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Accounting, Legal and Tax Environment ACCOUNTING, LEGAL AND TAX ENVIRONMENT Malta CREDIBLE RELIABLE CONNECTED 2 ACCOUNTING, LEGAL AND TAX ENVIRONMENT Malta This guide has been prepared by Alter Domus S.à r.l. to provide general background information on Luxembourg both for investors wishing to establish a company in the Grand Duchy of Luxembourg and for those already operating on the local market. What follows is an overview of the regulations applying to companies (often known as soparfi – sociétés de participation financière) from a legal, accounting and tax perspective. Also discussed in this context are vehicles introduced in the last five years. Included are the following : • investment company in risk capital (SICAR), • specialised investment fund (SIF), • securitisation vehicle, • private wealth investment vehicle (SPF). The guide takes into account the main legal provisions in force as of 1st January, 2010. Although the greatest care has been taken in preparing this guide, it is not intended as a complete study on all applicable legislation nor has it been written with a view to providing legal advice on any matter. Furthermore, the data furnished is subject to continuous change. 3 PREFACE 3 INTRODUCTION TO MALTA History 6 General 7 Political environment 7 Business environment 8 Legal system 8 Advantages offered by Malta 9 SECTION I. CORPORATE LAW 1. FUNDAMENTALS OF CORPORATE LAW 12 1.1. General framework 12 1.1.1. Companies Act, 1995 12 1.1.2.Other Relevant Legislation 12 1.2. Overview Of The Main Company Structures 12 1.2.1. Limited Liability Company 12 1.2.2. Unlimited Liability Partnerships 14 1.2.3. Trusts 14 1.2.4. Incorporated Cell Companies (ICC) 14 1.2.5. Foundations and Associations 15 1.2.6. Joint Venture 15 1.2.7. Branch of a Foreign Company 15 1.2.8. Sole Proprietorship 15 1.2.9. Continuation/ Redomiciliation of Companies 16 1.3. Overview Of The Formation Procedures 16 1.4. Types Of Shares And Capital Requirements 18 1.5. Dividend Distribution 18 2. OTHER APPLICABLE LAWS 19 2.1. Protection of personal data 19 2.2. Anti Money laundering 19 2.3. Social Security System 19 SECTION II. ACCOUNTING LAW 1. FUNDAMENTALS OF ACCOUNTING LAW 22 1.1. Financial Statements – Preparation And Disclosure To Shareholders 22 1.2. Filing Of Financial Statements And Reports 22 2. AUDIT AND CONTROL 23 2.1. Company And Accounting Records To Be Kept 23 2.2. Auditors 23 4 ACCOUNTING, LEGAL AND TAX ENVIRONMENT Malta SECTION III. BASIC PRINCIPLES OF TAXATION IN MALTA 1. MALTA TAX ADMINISTRATION 26 1.1. Annual Tax Returns And Advance Payment System 26 1.2. Definition Of “Residence” 26 1.3. Determination Of Taxable Income 27 2. CORPORATE TAXATION 28 2.1. Direct taxes. 28 2.1.1. Income Tax 28 2.1.2. Capital Gains Tax 28 2.1.3. Branch Profit Tax (Foreign Company) 39 2.1.4. Double Taxation Relief 29 2.1.5. Other Local Taxes 29 2.2. Withholding taxes 29 2.2.1. Withholding Tax: Dividends 29 2.2.2. Withholding Tax: Interest And Royalties 29 2.3. Indirect taxes 29 2.3.1. Value-added tax (VAT) 29 2.3.2. Customs Duty 29 2.3.3. Excise Duty 29 2.3.4. Duty On Documents And Other Transfers 30 2.3.5. Other Indirect Taxes 30 3. PERSONAL TAXATION 30 3.1. Residency 30 3.2. Taxable Income And Rates 30 3.3. Determination Of Taxable Income 31 3.4. Special Expatriate Tax Regime 31 3.5. Capital Taxes 31 SECTION IV. SPECIFIC INVESTMENT VEHICLES IN MALTA 1. COLLECTIVE INVESTMENT SCHEMES 34 1.1. General Overview 34 1.2. Regulatory And Accounting Framework 34 1.3. Tax Aspects 36 2. INCORPORATED CELL COMPANIES (ICCS) 36 2.1. General overview 36 2.2. Regulatory Framework 36 APPENDIX APPENDIX I – DOUBLE TAX TREATIES 5 HISTORY Malta was inhabited even in prehistoric times, as evidenced by its numerous megalithic temples and other sites, which are among the oldest and finest free-standing buildings in existence. The Phoenicians were the first foreign people in recorded history to occupy the islands, followed by the Carthaginians. After the destruction of Carthage, Malta was absorbed into the Roman Empire. St. Paul the Apostle was shipwrecked on the islands in A.D. 60 and the country has been Christian ever since. In the later years of the Roman Empire, Malta formed part of the Byzantine Empire. The Arab expansion reached Malta in A.D. 870. The country remained under Arab domination until 1090, when Count Roger of Normandy added Malta to his conquest of Sicily. Malta shared in the fortunes of Sicily until 1530, when, in an attempt to strengthen the southern frontiers of his domains against Islam, Charles V of Spain offered Malta to the Knights of St. John of Jerusalem, an international order of chivalry founded in the early years of the Crusades. For the next three centuries the destinies of Malta and the Knights of St. John were linked. The Knights of St. John were driven