Transcript Malta - Regional B2B Networking Event for SMEs

Thursday 19 May 2011
Internationalisation and Business Continuation
through a Strategic Location
Reuben M Buttigieg
Unlocking the Potential
Regional B2B Networking Event for SMEs
Erremme Business Advisors
113B Paola Road Tarxien Malta Europe
T: (+356) 2166 1273 | F: (+356) 2166 3253| E: [email protected]
Internationalisation and Business Continuation
through a Strategic Location
AGENDA
o
Economic Factors
o
Malta as a Historic Trading Hub
o
Use of Malta by Companies – Types
o
Main Reasons for Setting up in Malta
o
Malta as a Financial Services Centre
o
Tax Regime Overview
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Internationalisation and Business Continuation
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Main Highlights
Economic Factors
Gross Domestic Product (GDP)
“After having contracted by 3.4% in real terms in 2009, the economy expanded at a faster rate of 3.7% in 2010.
After having rebounded strongly in 2010, real GDP growth is projected to ease in 2011, before picking up again
in 2012. In both years growth is expected to be driven mainly by final domestic demand, though net exports
are also set to contribute positively.” Central Bank of Malta Annual Report 2010
GDP for 2010 was €6,245.8 million.
Inflation Rates
March 2011 Retail Price Index:
March 2011 Harmonised Index of Consumer Prices:
1.99% (National Statistics Office)
2.5% (National Statistics Office)
Unemployment Rate
In March 2011, there was a total of registered unemployed of 6,662 (National Statistics Office). In November
2009, the unemployment rate was of 5%, and in November 2010, this figure decreased to 4.3%.
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Some of Malta’s Credentials
Global Financial Services Index, City of London, 2008:
o Fourth place as the Centre most likely to increase in importance in the next few years
o Fifth place as the Centre where most organisations are likely to begin new operations
World Economic Forum’s Global Competitiveness Report 2009-2010
o Thirteenth soundest banking sector
o Fifteenth most effective stock market regulation
o Twelfth strongest auditing and reporting standards
o Thirteenth position with respect to market sophistication
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Internationalisation and Business Continuation
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Historically a Trade Hub
o
Malta’s strategic location made it a trading point from the arrival of the Phoenicians in c.1000 BC, through the
Roman and Byzantine Empire, the Arabs and Spanish, the Knights of St. John, French and English up to
nowadays. Throughout this time span, several ports and trading settlements were founded.
o
Having been a British colony for 160 years, during this era Malta relied on the services offered to British armed
and naval forces. For this reason, the Maltese economy became to be called a ‘fortress economy.’ Almost the
entire Maltese population depended on the British for employment, during times of war employment would
boom. Times of peace led to a rise in unemployment.
o
Malta’s reputation as a trading point grew with the opening of the Suez Canal, used by ships refueling en route
to British India. The importance of Malta as a trading hub grew substantially particularly under British rule.
Malta gained independence in 1964.
o
Following this, Malta established itself as a low-cost manufacturing open economy. Privatisation of
Government-owed enterprises defined the dawning of a new era. In 1989, Malta embarked upon a project to
establish a financial services sector.
o
Malta became a member of the European Economic Area and in subsequent years of the European Union.
Malta’s modern economy has become sustainable, depending mostly on tourism and financial services. Malta
has become an attraction for high-value services, among others, in maritime, aviation and ICT industries.
o
Presently, given the North African situation, Malta has become a humanitarian hub.
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Malta - Used by Large to Small Companies
o ST Microelectronics
o HSBC
o Lufthansa Tecknik
o Carlo Gavazzi
o Tekom Investments
o Palumbo Malta Shipyard (Family company)
o Various German small companies (test base economy)
o Components industry
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Internationalisation and Business Continuation
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Main Reasons for Setting up in Malta
Internationalisation: Malta is a gateway to Europe, North Africa and the Middle East.
