in</strong>dividuals out of the untaxed account (the difference between tax and<br />
account<strong>in</strong>g profits), a 15% withhold<strong>in</strong>g tax is imposed. This withhold<strong>in</strong>g tax does<br />
not apply to non-residents.<br />
Dividends paid out of profits exempt from tax under the terms of the <strong>Bus<strong>in</strong>ess</strong><br />
Promotion Act are not taxable <strong>in</strong> the hands of the shareholders.<br />
24
Directors’ fees<br />
Fees and remuneration received by <strong>in</strong>dividuals for serv<strong>in</strong>g on the board of<br />
directors of a corporate body are taxed at the regular rates of tax as set forth<br />
<strong>in</strong> Rates section.<br />
Part-time <strong>in</strong>come<br />
Employees, pensioners and students engaged <strong>in</strong> part-time work earn<strong>in</strong>g up to<br />
37,000 annually may benefit from a special rate of tax. For details, see Rates<br />
section.<br />
Taxation of employer provided share option<br />
When a company grants an option to its employees to acquire shares, such share<br />
options become taxable when the option is exercised. In this respect, the value<br />
of the said share option would be 42.85% of the excess of the price which the<br />
shares would fetch <strong>in</strong> the open market on the date of the exercise of the option<br />
over the option price of the same shares, subject to the conditions conta<strong>in</strong>ed <strong>in</strong><br />
the Fr<strong>in</strong>ge Benefit Rules.<br />
Any ga<strong>in</strong> realised from the transfer of shares acquired through the exercise of<br />
a share option constitutes a capital ga<strong>in</strong> and should be taxable. A number of<br />
specified benefits are exempt under certa<strong>in</strong> conditions, such as health <strong>in</strong>surance<br />
and the use of a computer and related equipment.<br />
Capital ga<strong>in</strong>s and losses<br />
Capital ga<strong>in</strong>s derived from the transfer of ownership of the follow<strong>in</strong>g assets are<br />
taxable: real property; securities; bus<strong>in</strong>ess goodwill; copyrights; patents; trademarks<br />
and trade names; or the assignment or conveyance of any rights over<br />
such property. Capital ga<strong>in</strong>s aris<strong>in</strong>g from transfers of <strong>in</strong>herited property by heirs<br />
are exempt. Taxable capital ga<strong>in</strong>s are <strong>in</strong>cluded with other <strong>in</strong>come and taxed at<br />
the rates set out <strong>in</strong> Rates section.<br />
Capital losses may not offset trad<strong>in</strong>g profits; however, capital losses may be<br />
carried forward and offset aga<strong>in</strong>st future capital ga<strong>in</strong>s. Trad<strong>in</strong>g losses may<br />
offset capital ga<strong>in</strong>s.<br />
Non residents are exempt from tax on ga<strong>in</strong>s derived from the disposal of shares<br />
<strong>in</strong> a Maltese Company that is not primarily engaged <strong>in</strong> hold<strong>in</strong>g real estate<br />
property located <strong>in</strong> <strong>Malta</strong>.<br />
Deductions<br />
Personal deductions and allowances<br />
No personal deductions or allowances are allowed aga<strong>in</strong>st taxable employment<br />
<strong>in</strong>come, except for certa<strong>in</strong> deductions by expatriates employed by <strong>in</strong>vestment<br />
service companies and <strong>in</strong>surance companies.<br />
25
<strong>Bus<strong>in</strong>ess</strong> deductions<br />
Self-employed <strong>in</strong>dividuals may deduct all expenses <strong>in</strong>curred wholly and exclusively<br />
<strong>in</strong> the production of <strong>in</strong>come, <strong>in</strong>clud<strong>in</strong>g capital allowances (tax depreciation) at<br />
specified rates.<br />
To be deductible for tax purposes, expenses must be wholly and exclusively<br />
<strong>in</strong>curred <strong>in</strong> the production of the <strong>in</strong>come to which they relate. Adjustments must<br />
be made to arrive at chargeable <strong>in</strong>come, <strong>in</strong>clud<strong>in</strong>g the addition of disallowable<br />
expenses such as account<strong>in</strong>g depreciation, amortisation of goodwill, provisions,<br />
donations, stamp duty expenses and start-up expenses.<br />
Unabsorbed capital allowances and trad<strong>in</strong>g losses may be carried forward<br />
<strong>in</strong>def<strong>in</strong>itely. The rules that apply to companies also apply to <strong>in</strong>dividuals carry<strong>in</strong>g<br />
on a bus<strong>in</strong>ess, profession or vocation.<br />
Rates<br />
Residents<br />
The follow<strong>in</strong>g tables present the 2009 tax rates for married persons fil<strong>in</strong>g jo<strong>in</strong>tly<br />
and s<strong>in</strong>gle persons and married persons fil<strong>in</strong>g separately:<br />
Married Persons Fil<strong>in</strong>g Jo<strong>in</strong>tly<br />
Taxable Income<br />
Exceed<strong>in</strong>g Not Exceed<strong>in</strong>g Rate Deduct<br />
3 3 % 3<br />
0 11,900 0 0<br />
11,901 21,200 15 1,785<br />
21,201 28,700 25 3,905<br />
28,701 - 35 6,775<br />
S<strong>in</strong>gle Persons and Married Persons Fil<strong>in</strong>g Separately<br />
Taxable Income<br />
Exceed<strong>in</strong>g Not Exceed<strong>in</strong>g Rate Deduct<br />
3 3 % 3<br />
0 8,500 0 0<br />
8,501 14,500 15 1,275<br />
14,501 19,500 25 2,725<br />
19,501 - 35 4,675<br />
26
The <strong>in</strong>come of married persons fil<strong>in</strong>g jo<strong>in</strong>tly is taxed at the rates listed <strong>in</strong> the<br />
first table. Income tax is charged <strong>in</strong> the name of the responsible spouse, who is<br />
selected by the spouses or by the Commissioner of Inland Revenue. Both spouses<br />
must sign the tax return and both rema<strong>in</strong> jo<strong>in</strong>tly and severally responsible.<br />
Married persons may opt to be taxed separately at the rates listed <strong>in</strong> the second<br />
table if both the husband and wife earn taxable <strong>in</strong>come that is derived from<br />
