A business-friendly environment that is ripe with opportunities, yet where one can safely invest and cater for asset protection and wealth planning, and perhaps take up a secondary residence or citizenship is an investor’s paradise. Malta, an island nation located at a crossroads between Europe and North Africa is increasingly being eyed by Asian investors as an ideal destination for investment.
The Republic of Malta is strategically located at the heart of the Mediterranean, just a 2-hour flight away from most European capitals. Maltese is the national language common to most natives; however, English is an official language as well which is widely spoken and used for day to day business in Malta, with official documentation and regulation also being in English.
Malta became a full member of the European Union in 2004 and adopted the region’s common currency in 2008 which has significantly increased the country’s attractiveness for trade. As a member of the Schengen Area, Malta also grants its citizens the right to travel freely across the Area made up of 26 European Countries, a factor which has attracted several investors to invest in Maltese Citizenship by Investment.
Besides being a destination of choice for those seeking to do business within the EU, Malta is also a very family-friendly and welcoming jurisdiction. Being ranked amongst the top safest locations in the world, Malta is considered as an ideal relocation destination for families. Malta also enjoys an internationally acclaimed education system with both public and private schooling options.
Malta enjoys a stable political climate and a bi-partisan political scene that is largely convergent on issues of national and economic importance. Malta is a parliamentary republic fully adherent to a policy of non-alignment, therefore enjoying political neutrality in international affairs. The country has excellent relations with neighbouring countries, as well as a well-developed network of bilateral and multilateral relations across the globe. Political stability in Malta has served as a precursor for a sound economy and good quality of life – attracting high levels of FDI, and attracting families and retirees alike.
Malta’s economy has been resilient through times of financial turmoil, being one of only two states in the Euro Zone (the other being Germany) to maintain economic growth during the 2008 financial crisis.
The Maltese economy has undergone several changes over the past years. Higher value-added sectors, such as online gaming, blockchain, aircraft maintenance, pharmaceuticals, the film industry and property development have gained traction, indicating a shift towards more knowledge-intensive sectors. Traditional sectors like manufacturing and tourism have been sustained through competitiveness, whilst new economic sectors such as healthcare, energy, education and logistics have attracted considerable investment.
Because of the increased economic performance, GDP economic growth for Malta in 2018 is expected to increase by 5.4%, which is more than double the forecasted EU average growth rate which stands at 2.1%. This indicates a robust yet moderated growth pattern following the 6.4% real GDP growth in 2017. According to Eurostat, Malta registered a €436.6 million government surplus in 2017, reaching 3.9% of GDP, and setting itself as the highest registered EU surplus for the year, exceeding the surplus registered by Germany and the Netherlands.
Malta’s economic success has led rating agencies such as Moody’s, Fitch and the IMF to praise Malta’s economic growth and forecast an economic surplus for years to come.
A US Chief Justice once said, ‘the power to tax is the power to destroy’, and indeed taxation which cripples enterprise has closed down businesses and driven investors away in a number of jurisdictions. Malta understands that balance is crucial in this regard and has sought to foster a business-friendly tax regime that allows businesses to prosper and attracts foreign investment.
Investors should know better than anyone else that tax planning, particularly pre-immigration tax planning is a must to avoid incurring taxes which could be avoided. Malta offers a tax neutral environment for those who obtain Maltese citizenship but do not take up residency here but also offers expatriates who elect for tax residency in Malta unrivalled quality living and tax optimisation opportunities.
One should note that Maltese citizenship does not automatically create a tax residency, but this arises due to the genuine link with Malta which is needed to qualify for Maltese citizenship. When meeting the residency requirements set under Malta’s Citizenship Programme, one can prudently assume that the investor will be considered a tax resident for at least two years over which the 12-month timeline for citizenship extends. However, being considered tax resident in Malta does not necessarily result in taxation. Tax will only be due for resident foreigners on income or capital gains arising in Malta, and foreign income (excluding capital or capital gains) which have been received in Malta, a system which is commonly referred to as the source and remittance basis of taxation.
Thus, through sound pre-immigration planning advice, a prospective citizen will be able to reap the benefits of Malta’s tax resident-non-dom regime which allows individuals to be taxed on a remittance basis of taxation.
Malta holding companies have become a highly popular option and an ideal conduit to and from the EU mainly due to their flexible set-up structures, as well as their cost-effective domestic tax treatment. Malta holding companies can be set up in order to hold shares and securities and business assets in any form such as real estate, fixed assets, aircraft, investments, bank accounts and intellectual property as well as personal assets including any luxury items such as yachts, residential property, and works of art.
From a taxation point of view, holding companies which qualify as qualifying participating holdings under the Malta Participation Exemption regime will be exempt from tax in Malta on any income or capital gains derived by Malta companies. Holding companies that do not qualify, or opt to be taxed under a different regime could still benefit from Malta’s full imputation system, effectively resulting in an exemption from taxation or one of the following tax refunds:
- 5/7ths of the Malta tax paid, where the income received by the company is passive interest or royalties or income or capital gains from a participating holding which does not fall within certain safe harbours or satisfy the anti-abuse provisions
- 2/3rds of the tax payable in Malta, where income has benefitted from double taxation relief.
- 6/7ths of the Malta tax in all other cases.