International Tax Planning Hub
International Financial Service Centre
Cost Effective Reputable Centre
Can do Attitude
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Internationalisation and Business Continuation
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Malta as a Financial Services Centre
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“Our tried-and-tested methods of doing business,
coupled with our high standards of vigilance and robust
regulatory framework have been key to keeping the
Maltese financial system and the wider economy as a
whole on a steady course.”
The Hon. Mr Tonio Fenech, Minister of Finance, the Economy and Investment
Key note speaker during the Malta Islamic Finance Conference 2010
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Malta as a Financial Services Centre
o Financial Services currently contribute approximately 12% to Malta’s Gross Domestic Product. Government’s
‘Vision 2015’ is aimed at increasing this figure to 25%.’
o Malta boasts of highly-qualified professionals, hard-working and ambitious, in the financial services industry.
Most have sought international experience in a specialised field of financial services, therefore bringing together
an array of multicultural business ideals.
o Malta has now established itself as an onshore financial centre in line with EU legislation and Directives.
o Malta reached an advanced accord with the Organisation for Economic Cooperation and Development (OECD)
on fiscal matters. This means that Malta is no longer regarded as a tax haven.
o Malta has a network of over fifty Double Tax Treaties with countries in its attempt to encourage business with
these other countries.
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The Regulatory Framework
o The Malta Financial Services Authority (MFSA) is the sole regulatory body monitoring and supervising the
financial services industry in Malta. The MFSA regulates banking, insurance, securities, retirement funds and
trusts. It works to prevent money laundering and market abuse. It has also established a Consumer Complaints
Unit.
o Within the MFSA is housed the Registry of Companies. This Authority was established by means of the
Companies Act (1995) and is charged with the duty of ensuring that companies comply with the provisions of
this Act. It also maintains a public registry of these entities where all related documents are kept and are
available to the general public.
o Prior to establishment of the MFSA, the Central Bank of Malta (CBM) was the financial regulator, established in
1967. Today, the CBM’s main responsibility is to maintain price stability. It is also a participant in the decisionmaking process of the Eurosystem’s monetary policy.
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Banking
o Malta was classified in the thirteenth place for financial market sophistication by the World Economic Forum’s
Global Competitive Report 2009-2010. Its banking system was also ranked as thirteenth soundest in the world.
o There are currently twenty-three credit institutions with assets of over 40 billion Euro in 2009 (MFSA Annual
Report 2009). Twenty are foreign-owned whilst three are majority Maltese-owned. Thirteen credit institutions
are from EU countries.
o Malta-based banks are in possession of state-of-the-art technology.
o The MFSA strongly encourages e-money institutions.
o Passporting to other EU countries is also available to banks registered in Malta.
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Collective Investment Schemes (1)
o Malta has rapidly established itself as a fund jurisdiction, with the required legislative and regulatory
framework, to provide for an efficient and effective way of registering and administering the operations of
funds.
o Despite the economic slowdown, the fund industry in Malta has experienced an increase in funds during 2009.
o Funds in Malta may be established as:
1. Retail collective investment schemes (CISs), which are further divided into UCITS and non-UCITS
2. Professional Investor Funds (PIFs)
Fund schemes registered in Malta (MFSA Annual Report 2009):
Type of Fund
PIF
2009
285
UCITS (including sub-funds)
45
Non-UCITS (including sub-funds)
36
Foreign Schemes
26
Total
392
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Collective Investment Schemes (2)
o The Investment Services Act (ISA) in Malta provides the statutory basis for the licensing and regulation of
persons and companies wishing to set up investment services undertaking and collective investment schemes.
o The MFSA enforces ISA by requiring persons and companies interested of undertaking such business to acquire a
licence.
o CIS structures include SICAVs, non-prescribed mutual funds, unit trusts and limited partnerships.
o For tax purposes, CISs are divided into two: prescribed and non-prescribed funds.
o Prescribed funds are Malta-based, having assets invested wholly (85% or more) in Malta. These schemes are
subject to the standard corporate tax rate of 35%.
o Non-prescribed funds are funds which do not hold more than 15% of total assets in Malta. These type of funds
are tax exempt.