a trade, bus<strong>in</strong>ess, profession, vocation, employment, office or pension. Other<br />
<strong>in</strong>come, such as <strong>in</strong>terest, dividends and rents, must be added to the <strong>in</strong>come of<br />
the spouse with the highest earned <strong>in</strong>come.<br />
S<strong>in</strong>gle and separated persons are taxed at the rates listed <strong>in</strong> the second table.<br />
However, if a s<strong>in</strong>gle parent ma<strong>in</strong>ta<strong>in</strong>s a child, does not receive f<strong>in</strong>ancial assistance<br />
from the other parent, and does not live or reside at the same house with the<br />
other parent , such person may opt to be taxed at the rates applicable to married<br />
persons.<br />
Employees, pensioners and students engaged <strong>in</strong> part-time work earn<strong>in</strong>g up to<br />
37,000 annually may benefit from a special rate of tax. Income up to 37,000<br />
derived from part-time employment is taxed at a flat rate 15% and is withheld<br />
at source by the employer. Part-time self-employed persons may also benefit<br />
from this reduced rate of tax. Recipients need not declare such <strong>in</strong>come <strong>in</strong> their<br />
personal <strong>in</strong>come tax return. Any part-time <strong>in</strong>come earned <strong>in</strong> excess of 37,000<br />
must be declared <strong>in</strong> the <strong>in</strong>dividual’s <strong>in</strong>come tax return and is taxed at the normal<br />
rates of tax.<br />
Permanent residents<br />
The Permanent Residence Scheme is a scheme applicable to foreigners wish<strong>in</strong>g<br />
to retire, settle or stay <strong>in</strong>def<strong>in</strong>itely <strong>in</strong> <strong>Malta</strong>. To qualify for the permanent<br />
residence scheme, <strong>in</strong>dividuals must meet the follow<strong>in</strong>g requirements:<br />
• the permanent resident must have a proven net worldwide capital of<br />
3349,000, or an annual <strong>in</strong>come of 323,000. The capital need not be<br />
brought <strong>in</strong>to <strong>Malta</strong>;<br />
• an applicant for permanent residency must either own a residence valued<br />
at not less than 3116,000 for a house or 369,000 for an apartment.<br />
Alternatively, the permanent resident may lease or rent immovable<br />
property at not less than 34,150 per annum;<br />
• the permanent resident must produce a certificate of conduct from his or<br />
her last place of residence;<br />
• the permanent resident may not work or otherwise engage <strong>in</strong> bus<strong>in</strong>ess<br />
and political activities <strong>in</strong> <strong>Malta</strong>;<br />
• the m<strong>in</strong>imum annual <strong>in</strong>come to be remitted to <strong>Malta</strong> is 313,950 per<br />
person, plus 32,300 for each dependent.<br />
27
Permanent residents are taxed at a rate of 15% on all <strong>in</strong>come received or remitted<br />
to <strong>Malta</strong>, whether from foreign or Maltese source. Such <strong>in</strong>come is subject to a<br />
m<strong>in</strong>imum tax liability of 34,193 after allow<strong>in</strong>g for any double taxation relief that<br />
the permanent resident may be entitled to.<br />
The permit holder should not be engaged <strong>in</strong> a ga<strong>in</strong>ful occupation <strong>in</strong> <strong>Malta</strong>, but if<br />
he derives earned <strong>in</strong>come <strong>in</strong> <strong>Malta</strong> this would be taxed separately at the standard<br />
rates applicable to other residents without a tax free portion. This is usually<br />
allowed by special permission from the M<strong>in</strong>ister.<br />
Foreign employees<br />
Foreign <strong>in</strong>dividuals may be employed <strong>in</strong> <strong>Malta</strong> if the employer is <strong>in</strong> possession of<br />
a work permit. Such <strong>in</strong>dividuals are taxed on <strong>in</strong>come and capital ga<strong>in</strong>s aris<strong>in</strong>g <strong>in</strong><br />
<strong>Malta</strong> (unless exempt) and on <strong>in</strong>come remitted to <strong>Malta</strong>. Foreign source <strong>in</strong>come<br />
which is not remitted to <strong>Malta</strong> is not subject to <strong>Malta</strong> tax and capital ga<strong>in</strong>s are<br />
not taxable even if they are remitted to <strong>Malta</strong>.<br />
Returned migrants<br />
An <strong>in</strong>dividual born <strong>in</strong> <strong>Malta</strong> who, after emigrat<strong>in</strong>g, returns as a resident <strong>in</strong> <strong>Malta</strong><br />
after an aggregate period of not less than 20 years is subject to a special<br />
tax regime similar to that of resident permit holders. An <strong>in</strong>dividual who takes<br />
the option is taxed on <strong>in</strong>come and capital ga<strong>in</strong>s aris<strong>in</strong>g <strong>in</strong> <strong>Malta</strong> and on foreign<br />
source <strong>in</strong>come (exclud<strong>in</strong>g capital ga<strong>in</strong>s) which is remitted to <strong>Malta</strong>.<br />
A returned migrant is taxed at a flat rate of 15%, with a tax free portion of<br />
35,900 <strong>in</strong> case of a married computation and 34,200 <strong>in</strong> case of a s<strong>in</strong>gle<br />
computation. This special regime applies if the returned migrant has received <strong>in</strong><br />
<strong>Malta</strong> at one or more times dur<strong>in</strong>g the year immediately preced<strong>in</strong>g the year of<br />
assessment an amount of <strong>in</strong>come of not less 314,000 aris<strong>in</strong>g outside <strong>Malta</strong> (an<br />
additional 32,400 for every dependant relative <strong>in</strong>clud<strong>in</strong>g a spouse is required)<br />
and chargeable to tax subject to a m<strong>in</strong>imum annual tax liability of 32,325 after<br />
double taxation relief.<br />
Any <strong>in</strong>come from a trade or bus<strong>in</strong>ess or employment <strong>in</strong>come aris<strong>in</strong>g <strong>in</strong> <strong>Malta</strong><br />
is taxed separately at the standard rates applicable to other Maltese residents<br />
without a tax free portion.<br />
28
Non-residents<br />
