Doing business in 2016

In association with: Contents

Introduction ...... 3

– Country profile...... 4

Legal overview ...... 5

Conducting business in Malta ...... 9

Tax system ...... 11

Labour ...... 18

Audit ...... 21

Trade ...... 23

Finance ...... 25

Infrastructure ...... 27

This Guide has been prepared jointly by HSBC Bank Malta p.l.c. and Grant Thornton for the purposes of providing a high-level general overview of the business environment in Malta for the information of businesses who may be interested in transacting or investing in Malta. Any transaction or investment in Malta, however, should only be undertaken based on professional advice specific to such transaction or investment. 2 Introduction This guide to doing business in Malta will provide foreign investors with an insight into the key aspects of undertaking business and investing in Malta. The country’s geographical location, modern infrastructure and skilled and flexible labour supply make it especially attractive for overseas investors. Furthermore, Malta is a safe investment environment and provides a number of incentives to encourage and assist investors.

Malta’s GDP is highly dependent Alongside a number of government • High standard of living incentives for investment, Malta on foreign , manufacturing • Widespread use of English and tourism. The economy also offers the following competitive language and, to a lesser extent, possesses a growing services advantages for investors: other languages sector which includes a strong financial services division. Malta • A safe investment environment experienced continuous economic • A strategic geographical location, While this guide makes reference to growth following its accession to the ideally placed to approach both some of the most common issues EU in 2004 and, before the financial the European and North African investors might face, it must be crisis, was one of the fastest markets noted that certain industries, such growing economies in the Eurozone. • A stable political environment as the financial services sector, However, as many countries, it • Highly regarded education system are subject to special regulation experienced a period of contracted and therefore companies wishing growth in 2009. Malta’s economy • A well-established economic to invest in this area should seek fared better than many within the environment, highly credited for Eurozone and has had growth in its growing strength in financial legal advice. services every year since the crisis. This is expected to continue through 2016 • A strong legal system which is in The information in this publication is and 2017; the EU has predicted line with EU regulations current at January 2016 growth rates of 3.6 per cent and 3.2 • Highly educated and skilled per cent, respectively. workforce

3 Country profile

Capital City Valletta

Area 316 sq. km

Population 425,799

Language Maltese and English

Currency Euro

International dialling code + 356

National Holidays 2016 1 January – New Year’s Day 10 February – Feast of St Paul’s Shipwreck 19 March – St Joseph 25 March – Good Friday 31 March – Freedom Day 1 May – Worker’s Day 7 June – Sette Giugno 29 June – Feast of St. Peter and St. Paul 15 August – Feast of the Assumption 8 September – Feast of Our Lady of Victories 21 September – Independence Day 8 December – Feast of the Immaculate Conception 13 December – Republic Day 25 December – Christmas Day

Business and Banking hours 08:30 to 17:30 hours

Stock exchanges

Political structure Republic and parliamentary system

Doing Business rank 2016 80

Ease of Doing Business

Topics 2016 rank 2015 rank Change in rank

Starting a business 132 129 -3

Licenses and Permits 83 77 -6

Getting Electricity 86 73 -13

Registering property 96 94 -2

Financing 174 171 -3

Protecting Investors 36 33 -3

Paying 25 25 No change

Trading Across Borders 39 39 No change

Enforcing Contracts 61 61 No change

Resolving Insolvency 83 83 No change

Source: World Bank Group (Doing Business)

4 Legal overview Political and legal system • Personal data is processed fairly Malta is a parliamentary democracy. and lawfully The parliament is the supreme • Personal data is always processed political power; the President is the in accordance with good practice Head of State. The government • Personal data is only collected is formed from the House of for specific, explicitly stated and Representatives by the political legitimate purposes party that wins the most seats in a general election. General • Personal data is not processed for elections are held at least once any purpose that is incompatible every five years. with that for which the information is collected Malta has been a member of the EU • Personal data that is processed is since May 2004. Malta is a member adequate and relevant in relation of the Eurozone and has therefore to the purposes of the processing adopted the single currency. Malta’s • No more personal data is external commercial policy in now processed than is necessary Malta’s external conducted primarily through the EU. having regard to the purposes of the processing commercial Maltese law is based on the civil-law • Personal data that is processed is pattern of Continental Europe, policy in now correct and up to date although most administrative, financial and fiscal legislation is • All reasonable measures are taken conducted based on British laws. There are to complete, correct, block or three judicial jurisdictions: civil, erase data to the extent that such primarily criminal and voluntary. There is one data is incomplete or incorrect, court of appeal for all jurisdictions having regard to the purposes for through the EU. and the Constitutional Court is which they are processed the ultimate competent court • Personal data is not kept for a for judgments on the conformity period longer than is necessary, of laws. having regard to the purposes for which they are processed Maltese law also includes European Union legislation. Some EU laws Companies must notify the Office of (Regulations) are automatically the Information and Data Protection applicable; others (Directives) have Commissioner if they are processing to be transposed into local law by personal data. This involves filing legislative authorities. certain information relating to the processing operations carried out by Data protection the data controller and paying a fee The right to privacy is established of EUR23.29 on an annual basis. in the . The enforcement of this right is Stronger legal protection is available facilitated by the protection of for more sensitive information data from abuse. Data protection such as ethnic background, political provisions can be found in the EU opinions, religious beliefs, health, Data Protection Directive and the sexual health and criminal records. Maltese Data Protection Act which was enacted in 2001. Businesses that fail to comply with these rules and principles can The Data Protection Directive and face enforcement action by the Malta Data Protection Act are based Office of the Information and Data on the following key principles: Protection Commissioner. A data

5 controller that is in breach of the Prevention of Money Laundering Act with the regulations may lead to data protection rules may be liable establishes the Financial Intelligence a fine of up to EUR50,000 and/or to an administrative fine by the Analysis Unit (FIAU). The FIAU imprisonment for up to two years. Commissioner of Data Protection, is responsible for the collection, an order to pay compensation to collation, processing, analysis and The legislation imposes a number the data subject or a criminal fine dissemination of information related of duties on ‘subject persons’, such or term of imprisonment. The to suspected money laundering or as identification and customer maximum administrative fine that terrorist financing. The FIAU also due diligence, internal record can be imposed is EUR23,300 for issues Implementing Procedures keeping, internal and external each violation with an additional which regulate Subject Persons reporting and appropriate employee EUR2,500 fine for each day that and which are enforceable as if training. ‘Subject persons’ must the violation continues. Criminal legislation. also designate a reporting officer penalties depend on the offence but who will decide whether any facts the maximum penalty is EUR23,300 Money laundering offences may reported to them raise a suspicion and/or a term of imprisonment of be committed by any person of money laundering. Furthermore, not more than six months. intentionally undertaking the all records and identities of business following activities: transactions carried out by ‘subject Businesses incorporated in Malta persons’ must be kept for a must comply with the EU data • Converting or transferring minimum of five years from the date property, with the knowledge protection regime which is currently that the activity was undertaken. that such property is derived from undergoing a major overhaul. The criminal activity or participation in proposed General Data Protection Intellectual Property Rights such activity, for the purpose of Regulation seeks to harmonise data In Malta and the EU, protection is concealing or disguising the origin protection laws across EU Member generally granted for registered, of the property or assisting a States. Although this legislation is and sometimes unregistered, person involved in criminal activity significantly more prescriptive than Intellectual Property Rights. These the current Directive (95/46 EC), • Concealing or disguising the include: patents, trademarks, the reforms are expected to clarify true nature, source, location, copyright and designs. the obligations in the processing disposition, movement, right over and monitoring of personal data or the ownership of property with In Malta, intellectual property matters regardless of the entity presence in the knowledge that such property are dealt with by the National is derived from criminal activity the EU. Intellectual Property Office of Malta • The acquisition, possession or use which manages the trademark, Money laundering regulations of property with the knowledge registered design and patent In Malta there are, at present, that such property is derived directorate. Malta is a member of no exchange control restrictions from criminal activity or any the Convention for the Protection affecting inward or outward participation therein of Industrial Property and also investment, the repatriation of • Retaining, without reasonable adheres to the World Intellectual income or capital, the holding of excuse, property knowing or Property Organisation and the Berne currency accounts or the settlement suspecting that such property is Convention for the Protection of of current trading transactions. derived or originated directly from Literary and Artistic Works. Nevertheless, there are strict money criminal activity laundering regulations. • Acting as an accomplice in any of In the EU, patents can be the above activities prosecuted through the European Malta’s anti-money laundering Patent Office in Munich (Germany). provisions can be found in the Any person found guilty of a money Community trademarks and Maltese Prevention of Money laundering offence is liable to a registered community designs in the Laundering Act and the Prevention maximum fine of EUR2,500,000 European Union are registered by of Money Laundering and Funding and/or a term of imprisonment for the Office for Harmonisation of the of Terrorism Regulations. The up to 18 years. Non-compliance Internal Market in Alicante (Spain).

