EC Welcomes Changes To Offshore Trading Company Tax Regime In Malta

by Ulrika Lomas, for LawAndTax-News.com, Brussels

16 May 2006

The European Commission last week welcomed the notification by the Maltese Government that it has formally decided to gradually abolish the existing aid schemes providing selective fiscal advantages in favour of International Trading Companies (ITC) and Companies with Foreign Income (CFI), by the end of 2010 at the latest.

Malta’s acceptance of the Commission's recommendation of 22nd March 2006 renders the abolition of the schemes legally binding, and will put an end to these long-lasting preferential regimes in Malta. The Commission found that the schemes violated the EC Treaty’s ban on state aid liable to distort competition.

Competition Commissioner Neelie Kroes announced on Friday:

“I welcome the abolition of Malta’s preferential regimes as a further important step towards eliminating selective tax incentives that significantly distort the location of business activities in the Single Market”.

Malta’s acceptance of the EC recommendation means that:

• The existing ITC and CFI schemes will be effectively abolished by 1st January 2007 at the latest;
• By the same date a new refundable tax credit system may be enacted by Malta provided that it does not effectively favour foreign-owned companies over domestic-owned companies;
• The tax status of ITC is prohibited to any new company registered in Malta after 31st December 2006;
• The existing ITC shall benefit from the current system only until 31st December 2010; and
• The number of newly created ITCs between the date of acceptance of the appropriate measures and 31st December 2006 will be limited to the yearly average number of ITC companies created in the last five years.

According to the Commission, Malta’s unconditional implementation of these measures will eliminate the distortion of competition by the end of 2010 and progressively reduce the existing distortion by capping the number of new beneficiaries, eliminating all new beneficiaries after 31 December 2006, and reducing the tax benefits the existing beneficiaries enjoy after that date.

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