Non-residents, regardless of whether married or s<strong>in</strong>gle are subject to tax at the<br />
follow<strong>in</strong>g rates on <strong>in</strong>come aris<strong>in</strong>g or received <strong>in</strong> <strong>Malta</strong>:<br />
Taxable Income<br />
Exceed<strong>in</strong>g Not Exceed<strong>in</strong>g Rate Deduct<br />
3 3 % 3<br />
0 700 0 0<br />
701 3,100 20 140<br />
3,101 7,800 30 450<br />
7,801 - 35 840<br />
If taxable <strong>in</strong>come is paid to a non-resident, a 25% withhold<strong>in</strong>g tax must be<br />
deducted at source and remitted to the Inland Revenue Department with<strong>in</strong> 30<br />
days. Any tax withheld is credited to non resident tax payers <strong>in</strong> full aga<strong>in</strong>st their<br />
f<strong>in</strong>al tax liability for the year. This withhold<strong>in</strong>g tax does not apply to dividends<br />
paid out of previously taxed profits (see Investment <strong>in</strong>come section), to <strong>in</strong>come<br />
previously subject to withhold<strong>in</strong>g tax under the F<strong>in</strong>al Settlement System (FSS,<br />
see Tax fil<strong>in</strong>g and payment procedures section further on), or to <strong>in</strong>terest and<br />
royalties.<br />
Other taxes<br />
Wealth or net worth tax<br />
<strong>Malta</strong> does not impose wealth or net worth tax.<br />
Inheritance and gift taxes<br />
Stamp duty is imposed on heirs who <strong>in</strong>herit immovable property and shares. The<br />
rate of duty is 5% for immovable property and 2% for shares.<br />
<strong>Malta</strong> does not impose gift tax.<br />
Tax fil<strong>in</strong>g and payment procedures<br />
The assessment year (tax year) is the calendar year. For an assessment year,<br />
<strong>in</strong>come tax is imposed on <strong>in</strong>come earned <strong>in</strong> the preced<strong>in</strong>g calendar year (basis<br />
year).<br />
Individuals whose annual <strong>in</strong>come has all been subject to tax at source, such as<br />
employment <strong>in</strong>come, dividend <strong>in</strong>come, and <strong>in</strong>vestment <strong>in</strong>come, need not file an<br />
<strong>in</strong>come tax return but the Commissioner of Inland Revenue will issue a statement<br />
conta<strong>in</strong><strong>in</strong>g the tax due, if any, based on the <strong>in</strong>formation available to him.<br />
29
Individuals who have earned <strong>in</strong>come not subject to tax at source must submit an<br />
<strong>in</strong>come tax return together with the self-assessment and calculation of tax due<br />
by 30 June of the assessment year. Any tax due must also be paid by 30 June<br />
of the assessment year.<br />
Tax liability for employees is paid through the F<strong>in</strong>al Settlement System (FSS) of<br />
withhold<strong>in</strong>g on salaries and wages.<br />
Self-employed <strong>in</strong>dividuals must make advance payments of tax, known as<br />
provisional tax, <strong>in</strong> three <strong>in</strong>stalments on 30 April, 31 August and 21 December. The<br />
amount paid <strong>in</strong> the three <strong>in</strong>stalments collectively must equal the total tax liability<br />
reported <strong>in</strong> the last return submitted to the Commissioner of Inland Revenue.<br />
The Provisional tax payments are credited aga<strong>in</strong>st the total tax liability for the<br />
year <strong>in</strong> which they are paid. Heavy penalties are imposed for late submission<br />
of <strong>in</strong>come tax returns and for omissions of <strong>in</strong>come on which <strong>Malta</strong> tax is due.<br />
Interest at a monthly rate of 0.75% is imposed on late payments of tax.<br />
Double taxation relief<br />
Individuals resident <strong>in</strong> <strong>Malta</strong> may benefit from other forms of double tax relief,<br />
<strong>in</strong>clud<strong>in</strong>g Commonwealth <strong>in</strong>come tax relief and Unilateral relief. The flat rate<br />
foreign tax credit applies only to companies.<br />
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Tax treaties<br />
<strong>Malta</strong> has double tax treaties with the follow<strong>in</strong>g countries:<br />
Country<br />
Country<br />
Albania<br />
Australia<br />
Austria<br />
Barbados<br />
Belgium<br />
Bulgaria<br />
Canada<br />
Ch<strong>in</strong>a, P.R.<br />
Croatia<br />
Cyprus<br />
Czech Republic<br />
Denmark<br />
Egypt<br />
Estonia<br />
F<strong>in</strong>land<br />
France<br />
Germany<br />
Greece<br />
Hungary<br />
Iceland<br />
India<br />
Ireland<br />
Italy<br />
Korea, Rep. of<br />
Kuwait<br />
Latvia<br />
Lebanon<br />
Libya<br />
Lithuania<br />
Luxembourg<br />
Malaysia<br />
Montenegro<br />
Morocco<br />
Netherlands<br />
Norway<br />
Pakistan<br />
Poland<br />
Portugal<br />
Romania<br />
San Mar<strong>in</strong>o<br />
S<strong>in</strong>gapore<br />
Slovakia<br />
Slovenia<br />
South Africa<br />
Spa<strong>in</strong><br />
Sweden<br />
Syrian Arab Rep.<br />
Tunisia<br />
UAE<br />
United K<strong>in</strong>gdom<br />
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Tax treaties <strong>in</strong>itialed/signed but not yet <strong>in</strong> force <strong>in</strong>clude the follow<strong>in</strong>g:<br />
Country<br />
Bosnia & Herzegov<strong>in</strong>a<br />
Georgia<br />
Isla of Man<br />
Jordan<br />
Oman<br />
Qatar<br />
Russia<br />
Country<br />
Saudi Arabia<br />
Serbia<br />
Switzerland<br />
Thailand<br />
Turkey<br />
Ukra<strong>in</strong>e<br />
United States of America<br />
Most of <strong>Malta</strong>’s treaties are based on the OECD model.<br />
Once concluded, a tax treaty becomes law by M<strong>in</strong>isterial order and overrides any<br />
provisions to the contrary under Maltese domestic tax legislation.<br />
Double taxation relief is available <strong>in</strong> the terms of the relative tax treaty.<br />
Taxpayers satisfy<strong>in</strong>g the relevant conditions are entitled to double tax relief on<br />
<strong>in</strong>come aris<strong>in</strong>g outside of <strong>Malta</strong> that is <strong>in</strong>cluded <strong>in</strong> their taxable <strong>in</strong>come.<br />