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Professional Investor Funds
Benefits of setting up a professional investor fund (PIF) in Malta:
o Efficient and less regulated financial services regime;
o Low cost to set-up;
o Non-bureaucratic licensing process;
o Professional management; and
o Advantageous and competitive tax regime.
PIFs are targeted at three categories of investors:
1. Experienced investors – requiring minimum investment of 10,000 EUR
2. Qualifying investors – requiring minimum investment of 75,000 EUR
3. Extraordinary investors – requiring minimum investment of 750,000 EUR
As shown in the table on page y, there is a larger amount of PIFs when compared with CISs, this is particularly due
to the unregulated environment in which they operate.
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Redomiciliation of Offshore Funds to Malta (1)
o The Continuation of Companies is the law by which funds can be redomiciled to Malta. The word ‘continuation’
has been used by the MFSA to emphasise the fact that companies need not liquidate their assets in order to redomicile to Malta.
o The ISA is the applicable law by which investment services providers align their conduct and the products they
sell.
o A CIS licence application is required to be submitted to the MFSA, with all documentation and the applicable
licence fees.
o The MFSA will conduct due diligence with the regulator of the foreign company.
o The MFSA will examine draft documentation and comments are passed on to the promoter of the foreign
company.
o If any pending issues are resolved, if all documentation required is in order and if a sufficient receipt from its
due diligence satisfies the MFSA, an ‘in principle’ authorisation is granted.
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Redomiciliation of Offshore Funds to Malta (2)
o Following this in principle approval, the promoters of the foreign company can begin finalising the
documentation required by the MFSA and the Registrar of Companies.
o Once the Registrar verifies that documents submitted in order, the company is given a provisional certificate of
registration.
o The Authorisations Unit of the MFSA liaises with the Registrar of Companies, if both are satisfied with the
receipt, the scheme is licenced on the date of redomicilation to Malta.
o The company can start operation in Malta.
o Within six months of the issue of the provisional certificate, the company must submit documentary evidence
to the satisfaction of the Registrar that it has been struck off the home registrar.
o The registrar will then issue a certificate of continuation.
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Internationalisation and Business Continuation
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Capital Markets
o The Malta Stock Exchange (MSE), established in 1992, has seen an increase in listings over the past 18 years.
o The MSE has sought to take full advantage of all opportunities being offered by the Markets in Financial
Instruments Directive (MiFID).
o Potential untapped market for generation of funds. All listings over subscribed even in crisis moment.
o Potential market for tapping larger markets
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Maltese Trusts (1)
o Malta has well-enacted trusts law that is mainly based on Jersey trusts law. Being mainly a predominantly civil
law jurisdiction, Malta also has a civil code which regulates fiduciary obligations.
o The types of trusts that can be set up in Malta include:
• Discretionary and fixed interest trusts;
• Accumulation and maintenance trusts;
• Oral trusts;
• Resulting trusts;
• Unilateral trusts; and
• Charitable trusts.
o Trusts are taxed at the standard rate of 35%.
o Trusts in Malta are mainly being used for estate and tax planning, asset protection and risk management.
o Trusts have also been used in Malta for commercially, e.g. CIS unit trust.
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Maltese Trusts (2): Benefits
o Confidentiality
• Trusts are not registered with any public authority… unlike a will, contract or company statute.
o Continuity
• A Trust can be created during the lifetime of the settlor and continue to exist after the settlor’s death… long
term planning.
o Longevity
• Trust may continue for up to 100 years from date of existence… wealth protection.
o Flexibility
• Ways of arranging property for the benefit of other people without giving them full control … and structured
to meet clients’ specific needs.
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Maltese Trusts (3): Uses
o Estate Planning
o Inheritance and succession tax planning
o Wealth preservation and asset protection from third parties
o Consolidating ownership of assets owned in various countries in one jurisdiction
o High level of flexibility and confidentiality
o Charitable trusts
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Maltese Trusts (4): Why choose a Maltese trust?