Additionally, dividend payments made by Malta holding companies to non-residents are paid free of Malta withholding tax. Moreover, a non-resident shareholder of Malta holding companies would be exempt from tax in Malta on the gain derived upon the disposal of shares in a Maltese company whose main assets do not consist of real estate situated in Malta, provided that the ultimate beneficial owner of the gain or profit is not directly or indirectly owned and controlled by, nor acts on behalf of individuals who are resident and domiciled in Malta.
One should note that Malta has also concluded over 70 double taxation treaties with different countries around the world which provide for relief from double taxation. Most of these treaties are based on the OECD model. Where no such treaty has been concluded, one may benefit from the granting of unilateral relief or the Flat Rate Foreign Tax Credit system which also provide relief from double taxation.
Whilst fostering an environment that is highly beneficial for those seeking an ideal platform to do business, mainly through innovative regulatory efforts that promote business and a cost-efficient domestic tax regime, Malta is also a stable jurisdiction that provides for optimal asset protection and wealth structuring.
Malta trusts and foundations are the most popular vehicles for estate management since they are beneficial yet secure ways of structuring one’s wealth. Corporations, particularly successful family businesses may set up a Malta Private Trust Company, a privately-owned corporate trustee acting as a trustee of trusts holding the assets of a wealthy family. Alternatively, a unit trust may be set up which merges the resources and funds of a number of investors which will be entrusted to a third person. This option is ideal for persons (be it legal or natural) who are not able to individually accumulate a large pool of money which is sufficient to give them access to substantive investment opportunities. By setting up a unit trust, such investors would be able to collectively contribute such large pools of money and access lucrative investment opportunities which were previously out of their reach.
Additionally, trusts whose income partially or wholly arises outside of Malta and whose beneficiaries are non-Maltese residents or have income that would be exempt from tax under Maltese law will be treated as tax transparent entities.
Building on the success of its robust banking industry, Malta has taken the opportunity to style itself as a European financial services centre.
Malta offers a whole gamut of innovative funds structures, including Professional Investor Funds (commonly referred to as PIFs, the Maltese hedge fund that does not fall under the AIFMD), Alternative Investment Funds (AIFs), Notified AIFs (an innovative fund product offered in Malta which may be incorporated and market to investors within just 10 days), UCITS (retail funds), private funds and non-UCITS, and Recognised Incorporated Cell Companies.
Even though it has a significantly smaller market size than much larger centres such as London, the Maltese financial services sector has grown for its ability to create innovative solutions through regulation which allows it to offer fully EU-compliant funds and products such as PIFs and Notified Alternative Investment Funds which come as refreshing alternatives to European products.
The traction garnered by cryptocurrency and blockchain technology is widespread, yet only a few countries have provided a legal framework within which enterprises and investors can feel safe operating. Malta is the first country to draft an in-depth legal framework that seeks to put an end to the legal vacuum surrounding fintech technology. In 2018, the island nation became known as the Blockchain Island and boasts a world first in comprehensive DLT legislation.
As an EU member state, Maltese funds such as AIFs and Notified AIFs benefit from the possibility of EU Passporting.
From a business perspective, it is impossible not to mention Malta’s success in becoming a gaming hub for gaming companies. The Maltese legislator was one of the first to regulate the sector and the result was a transparent environment where companies feel safe to set up. Additionally, Malta grants several fiscal benefits to gaming companies seeking to set up shop here, namely a low gaming tax that has attracted several to set up shop here.
In August 2018, Malta launched an all-new Gaming Act, complement by subsidiary legislation and regulations specific to the gaming sector. The new framework provides for stricter and less bureaucratic supervision of gambling companies located in Malta. The new Act also intends to simplify procedures as well as combat illegal activities, such as money laundering and terrorist financing.
Additionally, the Malta Gaming Authority (MGA) has launched the ‘Sandbox’ initiative. The MGA has issued a Sandbox Consultation Paper, intended to better regulate the use of Distributed Ledger Technology and push acceptance of cryptocurrency by gaming operators in a sandbox environment to the forefront. This initiative will help several businesses to operate on DLTs and accept cryptocurrencies in a test environment.
Real estate is often seen as an ideal investment option for those seeking a safer way to protect their income and invest.
In 2010, when most European property markets experienced a downturn, the Maltese realty market earned itself a coveted reputation for being relatively steady, constant and with a first-rate return on investment. Any slumps in property prices since then were short-lived.
Residential prices in Malta, according to global consultancy agency Knight Frank, have experienced roughly a 17% year-on-year increase, pushing the country ahead of Hong Kong to the top spot for the first time ever. Such a leap in ranking is due to the ever-growing demand instigated through supply restraints, consistent vigorous economic growth (6.6% GDP growth in 2017), and booming technological advancements.
Apart from the 16.9% increase observed in the period from Q2 2017 to Q2 2018, Maltese residential property prices have also more recently undergone a 3.6% average price increase in the first quarter of 2018. The Maltese property market has managed to sustain an upward trend, as the Maltese economy continues to perform among the highest in Europe. Property sectors on the Maltese islands have also been enjoying steady price increments fuelled through the unwavering demand of both locals and foreigners, especially from developers, investors, and iGaming executives.
Malta is one of an increasing number of countries seeing growth in annual residential prices, even when the average global rate of growth is moderating.