out of Malta by Napoleon in 1798, and the French ruled for two years. Malta became a British Crown Colony in the early nineteenth century and remained so until September 21, 1964, when it became an independent sovereign state. In 1974 Malta was declared a republic. Malta is a member of the Commonwealth and of the United Nations. Soon after independence Malta was admitted to the Council of Europe. In 1990 Malta applied for European Union membership. Accession negotiations were concluded in December 2002 and the accession treaty was signed in April 2003. Malta became an EU Member State in May 2004 and joined the Euro Area on January 1, 2008. About 90% of Maltese are Roman Catholics. There are several other religious communities, both Christian and non-Christian, many of whom have their own places of worship. 6 ACCOUNTING, LEGAL AND TAX ENVIRONMENT Malta INTRODUCTION TO MALTA GENERAL The Republic of Malta lies in the centre of the Mediterranean Sea, 100 kilometres (60 miles) south of Sicily and 300 kilometres (180 miles) north of the nearest point on the African coast. The total area of the Republic of Malta, which comprises the island of Malta and its sister island, Gozo, is 316 square kilometres (122 square miles). Malta is the larger island, occupying 246 square kilometres (95 square miles). Gozo lies to the northwest, less than half an hour away by ferry. The topography of the islands is low-lying to the southeast and hilly toward the northwest. At various points the shoreline is deeply indented, providing excellent natural harbours. Although it has some sandy beaches, the coast of Malta is predominantly rocky, including some spectacular hills. Valletta, the capital city, lies on a promontory between the two main harbours. Malta has a mild climate. The hottest summer month is August, which has an average maximum temperature of 31°C (87°F). The coldest winter month is February, with an average minimum temperature of 9°C (49°F). The average annual rainfall is 520 millimetres (21 inches). There are about 300 days of sunshine each year. The population of the Maltese islands is approximately 413,000. Malta is on Central European Time (CET), one hour ahead of Greenwich Mean Time (GMT) and six hours ahead of US Eastern Standard Time (EST). POLITICAL ENVIRONMENT Malta is a parliamentary democracy and enjoys to the Cabinet by the Prime Minister, who makes a strong democratic tradition with high levels a selection from the elected members. Various of voter participation. The head of state is local administrative matters are delegated by the President, who is appointed by the House specific legislation to local councils. of Representatives and whose role is mainly ceremonial. The House of Representatives is Successive Maltese Governments have encouraged elected by universal suffrage every five years. foreign investors to establish operations in Malta The Prime Minister is usually the leader of the and have always adopted policies that favour an party commanding the greatest measure of open economy and direct investment. In fact, support in the House. Ministers are nominated Malta is one of the EU’s most open economies as a traditional trading nation reliant on import and export. 7 BUSINESS LEGAL ENVIRONMENT SYSTEM Malta is an attractive location for industrial The legal structure in Malta is based on the investment. Its geographic location, modern civil-law pattern of continental Europe, but most infrastructure, adequate and flexible labour administrative, financial and fiscal legislation is supply, and political stability are some of its based on British laws. There are three principal key advantages. jurisdictions-civil (including commercial), criminal, and voluntary. The importance of the services sector in the Maltese economy has grown significantly in recent There is one Court of Appeal for all jurisdictions. years. One of government’s key objectives remains The Constitutional Court, however, is the ultimate to continue developing Malta into a centre for competent court for judgements on financial services with emphasis on insurance, the conformity of laws and administrative action administrative operations for investment services, with the Constitution. There are a number of software development fund management, administrative tribunals from whose decision an e-commerce, call centres, international reservation appeal can be made (usually on a point of law systems and electronic exchanges. The financial only) to the Court of Appeal. Malta recognises the services sector contributes about 12% of Malta’s right of individual petition to the European Courts GDP and the Government is committed to doubling of Justice, and the European Convention on Human its contribution by 2015. Tourism is another Rights forms part of Malta’s domestic law.
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