Relief is granted <strong>in</strong> the form of a credit. In the absence of the tax treaty double<br />
taxation relief is still available under the unilateral relief provisions for foreign<br />
tax <strong>in</strong>curred on <strong>in</strong>come aris<strong>in</strong>g outside of <strong>Malta</strong>.<br />
Companies may, subject to certa<strong>in</strong> conditions, claim double taxation relief under<br />
the flat rate foreign tax credit <strong>in</strong>stead of other forms of double tax relief. This<br />
may be especially beneficial <strong>in</strong> those cases where the foreign <strong>in</strong>come has been<br />
exempt from tax or taxed at a reduced rate.<br />
Withhold<strong>in</strong>g taxes<br />
The normal treaty rate on dividends paid by Maltese companies is the company<br />
rate of tax of 35%. <strong>Malta</strong> operates a full imputation system on the dividends paid<br />
which means that the shareholder is eligible to a credit <strong>in</strong> respect of the tax paid<br />
by the company. As a result company profits are taxed only once and no further<br />
tax is payable by the shareholder on distributions.<br />
Under Maltese law dividends paid to non-residents are not subject to withhold<strong>in</strong>g<br />
tax. Interest and royalties paid to non-residents are exempt from tax <strong>in</strong> <strong>Malta</strong><br />
if they are not effectively connected with a permanent establishment <strong>in</strong> <strong>Malta</strong><br />
through which the non-residents engage <strong>in</strong> a trade or bus<strong>in</strong>ess. As a result of<br />
these rules, the withhold<strong>in</strong>g tax on dividends, <strong>in</strong>terest and royalties paid to<br />
residents of treaty and non treaty countries is 0%.<br />
32
No tax is payable by non-residents on capital ga<strong>in</strong>s tax aris<strong>in</strong>g on transfers of<br />
company shares or securities except where such ga<strong>in</strong>s result from the transfer of<br />
shares and securities of companies whose assets consist primarily of immovable<br />
property situated <strong>in</strong> <strong>Malta</strong>.<br />
33
Indirect taxation<br />
Indirect taxes <strong>in</strong> <strong>Malta</strong> <strong>in</strong>clude the follow<strong>in</strong>g:<br />
• Value added Tax (VAT) chargeable on supplies of goods and services<br />
made <strong>in</strong> <strong>Malta</strong> for a consideration <strong>in</strong> the course of bus<strong>in</strong>ess. The Maltese<br />
VAT system is fully harmonised with the EU VAT regime except for<br />
certa<strong>in</strong> derogations negotiated by <strong>Malta</strong> dur<strong>in</strong>g its accession process<br />
and which are <strong>in</strong>cluded <strong>in</strong> the Treaty of Accession. VAT is charged at the<br />
standard rate of 18%. Reduced rates of 5% or 0% apply <strong>in</strong> respect of<br />
certa<strong>in</strong> supplies;<br />
• Import duty levied on imports com<strong>in</strong>g from outside the EU. The rate of<br />
duty varies and depends on the type of product imported. Exemptions<br />
apply <strong>in</strong>clud<strong>in</strong>g exemptions on temporary importations;<br />
• Excise duty charged on manufactured tobacco, m<strong>in</strong>eral oils and alcohol<br />
produced or imported <strong>in</strong> <strong>Malta</strong>;<br />
• Stamp duty which is a duty on documents and transfer chargeable on<br />
a number of transfers and transactions <strong>in</strong>clud<strong>in</strong>g transfers of property,<br />
marketable securities, <strong>in</strong>surance policies and auction sales. Exemptions<br />
apply <strong>in</strong> the case of transfer of immovable property between group<br />
companies and transfer of shares <strong>in</strong> a restructur<strong>in</strong>g process with<strong>in</strong> a<br />
group;<br />
• Eco contribution tax levied on certa<strong>in</strong> imported and/or manufactured<br />
goods that result <strong>in</strong> waste. The contribution is calculated at different<br />
rates depend<strong>in</strong>g on the type of product and is payable by the importer or<br />
manufacturer of the goods concerned;<br />
• An oil bunker<strong>in</strong>g tax at a flat rate per metric tonne is charged on the<br />
bunker<strong>in</strong>g of certa<strong>in</strong> fuel oils used for ships and their mach<strong>in</strong>ery and<br />
supplied free from customs and other duties;<br />
• Motor vehicle registration tax charged upon the vehicles first registration<br />
<strong>in</strong> <strong>Malta</strong>. Rates of tax depend on a number of factors relat<strong>in</strong>g to the<br />
vehicle <strong>in</strong>clud<strong>in</strong>g the amount of CO 2 emissions, particulate matter, age<br />
and value.<br />
W<strong>in</strong>n<strong>in</strong>gs from gam<strong>in</strong>g are not subject to tax <strong>in</strong> the hands of the recipient. A<br />
gam<strong>in</strong>g tax however is chargeable on gam<strong>in</strong>g operators which require a licence<br />
from the Lotteries and Gam<strong>in</strong>g Authority (LGA).<br />
34
Invest<strong>in</strong>g <strong>in</strong> <strong>Malta</strong><br />
<strong>Malta</strong> is a prime location for foreign direct <strong>in</strong>vestment (FDI). The island’s<br />
accessibility, advanced communication systems, adequate and flexible labour<br />
supply, high work ethics, tax and fiscal <strong>in</strong>centives and political stability are but<br />
some of the ma<strong>in</strong> advantages.<br />
The World Investment Report 2008 lists <strong>Malta</strong> as 3rd worldwide on its <strong>in</strong>ward<br />
performance <strong>in</strong>dex and considers the country a front runner on <strong>in</strong>ward FDI<br />
performance and potential.<br />
<strong>Malta</strong> offers a highly competitive <strong>in</strong>vestment location for niche manufactur<strong>in</strong>g<br />
and services, particularly <strong>in</strong> the follow<strong>in</strong>g <strong>in</strong>dustries: generic pharmaceuticals<br />
(<strong>Malta</strong> adopted the Roche Bolar provisions <strong>in</strong> its patent legislation), medical, biotech,<br />
