Malta has been obliged to dismantle its old "offshore" companies regime as a trade-off for joining the European Union. EU membership has, however, brought about certain benefits for Maltese companies trading across borders, and, coupled with investment-friendly government policies and some interesting tax planning opportunities, Malta remains one of the most favourable places in the EU in which to locate an international holding company.
Malta is a politically stable parliamentary democracy and has been a member of the European Union (EU) since May, 2004, adopting the euro in 2008. Unlike Cyprus, island-nation in the EU, Malta has survived the financial crisis and the Eurozone troubles relatively unscathed. Having exited the EU's excessive deficit procedure programme in December 2012, Malta has been able to cut taxes recently, in contrast with many of its neighbours in the region.
The Maltese Income Tax Act as amended governs company taxation. The rate of income tax is 35 percent on chargeable income (certain types of company benefit from lower rates). Malta imposes income tax on the world-wide income of companies resident in the country; this includes all companies incorporated or registered under any Maltese law if they are ordinarily resident, and any foreign company which is managed and controlled from Malta. The definition of income includes capital gains, but there is no separate capital gains tax as such. However, capital losses can only be relieved against capital gains, so the distinction is preserved within the tax computation. Local-source income and foreign-source income are also treated separately within the computation; Maltese companies with foreign income maintain a Foreign Income Account for this purpose.
Although low-tax offshore company forms are now no longer available to foreign investors in Malta, there remain a number of tax and other benefits to locating a holding company in the islands. These include a fairly comprehensive network of double taxation agreements with almost 70 countries, a flat income tax rate of 15 percent on remittances by permanent residents and no municipal taxes. There are also opportunities under the Maltese tax system to substantially reduce corporate tax liability.
Shareholders of Malta holding companies qualify for a full refund of the Maltese tax paid by the company on profits and gains arising from "participating holdings" when such profits are distributed. From January 1, 2008, Malta holding companies also qualify for a participation exemption subject to anti-abuse provisions introduced from the same date. For a Maltese resident company to hold a "participating holding" in a company incorporated abroad, it must hold at least 10 percent of the equity shares in the non-resident company. To qualify for the participation exemption, the foreign subsidiary must satisfy one of three criteria: be resident in the EU; be subject to foreign tax of at least 15 percent; and not derive more than 50 percent of its income from passive income.
By virtue of Malta's tax imputation system, when dividends are paid by trading companies to the shareholders, these shareholders are entitled to claim refunds of 6/7ths of the Malta tax paid by the company, resulting in an effective Maltese tax rate of 5 percent. Distributions made from profits derived from passive income such as interest and royalties, entitle the shareholder to claim 5/7ths of the tax paid by the company.
Furthermore, as from 2012, royalty income derived from copyright-protected books, film scripts, music and art is exempt from tax.
Malta has double tax treaties in force with 70 countries, including France, Germany, Ireland, Italy, the Netherlands, Russia, the United Kingdom and the United States.
Malta has adopted all standards and requirements applying in the EU relating to exchange of information such as those required under the EU Administrative Cooperation Directive. Malta is also a party to the Multilateral Convention on Mutual Assistance in Tax Matters.
Under the OECD Common Reporting Standard (CRS) and the related EU directive on exchange of tax information Maltese banks and other financial institutions are required to collect financial account information on non-residents and report this to Malta's Inland Revenue. However, Malta has extended the deadline for submitting 2016 reports under the CRS from April 30, 2017, to June 30, 2017.
Malta signed an intergovernmental agreement (IGA) with the United States on the implementation of the Foreign Account Tax Compliance Act (FATCA) on December 16, 2013. The IGA requires financial institutions in both Malta and the US to submit certain information about their clients to their own tax authorities, which in turn will automatically share such information with the other tax authority.
Malta has also signed the OECD's Multilateral Competent Authority Agreement for the automatic exchange of country-by-country (CbC) reports.
The Agreement, signed by Malta in January 2017, provides for signatories to automatically exchange CbC reports multilaterally, as proposed by base erosion and profit shifting Action 13. The OECD said this will help ensure that tax administrations obtain a complete understanding of how multinationals structure their operations, while also ensuring that the confidentiality of such information is safeguarded.
Country-by-country reporting requires multinational enterprises to provide aggregate information annually, in each jurisdiction where they do business, relating to the global allocation of income and taxes paid, together with other indicators of the location of economic activity within the MNE group. It will also cover information about which entities do business in a particular jurisdiction and the business activities each entity engages in.
Malta's financial services system continued to expand in terms of size, reputation, and attractiveness in 2015, according to the latest Annual Report of the Malta Financial Services Authority.
The Authority said the growth was "backed by a resilient regulatory framework, prudential supervision, consumer protection, and strong money laundering prevention mechanisms."
The bulk of new licenses issued by the Authority in 2015 were in the area of payment services, electronic money, and alternative investment management sectors.
Malta Financial Services Authority Chairman, Joe Bannister, said that while "the world economy stumbled in 2015 [...] it was a different story in Malta where the economy experienced impressive growth, with financial services playing an important role in that. The Malta Financial Services Authority ensured good governance but also underwent major internal restructuring to make it future proof. This was a year in which the Malta Financial Services Authority continued to strengthen the regulatory and supervisory regime. It was a year of robustness and results."
In the autumn of 2000 the Maltese government passed legislation enabling online betting centres to be set up in the country, and this legislation, coupled with provisions from the Income Tax Act written specifically for international companies, made Malta an attractive location for casino and sportsbook operations. Malta became the first EU member state to regulate internet gaming in May 2004 with its Remote Gaming Regulations under the Lotteries and Other Games Act 2001.
The e-gaming industry in Malta is regulated by the Lotteries and Gaming Authority (LGA), which was established in 2002 and is responsible for the governance of all gaming activities in Malta including casino gaming, commercial bingo games, commercial communication games, remote gaming, sports betting, the National Lottery and non-profit games. According to its mission statement, the Authority's role is to ensure that "gaming is fair and transparent to the players, preventing crime, corruption and money laundering and by protecting minor and vulnerable players."
In 2002, the LGA put together the legislative framework for a new licensing regime encompassing online casinos, sports betting, betting exchanges and lotteries, which came into effect in early 2003. Said the Authority: "This framework has the objective of providing regulation which is strong and serious but not unnecessarily bureaucratic, ensuring vigorous protection for users of online gaming, and dovetailing with Malta's long-established and reputable financial services sector."
There are four classes of licence available to operators in Malta, as follows:
Online gaming companies are also subject to a special tax regime, and the amount due depends on the type of license held. Class 1 license holders pay EUR4,660 for the first six months, then EUR7,000 per month thereafter; Class 2 firms involved in fixed odds betting pay a 0.5 percent tax on the gross amount of bets accepted; Class 3 license holders pay a 5 percent tax on real income; and Class 4 license holders pay no tax in the first six months of operations, then EUR2,330 per month for the following six months, and EUR4,460 per month thereafter. The maximum amount of tax payable annually in respect of any one license is EUR466,000.
Malta's heavy investment in the remote gambling sector and the infrastructure upon which it depends has certainly paid off. Since the Lotteries and Other Games Act 2001 was put in place, the number of licensed operators has grown from 12 to almost 250 holding over 400 licenses in 2014. In total, these companies employ over 5,000 people in Malta, with a further 3,000 in the servicing industry including telecom operators, data center operators, lawyers, auditors, and banking and payment institution staff. Having grown year-on-year, the industry constituted approximately 12% of the country's gross domestic product in 2014.
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