6 COPYRIGHT

Copyright can protect: literary work, dramatic works, musical works, artistic works, layouts and typographical arrangements, recordings and broadcasts. Copyright works receive statutory protection automatically once they are placed in the public domain.

Protection Copyright is granted to eligible work automatically; there is no need for registration under Maltese granted law. Copyright does not protect ideas for work, it is only when the work itself is fixed that copyright automatically protects it. Copyright provides the owner with reproduction, distribution and performance rights. The law of copyright and its related rights in Malta can be found in the Copyright Act.

Infringement Copyright is infringed by any person who, without permission from the owner, reproduces, distributes or performs the material in question. There are two classes of infringement: primary and secondary. Primary relates to when a person performs any of the aforementioned acts. Secondary infringement is where someone distributes articles that have already breached copyright. Infringement can also be direct or indirect; the former is the imitation of the material in its original form and the latter is the copying of the work in a form that is easily recognisable from the original.

Duration For literary, musical or artistic works and databases – 70 years after the end of the year in which the author died, irrespective of the date when the work is lawfully made available to the public. For audio-visual works – 70 years after the end of the year in which the last of the following person dies: the principal director, the author of the screenplay, the author of the dialogue and the composer of music specifically created for use in the audio-visual work.

PATENTS

Patents protect inventions which can be applied in an industrial environment. For a patent to be granted, the invention must be new, have an inventive step which is not obvious to someone with experience in the subject and capable of being used in some kind of industry. Pure discoveries and scientific or mathematical formulae cannot be patented.

Protection A patent gives its owner the ability to take legal action to stop others from the making of a product granted or the use of a process, which is the subject-matter of the patent, selling anything incorporating the subject-matter of the patent or inducing third parties into any of the above, without the inventor’s permission.

Infringement Infringing a patent means manufacturing, using, selling or importing patented products or processes without the owner’s permission. It is not necessary to show that the infringer has knowledge of the patent protecting the invention for infringement to be made out. The infringer, on conviction, may be liable to a fine of not less than EUR232.94 and not more than EUR11,646.87.

Duration Design rights are protected for a period of five years from the date of filing of the application. The holder of a design right can renew the term for one or more periods of five years, up to a total term of 25 years from the date of filing.

European Patent Applying for a patent in Malta does not provide protection elsewhere in Europe. To protect a patent Convention in more than 30 countries in Europe, the application can be made using the European Patent Convention. This is processed as a single application, but once granted, a national patent will be granted in each of the EPC signatory countries. It is also possible to get international protection using the Patents Cooperation Treaty through the World Intellectual Property Organisation (WIPO).

7 TRADE MARKS

A trademark must be a sign capable of distinguishing goods and services of one undertaking from those of another undertaking. Those signs can be: words, personal names, figurative elements, letters, numerals or the shape of goods or their packaging.

Protection The owner can obtain protection in Malta by registering the trademark at the National IP Office or granted it can register a Community Trade Mark (CTM) that grants protection in all EU Member States. The proprietor of a registered trademark has exclusive rights in the trademark.

Infringement Some examples of infringement of a trademark are: • Using an identical or similar trademark for identical or similar goods and services to a registered trademark creating a likelihood of confusion on the part of the public • Where a mark has a reputation, infringement may arise from the use of the same or a similar mark which damages or takes unfair advantage of the registered mark It is a criminal offence for any person to make unauthorised use of a trademark. A person guilty of such an offence may be liable, on conviction, to a term of imprisonment not exceeding three years and/or to a fine of not more than EUR23,293.73. When an action for infringement is brought in the competent European jurisdiction, it is possible to obtain an injunction to avoid the use of the trademark in all EU Member States.

Duration 10 years (registration can be renewed for further periods of 10 years).

DESIGNS

A design is legally defined as being the “appearance of the whole or a part of a product resulting from the features of, in particular, the lines, contours, colours, shape, texture and, or materials of the product itself and, or its ornamentation”.

Protection Registering a design gives the owner a property right over the design; it is protected if the design granted in question is new and has individual character. Holding a design right provides the owner the exclusive right to use it and to prevent any third party using it without consent. The owner of a registered design cannot prohibit the use of a product that features the design if the product has been put on the market by themselves or if this was done with their consent.

Infringement A design right is infringed by an unauthorised person making an article exactly or substantially similar to the protected design or by making a design document for the purpose of making unauthorised copies.

Duration Once obtained, a design right is protected for a period of five years from the date of filing of the application. It can then be renewed for one or more periods of five years up to a total term of 25 years.

8 Conducting business in Malta Business entities required to continuously display the or ‘Limited’ or the abbreviation Any foreign company or individual following at its places of business: ‘Ltd’, while a public company must wanting to do business in Malta its name and the country in which be followed by ‘ Public Limited will need to decide under which it is incorporated. This information Company’ or ‘Plc’. form they want to operate. The must also be displayed in all types of business entities that an prospectuses inviting subscriptions A Limited Liability Company must organisation can choose are set out of its shares or debentures. have at least two members, unless in Malta’s Company Act of 1995. the company qualifies as a private This is principally based on English An overseas company is required exempt company, wherein it can be company law and is in conformity to comply with rules on financial incorporated as a single member with EU Directives. The various statements applicable to Maltese company. In order to qualify, a business entities available in Malta companies. Where the accounting private exempt company must: are described below. requirements of place of origination restrict the number of people differ from those of Malta, the holding debentures of the company Branch Registrar may accept the accounts, to a maximum of 50 and prohibit An overseas company can set up a providing that full details of the any corporate bodies from acting place of business without forming operations in Malta are delivered. as a director for the company. The a Maltese subsidiary by using the directors and shareholders of a branch form. A branch is not a Limited Liability Company Maltese company can be of any separate legal entity; the overseas Formation nationality. parent will therefore be directly Organisations wishing to set up business in Malta are permitted responsible for any liabilities incurred Once the documents are submitted, to use a Private Limited Liability by the Maltese establishment. the Registrar will register the Company or Public Limited Liability company and issue a certificate Company form. A qualifying Private Those wishing to set up a branch of registration; the company then Limited Liability Company may also in Malta must register with the comes into existence and is capable have the status of a private exempt Registrar as an overseas company of undertaking business. This usually company which is less strictly by delivering the following: takes a few days from the date of regulated but contains different submission; the cost ranges from provisions in the Memorandum and • An authentic copy of the EUR245 to EUR2,250 depending Articles of Association. instrument of constitution on the company’s authorised • Details of the directors and The process of formation for a share capital. A discounted secretary limited liability company in Malta rate for formation will apply if • A return containing: the name comprises the submission of the completed online. under which the branch is carrying Memorandum of Association out its activities if different and Articles of Association to the Capital requirement from the name of the overseas Registrar of Companies. These The authorised and issued share company, the local address of must be submitted alongside a bank capital of a private company cannot the branch, the activities carried deposit slip proving the deposit be less than EUR1,164.69, while out, the names and addresses of at least the amount of initial that of a public company cannot be of the individuals resident in paid-up capital into a bank account less than EUR46,587.47. When the Malta representing the company, titled “Company Name – Company authorised share capital is at the the extent of these individuals’ Formation”. minimum allowed, it must be fully responsibilities, the legal form subscribed in the Memorandum of of the overseas company, The company may adopt any name, Association. When it is more than the identity of the register in subject to approval by the Registrar the minimum, at least the minimum which the overseas company is of Companies. The Registrar may must be subscribed. registered and number with which reject a name that is offensive it is registered or too similar to that of another For private companies, at least company. The name of a private 20 per cent of the value of each A foreign entity with a Maltese company must be followed by the share must be paid upon the signing establishment will usually be words ‘Private Limited Company’ of the memorandum.