automotive, film, maritime services, contact centers, aviation services, e-<br />
bus<strong>in</strong>ess and iGam<strong>in</strong>g, back office services, electronics and software.<br />
<strong>Malta</strong> offers <strong>in</strong>vestors a comprehensive package of <strong>in</strong>centives under the new<br />
<strong>Malta</strong> Enterprise Act (MEA) and the <strong>Bus<strong>in</strong>ess</strong> Promotion Act. Incentives <strong>in</strong>clude<br />
soft loans, <strong>in</strong>vestment allowances, tra<strong>in</strong><strong>in</strong>g grants, tax <strong>in</strong>centives and the<br />
provision of ready built specialized factory space. There are specific <strong>in</strong>centives<br />
aimed at encourag<strong>in</strong>g activities <strong>in</strong> the growth targeted sectors that <strong>in</strong>clude:<br />
pharmaceuticals, plastics, biotechnology, electronics, electrical equipment and<br />
ICT enabled. Special <strong>in</strong>centives have recently been launched for firms engag<strong>in</strong>g<br />
<strong>in</strong> research and development (R&D) activities.<br />
The grant<strong>in</strong>g of these <strong>in</strong>centives is subject to the approval of the <strong>Malta</strong> Enterprise<br />
Corporation, an autonomous government agency. In apprais<strong>in</strong>g a proposal<br />
the follow<strong>in</strong>g factors are considered: viability, processes, amount of capital<br />
<strong>in</strong>vestment, sources of f<strong>in</strong>ance and employment to be generated.<br />
The island is committed to bolster its f<strong>in</strong>ancial services sector and has a declared<br />
target for the sector to contribute 25% (from the current 12%) of the GDP by<br />
2015.<br />
In summary <strong>Malta</strong>’s ma<strong>in</strong> fiscal advantages <strong>in</strong>clude the follow<strong>in</strong>g:<br />
• does not levy any withhold<strong>in</strong>g taxes;<br />
• has no th<strong>in</strong> capitalisation rules or debt-to-equity ratios;<br />
• has no specific transfer pric<strong>in</strong>g rules;<br />
• has no capital duty and wealth taxes;<br />
• has no stamp duty on share transfers <strong>in</strong> companies owned by nonresidents;<br />
35
• non residents are exempt from any capital ga<strong>in</strong>s on certa<strong>in</strong> share<br />
transfers;<br />
• has an extensive treaty network with fifty treaties <strong>in</strong> force and a number<br />
of other treaties <strong>in</strong> the process of ratification;<br />
• as an EU Member State <strong>Malta</strong> has adopted the EU’s Parent-Subsidiary<br />
Directive and the Interest and Royalties Directive;<br />
• under the cont<strong>in</strong>uation (re-domiciliation) provisions it is possible to<br />
migrate companies <strong>in</strong>to and out of <strong>Malta</strong> without the need of w<strong>in</strong>d<strong>in</strong>g<br />
up;<br />
• no exchange control regulations and bus<strong>in</strong>ess may be conducted freely<br />
<strong>in</strong> any currency;<br />
• <strong>Malta</strong>’s f<strong>in</strong>ancial services legislation and tax laws are compliant with EU<br />
directives;<br />
• has strong and effective anti-Money Launder<strong>in</strong>g Laws and Regulations <strong>in</strong><br />
l<strong>in</strong>e with the pert<strong>in</strong>ent EU directives;<br />
• <strong>Malta</strong>’s legislation offers regulated professional trustees which may<br />
provide fiduciary and trust services;<br />
• provides local companies with passport<strong>in</strong>g rights to other EU and EEA<br />
areas mak<strong>in</strong>g it an attractive location for captive <strong>in</strong>surance and fund<br />
management firms.<br />
36
Employment<br />
<strong>Malta</strong>’s greatest asset is its resourceful, competent and energetic workforce.<br />
The island’s labour force that amounts to around 165,000, is renowned for its<br />
marked ability to learn and adapt itself to new techniques.<br />
Education is compulsory <strong>in</strong> <strong>Malta</strong> up to the age of 16 years.<br />
Labour legislation<br />
The Employment and Industrial Relations Act is the ma<strong>in</strong> law that regulates<br />
employer and employee relations and deals with conditions of employment,<br />
contracts of employment or service and organisation of workers and employers.<br />
The Act contemplates two ma<strong>in</strong> types of contract of employment or service<br />
namely <strong>in</strong>def<strong>in</strong>ite and def<strong>in</strong>ite contracts. The latter would stipulate employment<br />
for a def<strong>in</strong>ed period of time. If an employee with a def<strong>in</strong>ite contract of employment<br />
rema<strong>in</strong>s <strong>in</strong> employment <strong>in</strong> the same position for more than four years than his/<br />
her contract of employment automatically becomes an <strong>in</strong>def<strong>in</strong>ite contract of<br />
employment.<br />
The first six months of every contract of employment or service is deemed to be<br />
a probationary period unless the parties concerned agree on a shorter period. In<br />
the case of technical, executive and managerial grades where salaries are more<br />
than double the m<strong>in</strong>imum wage the probationary period is of 12 months unless<br />
agreed otherwise.<br />
The law provides for 24 days of vacation leave. Maternity leave for female<br />
employees on full time employment is of 14 weeks. The law also provides for<br />
up to three months unpaid parental leave <strong>in</strong> the case of birth, adoption or legal<br />
custody of a m<strong>in</strong>or.<br />
As from 1st January 2010 the national m<strong>in</strong>imum wage per week is 3152.30.<br />
Employers must also pay annual statutory bonuses amount<strong>in</strong>g to 3512.46 to<br />
every full time employee or a pro rata amount <strong>in</strong> the case of part time employees<br />
that work at least 20 hours per week. Every employer is obliged to <strong>in</strong>crease<br />
wages and salaries by an annual cost of liv<strong>in</strong>g <strong>in</strong>crease (COLA) as determ<strong>in</strong>ed by<br />
