Malta, officially the Republic of Malta, is an archipelago of islands in the Mediterranean Sea lying 80 km south of Sicily and 333 km north of Libya. Malta is composed of three major islands – Malta, Gozo and Comino – as well as some minor uninhabited islands, which together cover just over 316 sq km. It has a population of 446,547 (2013), making it one of the world’s smallest and most densely populated countries. The capital of Malta is Valletta, which is the smallest capital in the European Union. Malta has two official languages – Maltese and English.
Malta’s location has given it great strategic importance as a naval base throughout history. Great Britain formally acquired possession of Malta in 1814. It gained independence from the UK in 1964 and became a republic in 1974. Malta was admitted to the European Union in 2004 and became part of the Euro zone in 2008. Over the last 20 years, the island has become a major freight shipping hub, financial centre and tourist destination.
Malta has a written Constitution based on the British Westminster model that has been adopted in many other states forming part of the British Commonwealth. It incorporates the basic constitutional framework adopted by the UK, but with a single legislature. General elections, based on proportional representation, are held at least once every five years. Responsibility for government lies in a Cabinet of Ministers led by the Prime Minister. The head of state is the President who is elected by parliament.
Malta follows what is usually referred to as the European model of private law. English common law does not apply but its influence is string in much of local commercial practice and regulation, especially in company law and in insurance and banking law, which closely follow English practice.
Most recent legislation, including the various financial services laws adopted in 1994 owes a debt to English legislation. Substantial parts of the Companies Act represent a simplified version of the English Companies Act of 1985, including most of the provisions dealing with the Limited Liability Company, accounting and insolvency. In 1988, Malta also introduced the English common law concept of trust. The legislation relating to trusts was subsequently revised in 2006. Since becoming a member of the EU in 2004, Malta has been adopting all European Directives.
Since 1988, Malta has been establishing a comprehensive legislative and regulatory framework for financial services activities and international business. The Malta Financial Services Authority (MFSA”) is the single licensing and supervisory authority for all financial services activity. Effective regulation, passporting rights to the entire European market and strong investor safeguards are amongst the principal pillars that have helped increase Malta’s role as a financial centre.
A Maltese incorporated company is considered to be ordinarily resident and domiciled in Malta and is subject to Maltese tax on its worldwide income at the nominal rate of 35%. However, upon certain conditions being met, the shareholder of a Maltese company could be entitled to certain tax credits and refunds of all or part of the tax paid by the company on its profits. Through the application of this refund mechanism, the combined overall tax burden in Malta can be reduced to between 0% and 10%.
Double taxation is relieved through the full imputation system. Malta also applies the participation exemption in respect of dividend income or capital gains received from a qualifying subsidiary and any overseas tax suffered by a Malta company is generally eligible for relief against the Malta tax liability arising on the corresponding source of income.
Upon distribution of dividends from profits allocated to foreign income or Maltese tax, a registered shareholder is entitled to claim a refund of the Maltese corporate tax on those profits. The tax refund normally amounts to 6/7ths of the imputed tax credit on the dividend, although this may be reduced to 5/7ths when the dividend is paid out of passive interest and royalties. The tax refund is revised to 2/3rds where the company has claimed double taxation relief. In cases where the company opted to pay tax on dividends received from, and gains realised on, the transfer of participating holdings and subject to meeting certain conditions, a full refund of the underlying Malta tax applies.
In order to encourage the growth of international trade including that of financial services, successive Maltese governments have sought to conclude double tax treaties with important trading partners as well as with emerging countries. To date, treaties are in force with over 70 countries and this policy is expected to continue in the future.
The Malta Financial Services Authority (MFSA) – www.mfsa.com.mt
FinanceMalta – www.financemalta.org
Malta Ministry for Finance – www.mfin.gov.mt