9 No less than 25 per cent of the Filing requirements Partnership en commandite nominal value of each share taken up Every company registered in Malta A Partnership en commandite is a must be paid on the signing of the must prepare an annual return to the partnership comprised of at least one memorandum for a public company. Registrar of Companies on the date unlimited (general) partner and other of the anniversary of registration. Constitution This must be signed by one of the limited partners. The firm has its The constitution of the company is set directors or by the company secretary obligations guaranteed by the unlimited out in the Memorandum of Association and include the following details: the and joint and several liability of one and Articles of Association. The registered office of the company, or more general partners and by the Memorandum of Association must a summary of share capital and limited liability of one or more limited contain the following information: debentures, a list of shareholders and partners. There has to be at least one certain information on directors. The • Whether the company is a public fee for the annual return is based on general partner and at least one limited company or a private company the authorised share capital of the partner. As for the Partnership en nom • The name and residence of each of company and ranges from EUR100 collectif, a deed of partnership must be the subscribers to EUR1,400. Companies can also drawn up and registered; this should choose to file returns online at a • The name of the company state which of the partners are general discounted rate. • The company’s registered office in partners and which are limited. The Malta Partnerships capital of a Partnership en commandite • The objects of the company Firms wishing to establish a may be divided into shares. • The amount of share capital with partnership in Malta have the option which the company proposes to of a Partnership en nom collectif or Re-domiciliation (continuation) be registered, the division thereof a Partnership en commandite. The of Companies into shares of a fixed amount, the fees to set up a partnership, alongside Under Maltese company law number of shares taken up by each annual return fees, are the same as of the subscribers and the amount (the Continuation of Companies those applicable to Limited Liability paid up in respect of each share and, Companies. Regulations), a company can relocate where the share capital is divided from a foreign jurisdiction to Malta, and into different classes of shares, the Partnership en nom collectif vice versa, without being wound up. rights attaching to the shares of each A Partnership en nom collectif is a class In order to qualify for re-domiciliation, partnership formed of two or more the company must be formed and • The number of the directors, the partners, whereby all partners have registered under the laws of an name and residence of the first unlimited and joint and several directors and, where any of the liability for the obligations of the firm, approved jurisdiction, must be similar directors are a corporate body, the not merely to the amount of their in nature to companies registered name and registered or principal contribution. Every Partnership en nom under the laws of Malta and the office of the corporate body; the collectif must have a registered office manner in which the representation process should be permissible under in Malta. of the company is to be exercised the laws of the country in which the and the name of the first person The partnership is formed by drawing company is currently registered. This or persons vested with such up a Deed of Partnership, which is does not create a new legal entity or representation then registered with the Registrar of affect the property of the company. • The name and residence of the first Companies and must include: the Once the request for continuation is company secretary or secretaries name and residence of each partner, submitted to, and accepted by, the • The period, if any, fixed for the the partnership’s name, the registered Registrar of Companies, the company duration of the company office of the partnership in Malta, • In respect of each shareholder, the objects of the partnership, the is treated as if it had been incorporated director and company secretary, the contribution of each of the partners in Malta. number of an official identification and the period, if relevant, fixed for the document should also be given duration of the partnership.

10 system Malta’s tax system follows certain are not taxable in Malta, providing aspects of the UK tax system these are not attributable to a and shares a number of common in principles. The main taxes in Malta of the non-resident person. the country are: , Where the non-resident person is Value Added Tax (VAT), on a company or other legal entity, the documents and other transfers, exemption will not apply if the entity duty and tax. is owned and controlled, directly or indirectly, or acts on behalf of an The key government departments individual or individuals ordinarily responsible for coordinating the resident and domiciled in Malta. tax system are the Department of Inland Revenue, the Value Added Every person or firm that is Tax Department and the Customs governed by Maltese law must A company is Department. register with the Inland Revenue and file an annual income tax return resident but Income Tax (including a self-assessment of their The primary laws governing income tax liability). Penalties exist for late not domiciled tax are the Income Tax Act and returns or omissions. Income Tax Management Act. in Malta if Malta has also adopted all EU Tax Corporate Income Tax Directives. Scope its central Maltese residents and domiciled Any person or company that resides companies are subject to management and is domiciled in Malta is liable for corporation tax on their worldwide tax on their world-wide income and income and capital gains. The and control is capital gains. There is no separate headline rate of corporation tax is income tax system for businesses. 35 per cent. Any person that is resident but in Malta but it not domiciled in Malta (and not a A company is resident and domiciled permanent resident in Malta), and in Malta if it has been incorporated is incorporated companies that are resident but in Malta or re-domiciled to Malta. not domiciled in Malta, pay tax on A company is resident but not in another foreign income remitted to Malta domiciled in Malta if its central (remittance basis). Additionally they management and control is in Malta country. pay income and capital gains arising but it is incorporated in another in Malta, excluding gains on capital country. If the company is a dual assets situated outside Malta even if proceeds are remitted to Malta. resident, the relevant may in some cases determine the Tax deductions are available for ultimate residence. expenses and outgoings wholly or exclusively incurred in the A company resident but not production of income including domiciled in Malta is taxed on the following items: expenses and income and gains arising in Malta outgoings, bad debts, leasing costs and foreign income remitted to (excluding leased motor vehicles), Malta. Foreign capital gains are not expenditure on scientific research, subject to taxation even if proceeds expenditure on patents and are remitted to Malta. intellectual property, expenditure on marketing and cost of emoluments. Malta has four types of relief for the elimination of : Interests, discounts, premiums or treaty relief, commonwealth relief, royalties received by a non-resident unilateral relief and flat rate foreign

11 . Malta has an extensive A Partnership en commandite with withholding shall be tax treaty network, most of which its capital divided into shares will be 10 per cent of the value of the are based on the OECD Model Tax treated as a company for income tax property transferred Convention. purposes. Partners will also have to • A two per cent withholding tax pay at a rate of two per applies on a transfer of property Some of the treaties include tax cent on transfers of their partnership that was, immediately before the incentives for foreign businesses interest; this rises to five per cent in transfer, owned by an individual, looking to set up manufacturing a number of specified cases. who declared that the property establishments in Malta. had been acquired for the purpose A subsidiary company incorporated of constructing their sole ordinary Companies must file their tax return in Malta will be taxed on its residence and the transfer is by the end of the ninth month after worldwide income. Trading through made no later than three years their accounting year end date. a branch situated in Malta incurs tax after the date of acquisition Where the accounting year end falls on the income generated in Malta • A five per cent final withholding between 1 January and 29 June and may mean that these profits are tax applies when it is a transfer of taxable in the territory of residence the return is to be filed by the 31 property situated in Valletta, that of the parent company as well. March of the calendar year following was acquired before 31 December the accounting date. Entities must 2018 and such property has been The choice between a Maltese make a number of provisional tax restored and/or rehabilitated subsidiary and a branch will often payments; on the 30 April, 31 after the date of acquisition, and depend on commercial issues, as August and 21 December. These on completion the works are well as tax considerations in the provisional payments are credited certified as satisfactory by the territory of residence of the overseas against their tax liability on their total Malta Environment and Planning company. Operating via a subsidiary income. Any outstanding payments Authority. The transfer of property is more common, not only are become payable on the tax due must be made no later than five date, being the return date. they easier to administer but they years from 31 December 2018 offer better litigation protection Preferred corporate structure and commercial advantages. Groups Overseas companies may Nevertheless, branches can Limited liability companies and trade in Malta through limited sometimes offer tax advantages, partnerships en commandite, with liability companies or branches. particularly if the operation is their capital divided into shares, are Partnerships are sometimes used, expected to be loss-making in the treated as separate legal entities particularly in joint venture situations start-up period. for tax purposes, responsible for or with professional partnerships. their own returns and payments. While partnerships possess a Capital gains The Income Tax Act contains separate legal entity, they are not With effect from 1 January 2015, provisions allowing Maltese resident generally treated as companies for the systems was, companies to form a group for tax Maltese income tax purposes. The with minor exceptions, fully replaced purposes. This is permitted when partnership income is therefore by the tax on property transfer one company is more than 50 per deemed to be the income of the system. The new final withholding cent the subsidiary of another or partners, in proportion to their tax will be eight per cent on the two companies are both more than respective interest. value of the property transferred. 50 per cent subsidiaries of another There are four exceptions, as company. All companies must be Nevertheless, any partnership follows: resident in Malta. or European Economic Interest Grouping (EEIG) shall be entitled • In the case of individuals who Group relief provides for the off-set to make an application in writing do not carry on the business of of certain current year tax profits to be treated as a company for all property trading, the applicable and losses within a group. However, purposes of the Income Tax Acts. final withholding tax rate shall capital losses do not qualify for Such an application shall be made be five per cent if the property is group relief. on such form and under such transferred less than five years conditions as may be prescribed and after the date of its acquisition Capital assets can be transferred shall be effected not later than sixty • In the case of properties acquired within a group without incurring days after the date of setting up of by any person (individuals and any tax. In this case a group can the partnership or EEIG as the case companies) before 1 January be defined as above or where may be. 2004, the applicable final two companies are controlled