Government on the basis of movement <strong>in</strong> the retail price <strong>in</strong>dex.<br />
There are Fr<strong>in</strong>ge Benefit rules regulat<strong>in</strong>g the taxation of fr<strong>in</strong>ge benefits and other<br />
perks that may be given to employees. Fr<strong>in</strong>ge benefits would normally <strong>in</strong>clude<br />
free or subsidised meals, transport, health <strong>in</strong>surance, lodg<strong>in</strong>gs, telephone bills<br />
and use of a company car. The rules provide for the valuation of the taxable<br />
amounts aris<strong>in</strong>g from these benefits.<br />
Other labour related legislation <strong>in</strong>cludes The Employment and Tra<strong>in</strong><strong>in</strong>g Services<br />
Act which regulates tra<strong>in</strong><strong>in</strong>g schemes and apprenticeship and The Occupational<br />
Health and Safety Authority Act which deals with health and safety at the<br />
37
workplace and holds the employers responsible to grant protection aga<strong>in</strong>st risks<br />
and accidents at work.<br />
EU Directives related to employment have been transposed <strong>in</strong>to Maltese Law.<br />
Unions<br />
Workers are not obliged to jo<strong>in</strong> a trade union; nevertheless more than a third of<br />
<strong>Malta</strong>’s total work force is unionised. Local legislation gives unions wide latitude<br />
of immunity for <strong>in</strong>dustrial action result<strong>in</strong>g out of trade disputes. Despite this<br />
<strong>in</strong>dustrial disputes are not common <strong>in</strong> <strong>Malta</strong>. When the majority of a company’s<br />
workforce jo<strong>in</strong>s a union collective barga<strong>in</strong><strong>in</strong>g is done and agreements reached<br />
between employers and unions are b<strong>in</strong>d<strong>in</strong>g at law. Professional and managerial<br />
grades are normally not unionised and are regulated by <strong>in</strong>dividual contracts of<br />
service.<br />
Social security<br />
Contributions<br />
All employees qualify for a retirement pension under the Social Security Act<br />
based on their <strong>in</strong>dividual social security contributions. All employed and selfemployed<br />
<strong>in</strong>dividuals must pay social security contributions. Employers pay<br />
social security contribution at a rate of 10% of the basic wage paid to their<br />
employees, subject to a maximum amount of 332.91 per week per employee.<br />
Employees pay another 10% of basic wages, subject to the same maximum.<br />
The employer deducts this amount before provid<strong>in</strong>g the net payment to the<br />
employee. The maximum contribution for persons under 18 years of age earn<strong>in</strong>g<br />
the m<strong>in</strong>imum wage is 36.62 per week. The employer must remit the amount due<br />
to the Commissioner of Inland Revenue by the end of the follow<strong>in</strong>g month <strong>in</strong><br />
which the wages or salaries are paid.<br />
For self-employed <strong>in</strong>dividuals, the contribution payable is 15% of their earn<strong>in</strong>gs<br />
or <strong>in</strong>come subject to m<strong>in</strong>imum and maximum rates of 326.37 and 349.37 per<br />
week respectively.<br />
Coverage<br />
Maltese citizens receive free hospitalisation services and f<strong>in</strong>ancial aid benefits<br />
for unemployment, illness, work <strong>in</strong>jury, disability, old age, early retirement,<br />
marriage, maternity, children, widowhood and medical care. All employees<br />
who pay a m<strong>in</strong>imum level of social security contributions are entitled to a basic<br />
pension on retirement.<br />
At present the Maltese pensions system is be<strong>in</strong>g reformed through the pensions<br />
Reform Act XIX of 2006 to make the system more susta<strong>in</strong>able <strong>in</strong> view of the<br />
<strong>in</strong>creas<strong>in</strong>gly aged population. Pensionable age has <strong>in</strong>creased from 61 (60 <strong>in</strong><br />
case of females) to 65 for all those born after 1st January 1962. The reform Act<br />
38
provides for the establishment of second and third pillar pension systems, that<br />
is, a mandatory second pension and a voluntary third pension. However the rules<br />
govern<strong>in</strong>g the application of these pensions have still not been made out.<br />
Term<strong>in</strong>ation of employment<br />
If a def<strong>in</strong>ite contract of employment is term<strong>in</strong>ated by either the employer or<br />
employee before the term of the contract without good and sufficient cause<br />
then the term<strong>in</strong>at<strong>in</strong>g party is liable to pay the other party half of the salaries<br />
that would have been due <strong>in</strong> respect of the unexpired period. In the case of an<br />
<strong>in</strong>def<strong>in</strong>ite contract of employment an employee may term<strong>in</strong>ate the contract at<br />
any time without provid<strong>in</strong>g any reason; however he/she must give a notice of<br />
term<strong>in</strong>ation rang<strong>in</strong>g from 1 to 12 weeks depend<strong>in</strong>g on how long the person has<br />
been <strong>in</strong> employment. An employer can only term<strong>in</strong>ate an <strong>in</strong>def<strong>in</strong>ite contract of<br />
employment if it is still <strong>in</strong> the probationary period or <strong>in</strong> cases of redundancy or<br />
a good and sufficient cause. Notice periods apply <strong>in</strong> all cases and depend on the<br />
duration of the employment. If the employer fails to give the required notice<br />
period, than the employer is liable to pay the employee the full wages for the<br />
notice period.<br />
Employment of foreigners<br />
Foreigners, whether EU citizens or otherwise, require a work permit. These are<br />
normally issued <strong>in</strong> those cases where the skills, qualifications and experience<br />
required could not be sourced locally. Applications for work permits are made by<br />
the prospective employer.<br />
In the case of EU citizen the work permit is normally a formality and is processed<br />