Apart from:
o Sound domestic legislation based on Anglo-Saxon principles and legislation on trusts and equity;
o Recognition by Maltese Courts of Private Law and recognition by Hague Convention; and
o Highly regulated services regime supervised by the Malta Financial Services Authority.
Malta also offers:
o Political and economic stability;
o Geographic position and multi-lingual officials;
o Malta’s high degree of professional, licensed Trustee Services providers, legal and support services; and
o Cost incurred in settling and administering a Trust in Malta is significantly lower than in other countries.
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Insurance
o According to the MFSA Annual Report 2009, the number of insurance companies increased from eight in 2004,
servicing the local market, to forty-five insurance companies servicing twenty-seven EU countries, in 2009.
o There is a large number of insurance agents, brokers and managers in Malta. Therefore, it is possible to
subcontract management to locally authorised professionals.
o The MFSA has made necessary arrangements required to prepare insurance companies to be ready for Solvency
II implementation. This was done through the issuance of a series guidance papers highlighting and explaining
the key elements on Solvency II.
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Reinsurance, Captives, Protected and Incorporated Cell Companies
o Malta is an attractive domicile for companies intending on setting up their insurance subsidiary in Malta to
insure against their risks originating with shareholders or connected undertakings or entities. Reinsuring
insuring companies may also take follow this form.
o Captives, referred to as Affiliated Insurance Companies, are allowed to benefit from Malta’s double tax treaties:
unilateral relief, the flat-rate foreign tax credit and the two-thirds tax refund to non-resident shareholders.
o Malta is the only EU member state with enacted protected cell company (PCC ) legislation. This is convenient for
insurance companies wishing to operate in Malta, under the PCC’s management and within the PCC’s capital
requirements.
o Each cell has assets and liabilities which are ring-fenced from one another. Only recently, Malta has enacted
Incorporated Cell Company legislation (ICC). The structure is very similar to that of the PCC, with the significant
difference that the cells of the ICC are legal persons.
o Setting up a captive in Malta through a cell is also possible and cost-effective.
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Shipping, Maritime and Aviation
o Malta is one of the world’s largest shipping registries. Insofar that at the end of 2009, there were over 5,200
ships registered under the Maltese flag.
o Malta has developed legislation which is both in line with EU Directives, as well as tighter registration criteria.
This, with the intent of enhancing Malta’s reputation as an international ship register.
o Malta has also become an attractive register of superyachts, as superyacht owners may benefit from the
favourable tax regime (such as VAT for those used commercially), Malta’s favourable location, as well as the costeffective services offered to such vessels.
o Malta is also attempting to replicate its aviation sector as its shipping. The Aircraft Registration Act, which came
into force in October 2010, provides major incentives for owners of private and commercial aircraft.
o The presence of international maintenance, repair and overhaul companies, Lufthansa Technik and SR Technic,
allows aircraft to receive cost-effective services.
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Tax Regime Overview
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Malta Companies
o Any Malta Company registered on or after 1 January 2007 may carry out international activities whether
‘trading’ or ‘holding’ in nature.
o Tax treatment would depend on the allocation of income to the different tax accounts depending on its nature
and source.
o The fixed tax accounts are the:
1.
2.
3.
4.
5.
Final Tax Account;
Immovable Property Account;
Foreign Income Account;
Maltese Taxed Account; and the
Untaxed Account.
o The current income tax rate applicable to Malta Companies is 35%.
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Dividend Income and Capital Gains (1)
o A Malta Company in receipt of dividends deriving from a participating holding or capital gains from the disposal
of such holding may, at its option, have this income treated in any one of the following manners:
• Apply the participation exemption whereby the dividends or capital gains received by the Malta
Company are exempt from tax in Malta;
OR
• Declare the income or gains as part of its chargeable income and pay tax thereon, at the rate of 35%.