12 and owned directly or indirectly Careful consideration should be • Payment to non-resident by more than 50 per cent of given to the implications of this for entertainers – 10 per cent final the same shareholders. Where losses arising prior to the change. withholding tax the capital asset transferred • Payments to non-resident persons consists of immovable property Dividend income other than companies – 25 per in Malta or shares in a company The taxation of dividends depends cent which owns or has real interest on the tax account out of which the in immovable property in Malta, distribution is made. Companies • Investment income – 15 per cent the exemption only applies if the must allocate their distributable final withholding tax companies involved are owned profits to the ‘final tax account’, • Part-time employment income – to the same extent by the same ‘immovable property account’, 15 per cent ultimate beneficial owners, saving ‘foreign income account’, ‘the • Transfers of immovable property – a percentage variation of 20. This Maltese taxed account’ or the eight per cent on the value of the exempted gain will be subject to a ‘untaxed account’. property transferred, subject to claw back provision if the transferee certain exceptions company leaves the group within Typically, dividends from the ‘final six years of the transfer (degrouping tax account’, ‘immovable property Malta does not generally charge). This is providing that the account’, ‘foreign income account’ impose any withholding taxes assets transferred were immovable and ‘Maltese taxed account’ are on interest, royalties, dividends, property situated in Malta or shares not subject to further taxation in the management and technical fees in a company which owned or hands of the shareholders in view paid to non-residents. However, of the full imputation system of had real interests in immovable there are some anti-avoidance property and the said asset was still company taxation. rules which technically lead to the owned by the group at the time the taxation of such income, ie taxation degrouping occurred. Furthermore, Dividends paid out of the ‘untaxed of dividends to a non-resident the exempted gain will also be account’ to resident shareholders company which is directly owned by clawed-back if the asset is then are subject to a withholding tax of 15 companies or individuals who are, in transferred out of the group. per cent. Dividends paid out of ‘the turn, residents of Malta. untaxed account’ to a non-resident Losses shareholder are not subject to Participation exemption Trading losses may be set off withholding tax. provisions against total profits (including Dividends received from a interest, rental income and capital Shareholders are entitled to claim participating holding – a holding of gains) of a company in the same a refund of six-sevenths of the tax at least 10 per cent of the issued accounting period and carried paid by the company out of which forward for relief against future the dividend is paid, when it is equity (although other parameters profits and capital gains without distributed out of profits allocated are allowed) – in a foreign company time limit. to the ‘Maltese taxed account’ are exempt from tax when certain and ‘foreign income account’ conditions are satisfied. A similar Capital losses can only be offset (where double taxation relief is not provision exempts foreign branch against capital gains arising in claimed). The shareholders may profits from taxation in Malta. the same company in the same also claim a two-thirds refund of accounting period or future the tax paid by the company out of Gains on the disposal of a foreign accounting periods. which the dividend is paid, when branch and a participating holding it is distributed out of the profits are exempt from tax. The loss utilisation rules are allocated to the ‘foreign income complex. Managing the utilisation account’ and double taxation relief is Specific industry provisions of tax losses to maximise cash-tax claimed. The is reduced Insurance: A 15 per cent withholding savings is critical, particularly in the to five-sevenths when the is levied on payments to start-up period of a company. is sourced out of passive interest insured Maltese-residents on the and royalties. maturity of their policy; exemptions A number of rules exist such that apply. Non-residents qualify for where a company undergoes a Withholding tax exemptions from withholding or any change of ownership the carry Withholding tax is charged on the other tax on long-term insurance forward losses may be restricted. following types of income: business policies.

13 Shipping and air transport: Companies Controlled foreign companies income from the letting of immovable incorporated in Malta, owning EU/ (CFC) property in Malta for residential EEA ships qualify for a number of tax There is no anti-controlled foreign purposes. The tax on rental income incentives, including exemption from company legislation. applies to any person renting Maltese tax. Additionally, any profits immovable property, being a tenement derived from the calls of ships in Malta Personal Income Tax (PIT) leased as a residence or garage, to an are also exempt. On the other hand, Scope individual or individuals. A tenement a company that is resident but not Maltese residents and domiciled can be defined as: domiciled in Malta deriving income individuals are subject to tax on arising from ownership, leasing or their worldwide income, including • A dwelling house or part thereof operation of an aircraft or aircraft capital gains. Individuals are not which is to be occupied or is engine arising in Malta, will be deemed usually required to report dividends occupied as a home or residence by as income arising outside Malta and received from Maltese resident the occupier or a garage will only be taxable if remitted to companies. They may also opt to • Not a commercial tenement Malta. receive investment income without withholding tax, whereby they will Such tenements exclude property Industrial activities: Companies be required to report this income in which, for the purpose of the said involved in industrial activities may their tax returns and be taxed at their letting, is required to be licensed by qualify for incentives. Examples of personal rates. virtue of the Malta Travel and Tourism these include: investment tax credits, Services Act. research and development tax credits Following amendments introduced and cash grants for undertakings in 2014, it has been clarified that One can opt to be taxed at the rate that contribute to the economic permanent residents in terms of the of 15 per cent of the gross rental development of Malta. Free Movement of European Union income received without any right Nationals and their Family Members to deductions. If this option is Seed Investment Programme - The Order, and long-term residents in exercised, the tax shall be final and Seed Investment Scheme (SIS) is terms of the Status of Long-term notwithstanding any other provision designed to help small, early-stage Residents (Third Country Nationals) of the Income Tax Act, no set-off or companies to raise equity finance Regulations are also subject to tax on refund shall be granted to any person by offering a tax benefit in the form their worldwide income. in respect of the tax so charged. of a tax credit to individual investors who purchase new shares in those If the individual is resident but The budget proposals for 2016 companies. SIS is intended to not domiciled in Malta and not a announced the extension of this final recognise the particular difficulties permanent resident nor a long-term withholding tax system to commercial which very early stage companies face resident in Malta, he is subject to tax properties, with the introduction of an in attracting investment, by offering tax only on foreign income received in anti-abuse mechanism for companies relief to individual investors. SIS applies Malta and income arising in Malta. forming part of the same group. for shares issued on or after 1 January Capital gains arising outside Malta are 2015. not subject to taxation even if received Individuals liable to Maltese tax in Malta. An individual’s exposure to Maltese tax depends on whether the individual There are no specific transfer pricing Individuals are taxed on an annual is resident in Malta or not. A person rules but inter-company pricing may be basis on the income gained from the who is resident and domiciled in Malta scrutinised under the general anti-tax preceding calendar year. is subject to tax on his/her worldwide avoidance powers of the Department income whereas individuals who are of Inland Revenue. Tax treatment of rental income resident but not domiciled in Malta The 2014 budget brought in changes are taxed on income and gains arising to the taxation system applicable to in Malta as well as foreign income

