Meet The Members Europe – Doing business in Malta: understanding tax and infrastructure

Malta – a brief background

Strategically located in the Mediterranean Sea between Sicily and Tunisia, Malta is arguably at the centre of the world. When you look at the flat map of the globe, the very first thing that catches your eye is the Mediterranean Sea in the middle of the map, and right at the centre of that is the sunkissed island nation of Malta.

Although Malta is the smallest state in the European Union, and the10th smallest state in the world, it has become one of the preferred locations for doing business. The ability to keep abreast of current events and developments has given it a cutting edge when competing with other countries, regardless of size.

Malta has seen it all, and in its 7,000 colourful years, it has carved its place in history. It features two of the most famous UNESCO archaeological sites (Ħaġar Qim and Ġgantija), has seen bloody battles from the Knights of Malta, European empires, and the Second World War, won independence from the British Empire in 1964, and was granted EU accession in 2004.

Modern Malta is the home to so many different people and cultures. Today almost 25% of Malta’s population are foreigners. With English being an official language of the island, these EU and non-EU nationals have chosen Malta as their home away from home, and consider the island to be a great meeting place from which to grow their business interests.

Why Malta?

The country’s attractiveness for business and for high-net-worth individuals stems from a number of factors:

• It is an ideal business hub with its strategic position in the centre of the Mediterranean and excellent communication infrastructure

• A stable and fast-growing economy with record-low unemployment of 3% as of January 2023, one of the lowest inflation rates in the eurozone, and highest GDP growth rate in the EU27 in 2022

• A robust legal framework and regulatory regime that are able to keep pace with global changes

• A tax-efficient base with an extensive network of over 70 double taxation treaties

• Rated as one of the safest places to live, with excellent healthcare, educational services and a family-friendly environment

The Maltese Government is also at the forefront in promoting Malta as a centre of excellence and supporting business investors. Recent years have seen Malta pitching itself as a hub for financial services, life sciences companies, aviation and maritime business, digital gaming, IT, blockchain services, fintech, and technologically innovative companies. Such industries facilitate and add value to the whole process of conducting business in Malta.

“There are a number of fiscal measures which may substantially reduce the effective tax rate.”

Corporate structures

Although subject to rigorous due diligence procedures, setting up a company in Malta is relatively straightforward, with the most popular corporate structure being the limited liability company. Malta is also a favourable jurisdiction for the setting up of trusts and foundations.

“Resident but non-domiciled individuals can use such programmes to pay a 15% rate of taxation.”

Taxation and business incentives

The transparent, fully onshore, yet remarkably competitive and EU-compliant tax system is undoubtedly an important factor in attracting investors to Malta. For example, although profits of Maltese registered companies are taxed at a corporate rate of 35%, there are a number of fiscal measures which may substantially reduce the effective tax rate in the hands of shareholders, subject to certain criteria being met.

Characteristics of the Maltese tax framework include, amongst others:

• Full imputation system being applied whereby tax is only paid at source.

• Qualifying shareholders may claim a refund of tax incurred on distributed profits. Various refunds apply, the most common being the 6/7 refund of Malta tax paid.

• A number of tax reliefs, such as the unilateral relief or flat-rate foreign tax credit. Double taxation agreements with over 70 countries allow for double tax treaty relief.

• A flat rate of 15% is applied on income remitted to Malta, under the Residence Programmes aimed to attract EEA/non-EU individuals to take up residence in Malta and the Retirement Programmes targeted at EU/EEA/Swiss and United Nations pensioners.

• Expatriates eligible under the Highly Qualified Persons Rules or the Qualifying Employment in Innovation and Creativity Rules are subject to a flat rate tax of 15% on their employment income.

• Notional Interest Deduction and Patent Box regimes, both being compliant with the OECD modified nexus approach and the EU Code of Conduct on Business Taxation.

Once a business is established in Malta, there are various financial incentives and enterprise support measures that may be availed of under the Malta Enterprise Act, the Income Tax Act and the Business Promotion Act. These incentives vary from tax credits / deductions / exemptions, reduced rates of tax, incentives for job creation and training, to cash grants for part-financing of expenditure (such as on research and development).

Malta residence and citizenship programmes

Over the years, the government established programmes for high-net-worth individuals to take up Maltese residence (Malta Permanent Residence Programme / Malta Retirement Programme / United Nations Pensions Programme / The Residence Programme / The Global Residence Programme) or even citizenship by naturalisation for those who contribute to the country’s economic development over time.

Subject to certain conditions, resident but non-domiciled individuals can use such programmes to pay a 15% rate of taxation, on a remittance basis.

Since Malta is part of the EU and the Schengen Area, non-EU applicants benefitting under the Programmes benefit from significantly improved mobility within the EU and EFTA member states. They are also able to avail themselves of visa-free travel to more than 160 countries, including the UK, US and Canada.

During the summer of 2021, Malta created a digital nomad visa calling remote workers to come and take advantage of what the islands have to offer.