with<strong>in</strong> a couple of weeks. Work permits <strong>in</strong> other cases usually take longer to<br />
process. Each application is considered on a case by case basis.<br />
39
Account<strong>in</strong>g and audit requirements<br />
The Companies Act requires every company to keep proper account<strong>in</strong>g records<br />
that expla<strong>in</strong> its transactions and facilitate the preparation of f<strong>in</strong>ancial statements.<br />
The records of accounts are usually kept at the registered office or some other<br />
office as decided by the directors of the company. If account<strong>in</strong>g records are<br />
kept outside of <strong>Malta</strong> than f<strong>in</strong>ancial statements and returns must be sent and<br />
kept at a place <strong>in</strong> <strong>Malta</strong>. These f<strong>in</strong>ancial statements and returns must disclose<br />
with reasonable accuracy the f<strong>in</strong>ancial position of the company at <strong>in</strong>tervals not<br />
exceed<strong>in</strong>g six months.<br />
The directors of the company are obliged to furnish the shareholders with a set<br />
of f<strong>in</strong>ancial statements on an annual basis. These f<strong>in</strong>ancial statements are to<br />
comprise the balance sheet as at the last day of the account<strong>in</strong>g period to which<br />
they refer, the profit and loss account for that period, the notes to the accounts<br />
and any other f<strong>in</strong>ancial statements which may be required by generally accepted<br />
account<strong>in</strong>g pr<strong>in</strong>ciples.<br />
Generally accepted account<strong>in</strong>g pr<strong>in</strong>ciples and practice mean:<br />
(a) for f<strong>in</strong>ancial report<strong>in</strong>g periods commenc<strong>in</strong>g on or before 31 December<br />
2007, adherence to <strong>International</strong> F<strong>in</strong>ancial Report<strong>in</strong>g Standards (IFRS);<br />
and<br />
(b) for f<strong>in</strong>ancial report<strong>in</strong>g periods commenc<strong>in</strong>g on or after 1 January<br />
2008, adherence to IFRS as adopted by the European Commission<br />
<strong>in</strong> accordance with the provisions set out <strong>in</strong> Article 3 of Account<strong>in</strong>g<br />
Regulation 1606/2002; and<br />
(c) for entities that meet the relevant eligibility criteria, compliance may<br />
also be achieved by adherence to General Account<strong>in</strong>g Pr<strong>in</strong>ciples for<br />
Smaller Entities (GAPSE), which may be applied by a qualify<strong>in</strong>g entity for<br />
f<strong>in</strong>ancial report<strong>in</strong>g periods end<strong>in</strong>g on or after 1 January 2009. GAPSE<br />
may be applied by entities not exceed<strong>in</strong>g any one of the follow<strong>in</strong>g for a<br />
consecutive two-year roll<strong>in</strong>g period:<br />
• Revenue (annualised): 335 million<br />
• Total assets: 317.5 million<br />
• Average number of employees: 250.<br />
A different set of thresholds apply to state-owned entities.<br />
The GAPSE account<strong>in</strong>g framework provides for a number of measurement<br />
simplifications and disclosure relaxations when compared to IFRS as adopted<br />
by the EU.<br />
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Audit of f<strong>in</strong>ancial statements<br />
Every company <strong>in</strong>corporated <strong>in</strong> <strong>Malta</strong> is required to appo<strong>in</strong>t <strong>in</strong>dependent auditors<br />
that are registered with the local Accountancy Board and hold a certificate to<br />
practice as auditors. Auditors <strong>in</strong> <strong>Malta</strong> must follow the <strong>International</strong> Standards<br />
of Audit<strong>in</strong>g (ISA) issued by the <strong>International</strong> Federation of Accountants (IFAC).<br />
Auditors are required to report to the shareholders on every set of f<strong>in</strong>ancial<br />
statements furnished at a company’s annual general meet<strong>in</strong>g.<br />
The auditor’s report must state whether, <strong>in</strong> the auditor’s op<strong>in</strong>ion, the accounts<br />
have been properly prepared <strong>in</strong> accordance with the Companies Act and IFRSs<br />
as adopted by the EU, or GAPSE, as applicable, and whether these accounts give<br />
a true and fair view of the affairs and results of the company.<br />
With the exception of the company’s <strong>in</strong>itial auditors who may be appo<strong>in</strong>ted by<br />
the directors, auditors are appo<strong>in</strong>ted at the Annual General Meet<strong>in</strong>g (AGM) to<br />
serve until the next AGM.<br />
Auditors are entitled to attend all general meet<strong>in</strong>gs of the shareholders and to<br />
receive all notices of and other communications relat<strong>in</strong>g to any general meet<strong>in</strong>g<br />
that a shareholder is entitled to receive.<br />
Companies are required to file with the Registrar of Companies a copy of<br />
the annual f<strong>in</strong>ancial statements presented at the AGM and of the directors’<br />
and auditors’ reports thereon with<strong>in</strong> 42 days from the end of the period for<br />
submitt<strong>in</strong>g annual f<strong>in</strong>ancial statements to the general meet<strong>in</strong>g. Such periods are<br />
normally ten months after the end of the relevant account<strong>in</strong>g reference period<br />
for private companies, and seven months after the end of that period for public<br />
companies.<br />
Abridged accounts<br />
Companies that qualify as small accord<strong>in</strong>g to provisions <strong>in</strong>cluded <strong>in</strong> the Companies<br />
Act may also opt to fulfil the requirement to file annual f<strong>in</strong>ancial statements to<br />
the Registrar by fil<strong>in</strong>g abridged accounts. Such accounts are prepared by the<br />
directors from the full set of f<strong>in</strong>ancial statements described above, and must<br />
be accompanied by a special auditor’s report to the directors stat<strong>in</strong>g whether<br />
<strong>in</strong> their op<strong>in</strong>ion the company is entitled to those exemptions as claimed <strong>in</strong><br />