14 remitted to Malta excluding foreign employment income will be subject making extraordinary contributions capital gains even if remitted to to tax at the advantageous flat rate to the Republic of Malta and Malta. Individuals are generally of 15 per cent. meeting certain criteria. considered tax resident in Malta if present in Malta for 183 days or Malta Retirement Programme United Nations Pension more per annum or are regularly Malta offers a scheme for Programme physically present in Malta as part citizens of any EU Member State, As part of the Budget 2015, the of one’s regular life. The English law Iceland, Norway, Liechtenstein or Maltese government introduced the definition of domicile is applied, and Switzerland wishing to retire to United Nations Pension Programme though a difficult concept to define, Malta. Income remitted to Malta, which has been designed to attract is basically the country which is including pension income is taxable foreign pensioners retiring from considered by law to be one’s in Malta at the rate of 15 per international organisations to reside permanent home. cent. The pension income must in Malta. This outlines the tax constitute at least 75 per cent of the treatment of UN pension income Temporary residents must only pay applicant’s income taxable in Malta. of Widow’s/Widower’s Benefit as tax for income arising in Malta. A A minimum tax of EUR7,500 is due the case may be, received in Malta temporary resident is defined as an and a qualifying property must be (at least 40% of which must be individual who has no intention to purchased or rented. received in Malta), following the reside in Malta and has not resided granting of the special tax status. in the country for a period equal to Residence Programme Beneficiaries of this programme six months in a calendar year. Introduced in 2014, the Residence include any individual who is not Programme is aimed at EU, EEA a citizen of Malta and who is in The income of a married couple and Swiss nationals who are not receipt of a UN pension and who is treated as the income of one permanent residents. Foreign has been granted special tax status taxpayer unless they opt for source income remitted to Malta will in accordance with the rules. To separate taxation; spouses are jointly be taxed at a flat rate of 15 per cent. be eligible, beneficiaries must also and severally liable for their tax Malta source income is charged at purchase or rent qualifying property, obligations and liabilities. Parents are the standard residency tax rates. A subject to minimum conditions. also subject to an amended tax rate. minimum tax of EUR15,000 is due Under the scheme, income tax annually and a qualifying property will be fixed at 15 per cent, with a Residency Programmes must be purchased or rented. An minimum tax liability of EUR7,500 Malta offers a number of application fee is also due. per annum. programmes available to individuals who would like to reside in Malta. Global Residence Programme Individual responsibilities in One need to apply under any of the (GRP) relation to Maltese tax below residency programmes but The GRP was introduced in The Final Settlement tax system may also take up ordinary residency 2013 to attract individuals who utilised by Malta is an elaboration of by simply informing the local are not nationals of the EU, EEA the Pay as You Earn System found authorities within three months of or Switzerland and who are not in the UK. It requires employers to moving to Malta. long-term residents. Foreign source deduct tax from the salaries of their income remitted to Malta will be employees alongside the necessary Highly Qualified Persons taxed at a flat rate of 15 per cent. social security contributions. The tax Regulations Malta source income is charged at rate will be based on the employee’s The scheme aims to attract highly the standard residency tax rates. A wages for the year, which will qualified persons to occupy an minimum tax of EUR15,000 is due include the value of any emoluments ‘Eligible Office’ with companies annually and a qualifying property (fringe benefits); this is likely to licensed and/or recognized by the must be purchased or rented. An be adjusted on a monthly basis to Malta Financial Services Authority application fee is also due. take into account any variations. (MFSA), the Lotteries and Gaming A number of specific benefits are Authority or companies holding an Malta also has beneficial tax rate exempt from taxation. air operator’s certificate (AOC). The programmes in place for returned Regulation lists specific positions migrants and those who make an It is the employer’s responsibility with the said companies that qualify extraordinary contribution to the to account for all necessary as an ‘Eligible Office’. In the event a Republic of Malta. It is also possible withholding taxes and make all person qualifies under this scheme, to obtain Maltese citizenship by relevant returns of the same to

15 the Inland Revenue Department by the last day of the Tax returns following month. Individuals whose annual income has all been subject to tax at source do not need to submit an income tax Self-employed individuals account for their tax by making return. In this case, the Commissioner of Inland Revenue provisional tax payments during the year and accounting will issue a statement containing the details of any tax for any balance by the tax return date. due. Individuals who have earned income not subject to tax at source (eg self-employed and individuals who Individual Investor Programme (IIP) have received investment income without withholding The IIP allows for the granting of citizenship by a certificate tax) must submit an income tax return together with the of naturalisation to individuals and their families who self-assessment and calculation of tax due by 30 June of contribute to the economic and social development of the assessment year. Malta. Subject to a stringent vetting and diligence process, including thorough background checks, the applicants and Other taxes their dependents are granted citizenship in exchange for Value Added Tax such contribution. VAT is a transaction tax, the cost of which ultimately falls on the end customer. The majority of transactions Tax rates – 2016 involving the supply of goods, the provision of services and importations will be subject to this tax.

Single rates Broadly, VAT is levied on the value added at each stage of Chargeable Income (EUR) the production and distribution supply chain. Registered businesses act as collection points for the Value Added From To Rate Subtract (EUR) Tax Department. 0 9,100 0% 0 Not all transactions are subject to the tax, and those that 9,101 14,500 15% 1,365 are may be subject to different rates. In addition, not all of 14,501 19,500 25% 2,815 the VAT incurred by a business can be reclaimed.

19,501 60,000 25% 2,725 Making taxable supplies 60,001 – 35% 8,725 A taxable person for the purposes of VAT can be an individual (sole trader) in business, a Partnership (including a Limited Liability Partnership), a Trust, an incorporated Married rates business or a Branch of an overseas corporate entity. Chargeable Income (EUR) VAT must be paid on the import of goods into Malta, From To Rate Subtract (EUR) on every intra-community acquisition into Malta by 0 12,700 0% 0 VAT-registered persons and on every supply of goods or services made in Malta in the course of business, subject 12,701 21,200 15% 1,905 to certain exemptions. 21,201 28,700 25% 4,025 28,701 60,000 25% 3,905 VAT registration Registration is compulsory for any person who has made a 60,001 – 35% 9,905 taxable or exempt transaction with credit supply, within 30 days of said transaction. Businesses established outside Parent rates Malta are required to register if they make taxable supplies in Malta and for which they become liable for the payment Chargeable Income (EUR) of VAT in Malta. Persons who are not established in an From To Rate Subtract (EUR) EU Member State and who make distance sales to Malta with a value exceeding EUR35,000 annually are obliged to 0 10,500 0% 0 register for Maltese VAT. 10,501 15,800 15% 1,575 Businesses whose annual turnover is less than the 15,801 21,200 25% 3,155 statutory thresholds can register as an ‘exempt person’. 21,201 60,000 25% 3,050 An exempt person does not charge VAT but is not 60,000 – 35% 9,050 permitted to deduct input VAT. The table below shows the thresholds for VAT registration for small undertakings.

16 Category Entry Exit Customs Duty Threshold Threshold Along with import VAT, Custom Duty is levied on goods (EUR) (EUR) brought into Malta from outside the EU. The level of duty Economic activities 35,000 28,000 is determined by the Customs classification and consisting principally in the will vary subject to what is being imported and the origin supply of goods of the goods. When the country of origin of the goods Economic activities 24,000 19,000 exported to Malta is not part of the European Union, consisting principally in the supply of services with a customs duties are calculated Ad Valorem on the CIF value relatively low value added of the goods, in accordance with the Common Customs Other economic activities 14,000 12,000 Tariff (CCT).

Administration Since its accession to the European Union in 2004, Malta Typically, VAT-registered businesses will submit their VAT has adopted the EU Common External Tariff. As a result, returns online and pay any VAT due electronically. any goods imported in Malta that have originated in the EU will be free from customs duties. VAT returns are generally filed on a quarterly basis, although exporters and other business that are regularly entitled to VAT refunds will qualify for one month tax Excise Duty returns. The VAT returns, together with payment of any tax Certain items such as tobacco, alcohol and fuel oils are due, must be submitted within six weeks after the end of liable to Excise Duty. Generally, the duty liability is due the relative tax period. Late payments of tax are subject to prior to the goods being released for retail sale. An excise interest at 0.75 per cent per month and there are penalties duty is also levied on mobile telephony services. for late filing of returns.

Applicable rates Stamp Duty The standard rate of VAT is 18 per cent. A duty is levied, under provisions of the Duty on Documents and Transfers Act, on documents relating to The supply of accommodation in hotels and holiday the transfers of property, marketable securities, insurance premises are subject to a reduced rate of seven per cent. A reduced rate of five per cent exists for certain supplies policies or an interest in a partnership. which are generally regarded as having a social benefit. Type of transfer Duty The 2016 budget proposed a reduced VAT rate of seven per cent on sports activities, eg gym membership fees. Transfers and inheritance of 5% immovable property, rights Some supplies are exempt from VAT. These are typically over immovable property financial and insurance transactions, as well as certain Transfer of shares in property 5% supplies of land. Also included are most supplies of companies education, health and welfare. Exempt transactions Transfer of other shares 2% preclude the recovery of VAT on related purchases. As such, exempt transactions can lead to a restriction of VAT Emphyteutical grants Between 12 - 100% recovery and result in an absolute cost for businesses. of the annual ground rent, depending on the Import Duty duration of the grant Goods imported from outside the EU are subject to VAT Life insurance policies 0.1% of the sum at the rate which would be applicable if they were sold assured in Malta (general rate of 18 per cent but five per cent Other insurance policies 10% of the premium in respect of the above-mentioned goods). The tax is collected at the time and place of entry into the country by Auction sales 2.6% the Comptroller of Customs on behalf of the Value Added Credit sales EUR16.3 per annum Tax Department, alongside the relevant import duties. A number of exemptions apply, including an exemption Relief from VAT may be available where goods are from the duty on transfers of immovable property intended to be placed under a customs duty suspension regime or re-imported goods which are re-imported between companies of the same group and the transfer of unaltered. securities upon restructuring of holdings within a group.