Upon a distribution of a dividend by the Malta Company, its shareholder may claim a full refund
(100%) of the Malta tax suffered on such dividends.
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Dividend Income and Capital Gains (2)
Definition of Participating Holding
1.
A holding of at least 10% of the equity; or
2.
Shareholder entitled to call for and acquire balance of equity; or
3.
Shareholder entitled to “first refusal” in case of disposal of shares by others; or
4.
A holding which entitles shareholders to a seat on the Board of Directors; or
5.
Minimum investment of Euro 1,165,000 – but holding for uninterrupted period of 183 days; or
6.
Any shareholding in furtherance of “own business” – not held as trading stock.
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Dividend Income and Capital Gains (3)
A participating holding may also exist where the Malta Company has a holding in a body of persons constituted,
incorporated or registered outside Malta, which is not resident in Malta, and is of a nature similar to partnership en
commandite, the capital of which is not divided into shares.
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Dividend Income and Capital Gains (4)
Participation
Full Refund
Exemption
Company Level
Euro
Euro
1,000
1,000
0
350
1,000
650
1,000
1,000
Malta Tax Suffered at Company Level
0
350
Refund of Malta Tax Suffered at Company Level
0
350
Dividends/Capital Gains from Participating Holding
Malta Tax Suffered
Profits Distributed as Dividends
Shareholder Level
Gross Dividends Received
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Anti-Abuse Provisions (1)
In order for a Malta Company to apply the participation exemption or for the shareholder to claim a full refund of
tax, in respect of dividends received from a participating holding acquired on or after 1 January 2007, further
conditions may need to be satisfied as set out below. This means that where a Malta Company holds a participating
holding in a ‘foreign body of persons,’ in order to apply the participation exemption/full refund, one of the
following three criteria should be met:
1.
The ‘foreign body of persons’ is resident or incorporated within EU territory; or
2.
The ‘foreign body of persons’ is subject to any foreign tax at a rate of at least 15%; or
3.
Less than 50% of the income of the ‘foreign body of persons’ is derived from passive interest or royalties.
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Anti-Abuse Provisions (2)
Where none of the three
aforesaid criteria are met:
Two further conditions would need to be satisfied for the participation exemption/full
refund system to apply:-
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Anti-Abuse Provisions (3)
The holding by the Malta Company must NOT be a portfolio investment;
AND
The foreign body of persons or its passive interest or royalties must have been subject to any foreign tax at the rate
of at least 5%.
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Passive Interest or Royalty Income (1)
“Passive interest or royalties” is defined as:
o Interest or royalty income which is not derived, directly or indirectly, from a trade or business;
o Where such interest or royalties have not suffered, or suffered any foreign tax, directly, by way of withholding or
otherwise, at a rate of tax which is less than 5%.
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Passive Interest or Royalty Income (2)
Where the Malta Company’s income constitute “passive interest or royalties,” the shareholder(s) of the Malta
Company may:
Claim a refund of 5/7ths of the Malta tax suffered at company level on this income.
Applicable dividends distributed from the Foreign Income Account only where the Malta Company has not claimed
double taxation relief.
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Passive Interest or Royalty Income (3)
Euro
Profit before Tax
1,000
Malta Tax Suffered at 35%
350
Profits Distributed as Dividends
650
Shareholder Level
Gross Dividends Received
1,000
Malta Tax Suffered at Company Level
350
Refund (5/7ths) of Malta Tax Suffered at Company Level
250
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Trading Income
Where the Malta Company’s income arises from trading activities (where trade is widely interpreted to include
both actual buying and selling of goods, and also the provision of services), the shareholder(s) of the Malta
Company may:
o Claim a refund of 6/7ths of the Malta tax suffered at company level on this income.
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Elimination of Double Taxation (1)
1.
Malta has over 50 Double Taxation Treaties (DTTs) with countries
•
Mainly follow the OECD model;
•
New DTT’s are continuously sought.
2.
Unilateral Relief – virtual DTT with the entire world
•
Any overseas taxes allowed as credit against the income tax chargeable in Malta subject to proof of tax
at source.
