Malta has over the years established itself as a model jurisdiction in the financial services sector. Its strong and flexible regulatory framework, quick processing of applications combined well with other advantages that Malta offers including an employment pool of skilled professionals, cost competitive, EU membership and strategic access to southern Mediterranean, makes Malta a very attractive jurisdiction to establish a collective investment scheme, pension scheme or insurance company.
Malta has entered into over 50 double tax treaties and is continuously expanding its double treaty network. Moreover local tax legislation provides for effective double taxation relief even where no double tax treaty is in place including relief for underlying taxation. This ensures that income arising from overseas is not subject to double taxation, even if there is no double taxation agreement in place.
Malta applies a full imputation tax system which completely eliminates the economic double taxation of company profits. Companies incorporated in Malta are liable to tax on its world wide income at the rate of 35%, however upon a distribution of dividend to its shareholders, the shareholders are entitled to claim a tax refund of the Malta tax paid reducing the effective tax rate between 0% up to a maximum of 5%, depending on the particular circumstances.
The launch of the consultation process for the 2009 Budget by the Minister of Finance suggests that prevailing action includes the continued active pursuit of financial services as a main pillar of the Maltese economy, which already contributes to nearly 20% of GDP, and is projected to increase to 25%. This is underpinned by Malta’s stable economy sustained through sound fiscal policies further strengthened by the introduction of the Euro. According to The Global Financial Centres Index – City of London report March 2008, Malta was placed 4th out of 66 jurisdictions as a centre ‘that is most likely to increase in importance over the next few years’. Malta has also been promoted to the advanced economies group by the International Monetary Fund’s April 2008 World Economic Outlook Report, placing Malta 20th of 131 other countries for Financial Market Sophistication.
Moreover, the investment and fund management sector has undergone extensive growth and recognition. The latest quarterly update released by the Malta Financial Services Authority (MFSA) shows that growth registered over the last few years in funds domiciled in Malta continues at a steadfast pace over 2008. MFSA states that the number of funds registered for the said year is above 250 and is still expanding despite the turmoil experienced in the sector during the summer months. As at 30 November 2008, the Net Asset Value (NAV) of Collective Investment Schemes (CIS) licensed by the said authority amounts to over Eur9.2 billion. Such growth figure is quite remarkable considering Malta came into the radar screen only since joining the European Union in 2004, and is therefore still relatively a new comer.
The Malta Financial Services Authority is the Single Regulator of financial services in Malta, which oversees the banking, investment and insurance sectors and is responsible for regulating the activities of the Malta Stock Exchange. The MFSA also houses Malta’s Companies Registry. Moving to a single regulator was a structured part of Malta’s long term strategy to create a mainstream finance centre in the country.
The Insurance Business Act and Insurance Intermediaries Act are the main legislation regulating the creation and operation of insurance companies in Malta, supplemented by MFSA Directives, rules and regulations relative to insurance companies and insurance intermediaries.
Due to Malta’s stable regulatory environment and EU membership, several insurance companies have opened business in Malta, using Malta as a base to write insurance into Europe including life, general business companies, affiliated insurance companies (captives), insurance management companies and re-insurance companies.
The Companies’ Act (Cell Companies Carrying on Business of Insurance) Regulations allows companies to establish themselves in Malta as Protected Cell Companies (PCCs). The benefit of a PCC is that the structure allows for an entity to purchase a cell within a PCC, via shareholding, and write insurance through the cell. An important feature of a PCC is that the assets and liabilities of a cell remain separate from those of the core company and other cells.
The Investment Services Act establishes the legal basis for the regulation and supervision of collective investment schemes (CIS) and investment service providers such as fund managers constituted in or operating in or from Malta including retail CIS’s (UCITS and non-UCITS CIS), Professional Investor Funds and Private CIS’s. It is also possible to re-domicile or migrate existing investment funds from other financial centres to Malta.
Maltese legislation provides the possibility of setting up investments funds as a limited liability company with variable share capital (SICAVs) to create segregated classes with the same umbrella structure where the assets of one sub-fund are effectively and legally “ring-fenced” from the liabilities of other sub-funds in the same umbrella structure.
A fund having more than 15% of its investments based overseas is known as a non-prescribed fund and is not subject to tax on both income and capital gains (other than income from immovable property situated in Malta). Furthermore, the distribution of income of a scheme to non-resident investors is not subject to tax in Malta, there is no Maltese capital gains taxes imposed on the disposal of units of a scheme and can avail of the island’s extensive network of double taxation agreements. On the other hand, asset management companies will be subject to tax at the normal corporate tax rate of 35% however upon a distribution of dividend to its shareholders, the shareholders will be entitled to claim a tax refund, reducing the effective tax rate to 5%.
The Special Funds (Regulation) Act establishes the legal basis for the setting up in Malta of both occupational and personal pension schemes which can be created by way of contract or trust as well as the setting up of pension funds. Retirement schemes established in Malta may be eligible to be recognised as a Qualified Recognised Overseas Pension Schemes (QROPS) under the requirements of the UK HMRC.
HM Revenue & Customs (HMRC) has confirmed that pension schemes established in Malta and regulated by the Malta Financial Services Authority (MFSA) may be considered on a case by case basis to be eligible for the status of Qualifying Recognized Overseas Pension Schemes (QROPS) under UK Law. This recognition is based on the current legislation in both Malta and the UK.