17 Labour The right of all citizens to work Types of contract and the state’s role in promoting Contracts can either be fixed term the conditions to make this right or indefinite. Fixed term contracts effective can be found in Malta’s can be renewed for up to four years, 1964 Republican Constitution. This upon which the contract becomes upholds the basic principles of indefinite, unless there are justifiable workers’ rights. reasons for not doing so. A fixed term contract will also become The main law regulating indefinite if the contract expires employment relations is the and no renewal is produced within Employment and Industrial Relations 12 days of this date. Act, which deals with a number of issues, including: conditions of If either party (employer or employment, protection of wages, employee) terminates a fixed The Constitution termination of contracts of service contract prior to expiration, they and discrimination. will usually have to pay a penalty of Malta sets equal to half the wages that the One of the core components employee would have earned in the out that all of the Act is the prohibition remaining period. of discrimination, whether on workers must sexual, social or other grounds, in Minimum wage connection with recruitment, pay In 2016, the National Minimum receive one or dismissal. Wage related to a normal working week is: day of rest per Under the Occupational Health and Safety Authority Act, employers • Aged 18 years and old: EUR168.01 week, as well must grant protection against risks • Aged 17 years: EUR161.23 and accidents at work. • Aged below 17 years: EUR158.39 as the provision

Employment contract Part-time employees should have of paid leave. In Malta, employment is governed their wages calculated pro-rata by the contractual agreement by an hourly rate not below one entered into between employer and fortieth of the applicable weekly rate employee, provided that the relevant shown above. statutory conditions are met. Working time and leave If a period of employment exceeds The Constitution of Malta sets out one month, and workers work that all workers must receive one more than eight hours per week, day of rest per week, as well as the employer must provide the the provision of paid leave. While employee with either a written the Constitution sets out that contract of employment or a national legislation shall stipulate the written statement of minimum maximum stated number of working conditions. This must be provided hours, no national defined ‘working within eight working days from the week’ exists. Generally, the normal commencement of employment hours of work (excluding overtime) and should include: should not exceed a maximum of an average of 48 hours a week • Normal rates of pay spread over a reference period of 17 weeks. Specific working time • Overtime rates patterns and arrangements may be • Hours of work negotiated and included in collective • Leave entitlement agreements.

18 18 In a number of sectors, as a rule, overtime is paid at compelling reason, especially if no warning is given. Two time-and-a-half on weekdays and Saturdays and double written warnings over a reasonable period of time prior time for Sundays and public holidays. to dismissal would demonstrate prudence on behalf of the employer should the dismissal be disputed By law, an employee is entitled to four working weeks • On ground of redundancy: In the case of redundancy, and four days of paid leave. If an employee has been in an employer is required to utilise the ‘last in, first out’ employment for less than 12 months, s/he shall be entitled method. However, if the employer and last employed to a proportionate amount of annual leave. There are also are related by consanguinity or affinity up to the third 14 days of public holiday a year. Employees have certain degree, they are able to terminate the employment of rights to time off work for specific reasons, including the employee who is next in line maternity, paternity or to deal with an emergency involving • The employee has reached retirement age a dependant. If both parties agree to terminate a contract, the In Malta, pregnant women are entitled to maternity leave employment can be terminated by mutual consent. This is for an uninterrupted period of 14 weeks with full pay. The usually incorporated into a settlement agreement signed employee has the right to extend her maternity leave for by both parties. up to 18 weeks. As from 1 January 2015, these extended weeks will be paid at a rate equivalent to the National Where the employer or employee is terminating an Minimum Wage. indefinite term contract, advance notice must be given. This is calculated considering the period for which the Healthcare and benefits worker has been employed Many large employers provide employees with fringe benefits such as free or subsidised meals, transport and Duration of Advance Notice Required health insurance. Employees holding a managerial position Employment may also be entitled to subsidised telephone bills and a company car. All fringe benefits are subject to income tax One to six months One week on their value. Six months – two years Two weeks

Private pensions are uncommon as employees qualify Two – four years Four weeks for a retirement pension under the Social Security Act in Four – seven years Eight weeks terms of their social security contributions. More than seven years An additional week is added for each subsequent year, up Probation to a maximum of 12 weeks The typical probation period of an employment contract is six months, unless a shorter time is agreed between the Longer notice periods can be agreed for posts of employer and employee. Exceptions to this exist when significant responsibility whereby a longer hand-over there is a provision in a collective agreement or when process is required. the employee holds a technical/executive/administrative/ managerial position with exceptional responsibility and There is no statutory provision for severance payments for its wages are more than double the minimum wage. In dismissal. this case, a one year probation period may apply. During probation, employment can be terminated with no reason, Protection from termination giving one week’s notice if the employment has exceeded Employers cannot use the following reasons for the one month. termination of an employee’s contract:

Dismissal • Member of a trade union Under Maltese law, the grounds upon which an employee • Employee has filed a complaint or brought proceedings can be dismissed are subject to strict regulation. While an against the employer employee can terminate the employment contract at any time with no reason, an employer can only do so if: • Whistle-blowers • Employee has had a change in marital status • There is a good and sufficient cause: In this case, the • The business has undergone a transfer of ownership employer is not required to give notice or pay any wages for the remaining period. However, there must be a Furthermore, a number of statutory provisions exist to protect employees on maternity Employment of non-resident Malta. The employment licence is leave from termination. employees valid for one year. EU/EEA/Switzerland Collective redundancies Since Malta’s accession to the Dispute resolution EU Directive 98/59/EC applies in EU in 2004, any EU/EEA/Swiss In Malta, the tribunal system exists collective redundancies whereby: citizen may take up employment with the competence to settle and self-employment in Malta and trade disputes and to consider • More than 10 people are made shall enjoy equal treatment with and decide on cases of unfair redundant in a firm of 20 - 99 Maltese nationals. dismissal, discrimination, breach employees of equal pay and allegations of • 10 per cent or more of employees When EU/EEA/Swiss citizens want victimisation and harassment. Any are made redundant in a firm of to take up employment in Malta, claims must be presented to the 100 - 299 employees they do not require a work permit tribunal system within four months • 30 or more employees are made but must register for residence as of the alleged breach. redundant in a firm of 300 + an employee in terms of the Free employees Movement of EU nationals and their Trade unions Family Members Order (LN191 of Trade unionism and collective In these cases, the employer must: 2007). This application must be agreements are common in Malta. accompanied by the original and a Trade union recognition is referred • Consult with the employee copy of their passport as well as to, but not defined at law. Typically, representative covering the their employment contract. The if a trade union can command ways of avoiding the collective employee and any family members the support of a majority of the redundancies or reducing the residing in Malta will then be also workforce, it can be reasonably number of employees affected entitled to claim a residence card. expected to claim to represent • Provide the Employee The employer must register the them. Employers must then Representative or Director of employee with the Employment and recognise them for the purposes of Labour with a written statement Training Corporation (ETC). collective bargaining. explaining the reason why the collective redundancy is occurring, Third Country Nationals Collective agreements function the number of employees For third country nationals, in the same way as statutory affected, the criteria for selection, employment is regulated by the provisions, binding the employer the payments due and the dates Immigration Act. Third country and the trade union members to upon which the redundancy will nationals may be permitted to the agreement. Individuals do not become effective. enter Malta for no longer than three months, provided they necessarily need to belong to a Collective redundancies only hold a valid passport and visa trade union to be governed by a become effective within 30 and have submitted documents collective agreement. An agreement days from the above written substantiating the purpose of their normally has a duration of three statement being presented to the visit before entry. years. They may then be extended Director of Labour and Employee or remain valid if no amendments Representative, unless this is altered Third country nationals must obtain are suggested. by the Director of Labour. a license to work in Malta. This is done by means of the single An employer can withdraw the Social security purpose application procedure, recognition of a trade union if the In Malta, the social security system majority support is lost. covers residents over the age of whereby the individual applies for 18, employees and employers a work permit and residence via Strikes in Malta and students in certain the same application form. The Pursuit of industrial action is work-study programs. Social application is submitted by the security contributions amount individual but must be endorsed protected and defined in the to 10 per cent of an employee’s by his (prospective) employer. Employment and Industrial gross salary, payable by both the The Director of the ETC reviews Relations Act. It is legitimate employee and employer, subject to the application and must issue a and sanctioned by law if undertaken a maximum annual amount payable decision no later than four months by a registered trade union or of EUR2,213.64. Those that are from the date of application. Once concerning stipulations in a self-employed pay 15 per cent of approved, the third country national collective bargaining agreement. their income up to a maximum will then be issued with a residence annual amount of EUR3,320.72. permit that allows him to work in

20 Audit All companies incorporated under the Companies Act in Malta must file annual financial statements and a director’s report to the Registrar of Companies. Partnerships and sole traders are under no obligation to prepare annual accounts or have them audited. The financial statements must show a ‘true and fair view’ of the company’s results and financial position. Generally, companies must comply with the International Financial Reporting Standards (IFRS) unless they meet certain criteria, under which they can adopt the General Accounting Principles for Smaller Entities (GAPSE).