the directors’ statements, and whether the documents to be proposed to be<br />
delivered are properly prepared. The orig<strong>in</strong>al auditor’s report to the members<br />
must also be <strong>in</strong>cluded.<br />
Abridged accounts do not signify adherence to a separate report<strong>in</strong>g framework.<br />
Nonetheless, the disclosures required, which are specified <strong>in</strong> the Companies’ Act,<br />
are much less onerous, particularly with regard to the profit and loss account,<br />
the explanatory notes and the dispensation from the requirement to present a<br />
statement of cash flows.<br />
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Generally, abridged accounts may be drawn up by small companies that on<br />
their balance sheet date do not exceed the limits of two of the follow<strong>in</strong>g three<br />
criteria:<br />
• Total assets: 32.56 million<br />
• Turnover: 35.12 million<br />
• Average number of employees: 50.<br />
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About <strong>RSM</strong> <strong>Malta</strong><br />
Our vision<br />
“To be the partner for success to active grow<strong>in</strong>g enterprises”<br />
We want to help our clients and staff fulfill their aspirations.<br />
Achiev<strong>in</strong>g our vision requires the highest levels of passion, performance and<br />
professionalism.<br />
Our vision for the future is supported by an <strong>in</strong>tegrated set of core values and<br />
bus<strong>in</strong>ess pr<strong>in</strong>ciples.<br />
Our values<br />
Integrity – We call it as we see it. We strive to give straightforward advice based<br />
solely on our desire to see the client succeed<br />
Trust – We commit ourselves to establish long – term relationships by earn<strong>in</strong>g<br />
our client’s firm belief <strong>in</strong> our honesty<br />
Car<strong>in</strong>g – We understand our clients concerns and the relationship that leads to<br />
their success<br />
Competence - We seek to achieve and ma<strong>in</strong>ta<strong>in</strong> abilities to provide solutions by<br />
hav<strong>in</strong>g <strong>in</strong> – depth knowledge<br />
Cont<strong>in</strong>ual Learn<strong>in</strong>g – We work hard to keep our knowledge current and to keep<br />
abreast of developments<br />
Our staff<br />
The difference is our people<br />
Our people have a certa<strong>in</strong> energy and noticeable enthusiasm for what they do.<br />
The firm employs professionals with backgrounds <strong>in</strong> f<strong>in</strong>ance, taxation, corporate<br />
law and <strong>in</strong>formation technology.<br />
Our staff knows how to build strong work<strong>in</strong>g relationships with clients and is<br />
tra<strong>in</strong>ed and experienced to provide objective guidance and help clients to<br />
succeed.<br />
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We value and reward the shar<strong>in</strong>g of knowledge <strong>in</strong> the firm, giv<strong>in</strong>g our staff<br />
the opportunity to leverage their skills <strong>in</strong> a successful way. In turn, our clients<br />
benefit, as we help them harness the power of knowledge <strong>in</strong> their own entities<br />
– driv<strong>in</strong>g towards performance improvement.<br />
Our services<br />
We have specialists <strong>in</strong> the different service l<strong>in</strong>es that we provide to ensure that<br />
our clients are gett<strong>in</strong>g the best possible advice and practical solutions to enable<br />
them to succeed.<br />
Our firm provides the follow<strong>in</strong>g services :<br />
Assurance<br />
• F<strong>in</strong>ancial Statements Audit<br />
• IFRS Report<strong>in</strong>g<br />
• Internal Audit<br />
• Reviews and Agreed Upon Procedures<br />
• F<strong>in</strong>ancial Due Diligence<br />
• IT Audit<br />
<strong>Bus<strong>in</strong>ess</strong> advisory<br />
• <strong>Bus<strong>in</strong>ess</strong> Valuations<br />
• Merger and Acquisitions<br />
• Project and Corporate F<strong>in</strong>ance<br />
• Modell<strong>in</strong>g and <strong>Bus<strong>in</strong>ess</strong> Plann<strong>in</strong>g<br />
• Feasibility Studies<br />
Tax and corporate<br />
• <strong>International</strong> Tax Plann<strong>in</strong>g and Restructur<strong>in</strong>g<br />
• Compliance and Consult<strong>in</strong>g<br />
• Tax Litigation<br />
• Company Formation and Fiduciary Services<br />
• Company Management and Adm<strong>in</strong>istration<br />
• Company Secretarial Services<br />
• Liquidation<br />
Back office and IT<br />
• Account<strong>in</strong>g<br />
• Payroll<br />
• Completion of Statutory Returns<br />
• IT Strategic Plann<strong>in</strong>g<br />
• IT Effectiveness<br />
INTEGRITY • TRUST • CARING • COMPETENCE • CONTINUAL LEARNING<br />
44
<strong>RSM</strong> <strong>Malta</strong><br />
Cobalt House, Level 2, Notabile Road,<br />
Mriehel BKR 3000, <strong>Malta</strong>.<br />
T (+356) 2149 3313 F (+356) 2149 3318<br />
E <strong>in</strong>fo@rsmmalta.com.mt<br />
www.rsmmalta.com.mt<br />
<strong>International</strong> contact partner: Maria Micallef<br />
E maria.micallef@rsmmalta.com.mt<br />
The firm is a member of <strong>RSM</strong> <strong>International</strong> one of the largest network of <strong>in</strong>dependent account<strong>in</strong>g and consult<strong>in</strong>g firms each of<br />
which is <strong>in</strong>dependently owned and managed and practices <strong>in</strong> its own right. <strong>RSM</strong> <strong>International</strong> does not exist <strong>in</strong> any jurisdiction<br />
as a separate legal entity. The network is adm<strong>in</strong>istered by <strong>RSM</strong> <strong>International</strong> Limited, a company registered <strong>in</strong> England and Wales<br />
whose registered office is at 11 Old Jewry, London EC2R 8DU. Intellectual property rights used by members of the network <strong>in</strong>clud<strong>in</strong>g<br />
the trademark <strong>RSM</strong> are owned by <strong>RSM</strong> <strong>International</strong> Association, an association governed by articles 60 et seq of the Civil Code of<br />
Switzerland whose seat is <strong>in</strong> Zug.