3.
Flat Rate Foreign Tax Credit (FRFTC)
•
25% “deemed” tax allowed as credit against Malta tax.
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Elimination of Double Taxation (2): List of DTTs
List of DTTs:
Albania
Australia
Austria
Barbados
Belgium
Bulgaria
India
Ireland
Isle of Man
Italy
Jersey
Jordan
Qatar
Romania
San Marino
Serbia
Slovakia
Slovenia
Canada
China
Croatia
Cyprus
Czech Republic
Denmark
Egypt
Korea
Kuwait
Latvia
Lebanon
Libya
Lithuania
Luxembourg
South Africa
Spain
Sweden
Switzerland
Syria
Tunisia
United Arab Emirates
Estonia
Finland
France
Georgia
Germany
Greece
Hungary
Iceland
Malaysia
United Kingdom
Montenegro
United States of America
Morocco
The Netherlands
Norway
Pakistan
Poland
Portugal
Erremme Business Advisors
113B Paola Road Tarxien Malta Europe T: (+356) 2166 1273 | F: (+356) 2166 3253 | E: [email protected]
40
Internationalisation and Business Continuation
through a Strategic Location
Elimination of Double Taxation (3): the Flat Rate Foreign Tax Credit
o In the absence of evidence of tax at source…
o Malta will deem all income to have suffered tax at source…
o … and allows a credit for such deemed tax against Malta tax.
FRFTC
Company Level
Net Foreign Income
Deemed Tax - 25% of Net Foreign Income
Gross Income
Euro
800
200
1,000
Tax Rate at 35%
Credit for Deemed Foreign Tax
Tax Payable in Malta
350
(200)
150
Profits Distributed at Dividends
650
Shareholder Level
Gross Dividends Received
800
Malta Tax Suffered at Company Level
150
Refund (2/3rds) of Malta Tax Suffered at Company Level
100
Erremme Business Advisors
113B Paola Road Tarxien Malta Europe T: (+356) 2166 1273 | F: (+356) 2166 3253 | E: [email protected]
41
Internationalisation and Business Continuation
through a Strategic Location
Elimination of Double Taxation (4)
o Where double taxation relief is claimed by the Malta Company on income allocated to the Foreign Income
Account (FIA), then…
o The shareholder may, following receipt of dividends from the FIA, claim a refund of 2/3rds(*) of the tax suffered
at company level.
Company Level
Net Tax Paid by the Malta Company
Treaty
Relief
Euro
30
Unilateral
Relief
Euro
50
FRFTC
20
33.33
100
Shareholder Level
Refund of tax suffered at company level
Euro
150
(*) Where the participation exemption/full refund (100%) system does not apply.
Erremme Business Advisors
113B Paola Road Tarxien Malta Europe T: (+356) 2166 1273 | F: (+356) 2166 3253 | E: [email protected]
42
Internationalisation and Business Continuation
through a Strategic Location
SUMMARY
EUROPE
Pro-business environment
and economic factors
Maltese Tax Regime
Incentives and
Opportunities
BUSINESS
Shipping Hub
Robust regulatory
framework
International Tax Planning
Possibilities
Banking
Access to quality
Financial Services
MIDDLE
EAST
Investment Services
Capital Markets
Trusts
N. AFRICA
Insurance
Erremme Business Advisors
113B Paola Road Tarxien Malta Europe T: (+356) 2166 1273 | F: (+356) 2166 3253 | E: [email protected]
43
Internationalisation and Business Continuation
through a Strategic Location
Contact Details
Reuben M Buttigieg
M.B.A. (Warwick), F.C.C.A., M.I.M.
Managing Director
E-mail address:
[email protected]
Office telephone number:
+356 2166 1273
Mobile phone number:
+356 7929 7389
Erremme Business Advisors
113B Paola Road Tarxien Malta Europe T: (+356) 2166 1273 | F: (+356) 2166 3253 | E: [email protected]