Accounting standards IFRS Generally, all companies must adopt the International Financial Reporting Standards.

GAPSE GAPSE is a set of accounting principles for smaller entities that contains a number of measurement simplifications and disclosure relaxations. For example, all assets may be measured at cost less impairment.

Entities will qualify for the adoption of the GAPSE if they do not exceed the following:

• Balance sheet total – EUR17.5 million • Total revenue – EUR35 million • 250 employees

However, GAPSE cannot be applied if: • The entity is a guarantor of GAPSME (General Accounting the principal or interest on the Principles for Small and • A shareholder holding at least 20 securities that are listed Medium-sized Entities) per cent of the entity’s shares has • The entity is a public company served notice at least six months For financial reporting periods before the year end to apply IFRSs • The entity holds a licence or commencing on or after 1 January as adopted by the EU other authorisation by the Malta 2016, an entity shall prepare • The entity’s securities are listed Financial Services Authority financial statements in accordance

21 with GAPSME unless the Board Companies that satisfy certain Audit requirements of Directors of a company or, in conditions may be treated as Companies incorporated under the case of an entity other than ‘small’ and allowed to draw up the Companies Act in Malta must a company, its governing body, abridged accounts. appoint an independent auditor to has resolved to prepare financial audit their financial statements. statements in accordance with The accounts should be sent to the Branches of foreign companies are IFRS as adopted by the EU for shareholders at least 21 days before also required to have their branch’s that financial reporting period or the annual general meeting. The accounts audited. the entity does not satisfy the general meeting must be held within requirements set out below. 10 months after the end of the The person appointed as auditor relevant accounting period; seven must be qualified under the terms Entities which on their balance sheet months for public companies. dates do not exceed the limits of of the Accountancy Profession at least two of the three following Act and cannot be the officer of A copy of the above signed criteria are classified as ‘Small’ a company or related to (spouse, accounts and reports, alongside the entities and will benefit the most sibling, parent or child) an officer auditor’s report, must then be filed from the less stringent requirements of the company. The accounting with the Registrar of Companies provided by GAPSME: profession is regulated by the within 42 days of the general Accountancy Profession Act and meeting. • Balance sheet total: most accountants will be a member EUR4,000,000 of one or more of the following A company that possess • Total revenue: EUR8,000,000 groups: The Malta Institute of subsidiaries must submit separate Accountants, the Associated of • Average number of employees group accounts, generally in the Chartered Certified Accountants during the financial year: 50. form of consolidated accounts, or the Institute of Chartered unless they can avail of one of the Entities which are not small entities Accountants in England and Wales. exemptions from the preparation of and which on their balance sheet consolidated accounts dates do not exceed the limits of Once appointed, auditors have the at least two of the three following Accounting records right of access to the accounting criteria are classified as ‘Medium’ records and documents of the Under provisions contained in the entities and will benefit from less company at all times. They are Companies Act, all firms must keep stringent requirements provided by entitled to attend all general GAPSME: accounting records that include: all sums of money received and meetings of shareholders. • Balance sheet total: expended, all sales and purchases of Auditors must report to the EUR20,000,000 goods and all assets and liabilities. shareholders on every set of • Total revenue: EUR40,000,000 Accounting records will usually financial statements provided at a • Average number of employees be kept at the firm’s registered company’s annual general meeting; during the financial year: 250 office in Malta but may be kept this report must be drawn up in somewhere else, at the discretion accordance to the International Statements and reports of the directors. These records must Standards of Auditing (ISA), issued A firm’s directors must prepare the be kept for 10 years. If there is a by the International Federations of following reports and present them Accountants (IFAC). to the shareholders annually at a situation whereby the accounting general meeting: director’s report, records are kept at a place outside The auditor’s report must include statement of financial position, Malta, all accounting records must whether the accounts have been income statement, statement of be kept at a place in Malta within comprehensive income, statement six months. prepared in accordance with the of changes in equity, statement of Companies Act and IFRSs as cash flows and any notes providing These financial statements and adopted by the EU, or GAPSE, supplementary information and returns must disclose, with as applicable, and whether these disclosures. Corresponding amounts reasonable accuracy, the financial accounts give a true and fair for the preceding financial year must position of the company at intervals view of the affairs and results of be shown for all items included. not exceeding six months. the company.

22 Trade Foreign Direct Investment Thanks to its liberal investment policy, there are very few restrictions on foreign ownership of businesses or property. Malta is often perceived as very attractive The government has announced innovative enterprises to engage in for foreign investment. This may that EUR50 million in EU funds will research & development. be due to a number of factors be made available through grants but primarily: the relative ease of aimed at overcoming challenges As of the 2016 budget, businesses incorporation of businesses, tax faced by the local manufacturing that employ people that hold a efficiency, stamp duty exemptions, industry. The funds will go towards doctorate or are studying towards no exchange controls, modern supporting SMEs and start-ups, and a doctorate in science, information and efficient infrastructure and a research and development. technology, or engineering are number of government incentives to entitled to a tax credit of up to qualifying industries. Malta Enterprise Act EUR10,000, providing the employee Malta Enterprise (ME) is a is retained for a minimum of Although there are no general government agency created by the 12 months. restrictions on Foreign Direct Malta Enterprise Act to support Investment, the purchase of real the development of enterprises Access to Finance: companies may estate by non-residents is governed in Malta. Any industrial incentives be assisted through loan guarantees, by the Immovable Property Act. must be approved by the agency. soft loans, loan interest subsidies Non-residents must generally apply To be eligible for an incentive, the or royalty financing in the case of for a permit to acquire immovable investment company must be highly innovative projects. property and this is subject to incorporated in Malta and carry out fulfilling a number of conditions. qualifying trade, largely within Malta. Employment and Training (ETC Incentives): these incentives are The main incentives can be Government incentives administered by the Employment categorised into the following six Tax and other incentives for & Training Corporation. Enterprises groups: investment have existed since the are supported in recruiting new late 1950s in Malta. This was partly employees and providing them with Investment Aid: companies to encourage industrial activity in the sufficient training. country following its independence engaged in specific activities can benefit from tax credits on capital from Britain. These incentives were Business Promotion Act investment and job creation. largely based around tax holidays, The Business Promotion Act low labour costs and favourable SME Development: grants has been in force since 2001 double taxation treaties. targeting the creation and and succeeded by the Industrial development of innovative start-ups, Development Act in attracting Currently, most investment and the development of forward foreign investment into Malta. Key incentives come under the Malta looking small and medium-sized provisions include: Enterprise Act or the Business enterprises. Promotion Act. The incentives are Incentives primarily targeted at businesses Enterprise Support: assistance Investment Aid Tax Credits: undertaking manufacturing or to businesses to support them assistance in the setting up of new industrial activities. Aside from in developing their international establishments and expansion and manufacturing, incentives exist for competitiveness, improving their development of existing businesses. the following sectors: computer capabilities and networking with Tax credits are calculated based on software, electronic systems, other businesses. investment in tangible and intangible research and development, waste assets or wages deriving from such treatment biotechnology and film R&D and Innovation Programme: an investment. The size of the aid is production. incentives are offered to stimulate directly related to enterprise size.

23 Certification: assistance on the viable business concept and are in the EU. While there are certain attainment of industrial certification the early stage of its development. minor differences in interpretation and quality standards. Fifty per cent Initiatives that are deemed to and administration, the tariff of the eligible qualifying expenditure be economically viable can be was supposed to be applied and is provided as a tax credit up to a supported through a grant of up to interpreted uniformly. maximum of EUR25,000 for the EUR25,000. duration of the incentive. The Community Customs Code Industrial space: Malta Enterprise contains all the general rules Qualifying Employment in provides assistance to prospective and procedures applicable to Innovation and Creativity investors to find suitable premises the trade of goods between (Personal Tax): individuals for factories. EU and non-EU countries. The employed in eligible employment in code is supplemented by a industrial research and experimental Trade Promotion: assistance detailed Customs Regulation development and/or product through a grant for the participation which is directly applicable in all development benefit from a flat in trade events and the development Members States. In Malta, the income tax rate of 15 per cent for a of a Market Preparedness and national customs authority is the three year period. Development plan. Department of Customs.

Access to Finance: Malta Enterprise Europe Network: the Import restrictions Enterprise can assist enterprises network in Malta helps businesses Imports to Malta are not subject engaged in the manufacturing make the most of business to any volume-based quotas industry either through a soft loan, opportunities in the EU and beyond. or restrictions, except those established by the European a loan guarantee or subsidies Through the service portfolio, Commission. Furthermore, there on the interest rate payable on assistance is provided primarily are no restrictions on trade with new loan facilities taken out from to SMEs to commercialize their any country except for restrictions financial institutions to finance innovation; support to entrepreneurs sanctioned by the Security new investments in qualifying interested in tapping international Council of the United Nations and expenditure. markets; and to help companies find restrictions that may be imposed a commercial partner abroad. by the European Commission on Research and Development: imports to the European Union. assistance granted on the carrying The network operates with a Import licences are required in out of R&D feasibility studies database of over 6,000 technology, the case of certain items such as calculated on the cost of personnel research and business opportunities motor vehicles, pharmaceuticals, which is essentially the world’s and the acquisition of knowledge chemicals, detergents, textiles and with assistance provided as a grant largest support network for SMEs steel. Importation is restricted for capped according to enterprise size. with international ambitions, with explosives, firearms, ammunition 600 member organizations in over and also animals, plants and Further assistance may be 53 countries. items which could be deemed provided to undertakings carrying as dangerous to health, safety or out R&D projects classified as Imports public morals. Goods that may not Industrial Research or Experimental The European Union is a single be sold in Malta, such as goods Development. Assistance is trading area, this means that that are in breach of the law on provided either as a tax credit or a all goods (subject to narrow trademarks or copyright, or that cash grant if the project is approved exceptions), whether made in an do not satisfy safety regulations, through the EUREKA network or EU Member State or imported will not be released and must be in the Eurostars Joint Programme from outside, can circulate freely. re-exported. or is deemed by Malta Enterprise Although Member States’ customs as having the potential to increase authorities have the right to check Most categories of goods can be employment or economic growth in goods at the border, there is a imported without restriction but the region. unified customs law in the EU which business importers may need an removes all fees and barriers within import license. This import license, Business START (B.Start): B.Start the Union. alongside a VAT registration number, offers seed funding for start-ups. must be presented to the customs This is intended to support Small There is an external tariff for authorities before any goods can Start-up undertakings that have a goods imported from outside be released.

24 Finance Capital markets Its other responsibilities include: The only Recognised Investment controlling the issue of bank notes, Exchange in Malta is the Malta providing banking services to banks Stock Exchange. It is regulated and the government, managing by the Malta Financial Services foreign exchange reserves and Authority (MFSA) but entrusted to advising the government on the Stock Exchange Council. Trading monetary and economic policy. is carried out daily by licensed stockbrokers on behalf of their The banking system comprises clients. The Stock Exchange also over 29 licensed foreign or privately provides facilities for new issues owned credit institutions and 42 of commercial and government financial institutions. securities. Finance (short and long-term The Official List is the Malta Stock borrowing) can be easily obtained Exchange’s principal market for from the banks or other financial listed companies. To register for institutions in Malta. Banks the Official List, a company needs are generally flexible in the to satisfy the Listing Rules. The consideration of applications for Malta Stock Exchange can accept finance and there are currently no the admission of a company to its restrictions on foreign investors’ Official List with its by-laws after access to finance. the Listing Authority has authorised it. Companies may go to the There are three types of deposit Official List to raise funds from the facilities (current, savings and term) public through: and these are available in euro or other major foreign currencies. No • Admitting existing securities tax at source is liable on interest to trading earned by non-residents. Banks • An initial public offering (IPO) also offer a broad range of foreign • A placing exchange facilities and standard lending services (overdraft, term If a company is unable to meet the loans and trade finance). requirements for the Official List, the Malta Stock Exchange offers The Malta Financial Services a listing on the Secondary Tier Authority (MFSA) is the primary Finance (short Market where requirements are regulator for the supervision of less onerous. This market provides banks and financial institutions and long-term emerging companies, regardless of taking deposits from the public. The size or past performance, access local regulatory framework is in line borrowing) to equity or loan capital. For both with all relevant EU Directives. listing options, companies must can be easily appoint a sponsor, who is a broker All new businesses wishing to on the approved list of sponsors, operate in Malta will likely need a obtained from to guide and advise them through bank account. The set up process the process. will vary according to the bank but the banks or will include the relevant on-boarding Banking system and Know Your Customer (KYC) other financial The , or Bank obligations. Firms may be required Centrali ta’ Malta, has two core to present the Memorandum of institutions in purposes: maintaining price stability Association, Articles of Association and a sound financial system. or proof of address of the directors. Malta.

25 Insurance industry Insurance Intermediaries Act. Furthermore, the legislation The Maltese insurance sector is growing in both number is aligned to standards set in EU Directives such as the of companies operating and volume of business. While Insurance Mediation Directive and the Reinsurance traditionally comprised of domestic insurance companies, Directive. The MFSA is also in compliance with the the industry now features a number of non-resident International Association of Insurance Supervisors (IAIS). companies and operates across all the EU Member States. Firms operating in the sector include commercial Investment management industry insurance companies undertaking both general and life Over the past decade, the investment management insurance business, subsidiaries of major insurance and industry has seen material growth in both the number reinsurance businesses, affiliated insurance companies of funds and the number of fund managers setting up (captives) and insurance management companies. operations in Malta. There are currently over 645 funds/ sub-funds domiciled in Malta. This can largely be attributed There are four main types of insurance that are critical to its esteemed regulator, sophisticated regulatory and tax for businesses operating in Malta: vehicle insurance, regime and quality service providers. personnel insurance, public liability insurance and building and contents insurance. The industry is regulated by the MFSA under the Investment Services Act. Furthermore, the legislation The industry is regulated by the Malta Financial Services is aligned to standards set in EU Directives such as the Authority (MFSA) under the Insurance Business Act and Alternative Investment Fund Managers Directive (AIFMD).

26 Infrastructure The overall quality and reliability of infrastructure is a critical factor for businesses across all sectors.

Malta has one of the most sophisticated and reliable Information and Communication Technology (ICT) infrastructures in Europe. This has been established following a significant amount of investment and consolidation within the ICT sector. Furthermore, the Smart City Project, due to be finished in 2021, is creating a state-of-the-art technology and media city in Kalkara. The aim of the project is to make Malta a centre for ICT excellence.

The Maltese IT infrastructure meets the key requirements of international companies including:

• In the 2015 Global Competitiveness Report, Malta ranked 23/140 in technological readiness • The Smart City project represents a EUR220 million investment into Malta’s ICT infrastructure • In 2014, the Prime Minister launched the Digital Malta Strategy; a policy to guide the country in attaining the EU’s 2020 vision of prospering as a digitally-enabled nation in all 2014, Autobuses Urbanos de León • Malta’s road system connects sectors of society. Projects had been chosen as the preferred towns, villages, industrial and will include incentivising bus operator for the country. Malta’s business centres, and holiday entrepreneurs within the IT sector transport system also includes ferry, resorts; all factories are located and making Malta one of the bus and harbour links to the island within 30 minutes of a harbour first Wi-Fi enabled countries in and the airport the world of Gozo. • Connection to over 165 ports Malta’s transportation system is The main advantages of the Maltese across all continents; the country small but extensive; there is one transport system include: has the largest ship registry within major airport at Gudja and three the EU and one of the largest large natural harbours that provide • Malta’s airport, ranked fourth best worldwide for excellent maritime transport. The in Europe, according to the 2014 • Malta Freeport is the third country’s primary method of public Airport Service Quality awards, largest logistics centre in the transport is the bus service. This offers direct flights to 37 major Mediterranean region, moving was temporarily nationalised at the centres in Europe, North Africa 2.3 million Twenty-Foot Equivalent beginning of 2014 but, as at October and the Middle East Units (TEUs) annually This document is issued by HSBC Bank Malta p.l.c. (the Bank). This guide is a joint project with Grant Thornton. It is not intended as an offer or solicitation for business to anyone in any jurisdiction. It is not intended for distribution to anyone located in or resident in jurisdictions which restrict the distribution of this document. It shall not be copied, reproduced, transmitted or further distributed by any recipient. The information contained in this document is of a general nature only. It is not meant to be comprehensive and does not constitute financial, legal, tax or other professional advice. You should not act upon the information contained in this document without obtaining specific professional advice. Whilst every care has been taken in preparing this document, the Bank and Grant Thornton makes no guarantee, representation or warranty (express or implied) as to its accuracy or completeness, and under no circumstances will the Bank or Grant Thornton be liable for any loss caused by reliance on any opinion or statement made in this document. Except as specifically indicated, the expressions of opinion are those of the Bank and are subject to change without notice. The materials contained in this document were assembled in January 2016 and were based on the law enforceable and information available at that time.

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