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MALTA
“A PLATFORM FOR DOING BUSINESS”
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FINANCE MALTA PRESENTATION FEBRUARY 2005
KEVIN VALENZIA
Finance Malta
MALTA - A PLATFORM FOR DOING BUSINESS • • • • 2
Financial services and related activities have been identified as being one of the three drivers of Malta’s economy There is, and always has been, broad and cross party support for the industry, resulting in a stable and efficient environment Getting things done is a way of life in Malta What are Malta’s key benefits and what does an international investor look for ?
Finance Malta
Flight time Malta - Rome Malta - Tunis - 1 hour - 1 hour Malta - Frankfurt - 2 hours Malta - Paris Malta - London - 2 hours - 3 hours
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Strategically located
Finance Malta
Malta General points
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Relative ease of incorporation for non-regulated entities
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No “thin-capitalisation” rules
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Audited accounts must be prepared in accordance with IAS’s and filed for public inspection
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Flexible transfer pricing rules
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Share capital, accounting, and tax in a foreign currency
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Low minimum capital requirements US$1,500
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No withholding taxes on remittances of dividends, interest, and royalties to non-residents
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No local shareholders or directors required
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Possibility of “flighting” companies to and from Malta
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Low registration and maintenance
Finance Malta
Malta General points
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Extensive DTT network - aggressive policy of expansion
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Lower costs
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Quality of life - convenient European time zone
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Accessible and solution oriented regulator
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High quality workforce - fluent in English
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Tax efficiency - but all companies taxed at 35%
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Attitudes and work ethic
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Professional services
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“Can do” attitude
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Stability
Finance Malta
Malta General points
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Variable share capital companies SICAVS
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Licensed trustees as registered shareholders
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No exchange controls
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Advance revenue rulings on international tax issues - valid for 5 years
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Choice of accounting year-end
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Tax only payable at the earlier of 18 months after year-end, or when a dividend is paid
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Low capital duties – max US$1,600
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Stamp duty exemptions
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Capital gains normally exempt (or treated in same way as foreign income)
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Defined capital reduction rules
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THE COMPANY TAX SYSTEM IN MALTA - RESIDENCE •
For Malta tax purposes, companies are deemed to be resident if they are incorporated in Malta, irrespective of management and control
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Companies not incorporated in Malta but registered as carrying on business from Malta, are taxed in Malta on the basis of income arising in, or income remitted to, Malta – similar to the UK “resident but not domiciled” rules for individuals.
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THE COMPANY TAX SYSTEM IN MALTA - AN OVERVIEW •
Malta’s tax system is, and always has been, based on the full imputation system - shareholders receive full credit for any tax paid by the company on profits distributed as dividends
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This, combined with the detailed workings of the tax system and Malta’s double tax treaty network, may result in some useful structuring opportunities
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Malta Double Tax Treaties in Force
Albania Australia Austria Barbados Belgium Bulgaria Canada China, P.R.
Croatia Czech Republic Cyprus Denmark Egypt Finland France Germany Hungary India Italy Korea (Rep. Of) Latvia Lebanon Libya Luxembourg Malaysia Netherlands Norway Pakistan Poland Portugal Romania Slovakia South Africa Sweden Switzerland* Syrian Arab Republic Tunisia United Kingdom United States of America*
9 * Agreement limited to profits derived from operation of ships or aircraft in international traffic Finance Malta
Malta Double Tax Treaties initialed/signed not yet in force Estonia Iceland Ireland Jordan Kuwait Lithuania Morocco Russia Singapore Slovenia Thailand Turkey Ukraine
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11 Malta - a platform for doing business
Some ideas
Finance Malta
Doing business in Libya
PwC
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Doing business in Libya -
through branch of Malta International Trading Company
• The Malta-Libya Double Tax Treaty is very beneficial; • Permanent establishment profits are taxed in Libya at 15% (plus possibly another 4% - Al Jihad tax (defense tax)); • Setting up a Maltese ITC (owned by UK resident shareholders) to carry out trading operations in Libya produces low total tax in both countries: Finance Malta
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Doing business in Libya
through branch of Malta ITC
(cont.)
– Libyan tax rate up to 15% (+ 4%) under PE article - normal Libyan tax can go up to 45%; – With the operation of the DTR and tax refunds, upon distribution to UK resident shareholders, Maltese tax burden could possibly be reduced to zero; – Various other (non-fiscal) benefits in using Malta as a base for Libya Finance Malta
Doing business in Libya
through branch of Malta ITC
(cont.)
UK shareholder Malta ITC
Example: Lm
Profits in Libya 1,000 Malta tax payable (35%) 350 Libya tax credit (19%) (190)** Net Malta tax Distributable Profits 160 650 Gross Dividend 1,000 Tax on Shareholder (27.5%) 275 Total refunds 160 Libya
Maltese Tax Burden = 0%
** Subject to satisfying all DTR conditions & to allowability of relief from Al-Jihad tax 15 Finance Malta
Doing business in Libya
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through Maltese company & Libyan company
(cont.) No withholding tax in Malta Dividends not subject to further tax UK shareholder Malta Company Dividends not taxed in Malta 100% Libya Company Profits taxed at 15% + 4% Libya Operations 16 Finance Malta
Doing business in Libya
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through Maltese company & Libyan company
(cont.) • Important considerations: – Full Libyan tax advice and clearance should always be obtained; – material difficulties may be encountered when setting up a Libyan company or branch.
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Malta resident/Cyprus incorporated company
PwC
Malta resident, Cyprus incorporated company
UK parent Cyprus incorporated Malta managed and controlled LOAN Advantages
• Zero tax, assuming funds not remitted to Malta • Good European thin capitalisation protection • Interest Directive protection 19
CFCs
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Exporting via Malta
PwC
Exporting via Malta
UK Exporter Malta ITC
Exporting
via Malta
21 No taxable presence in Country B
Country B
Finance Malta
Exporting via Malta (cont.)
• UK Exporter sets up Malta ITC and merchandise will then be shipped to Country B via the Malta Freeport; • The local set-up may vary depending on the degree of substance to be given to the Malta ITC, namely: – Using the Malta operation solely to act as a trans-shipment hub, or – In addition to trans-shipment, a logistics office may be set up in Malta where international activities may be coordinated, or 22 – In addition to using Malta for trans-shipment and logistics purposes, ancillary activities may be performed locally on the merchandise (such as packaging, labeling etc.) prior to being re-exported.
Finance Malta
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Exporting via Malta (cont.)
• With proper planning, and use of double tax treaty network and full imputation system in Malta, there may be fiscal advantages in such a structure • Makes use of Malta’s geographical location for certain markets • Comparatively low costs advantage • Possible to use in conjunction with the Libya branch Finance Malta
Investment services
PwC
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Investment services
Finance Malta
Investment services
26 • Matching UK expertise with local resources - cost and fiscal advantages • An excellent location for fund management and administration (back office) services the first “wave” has already started ! • As a distribution hub for Southern Europe - taking advantage of the cultural interface that Malta has had for many years between the UK and Southern Europe, especially Italy, as well as North Africa • A location that is comfortable with both common and civil law Finance Malta
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Investment services
• Opportunities in applied R&D : e.g. adapting UK investment and insurance products to the Italian market. Using the local (professional and consumer) familiarity with Anglo-Saxon products, as well as language skills, and cultural affinities with Italy • Opportunities as a test-bed for small UK financial services operators who are considering internationalising their services. Supported by local regulator’s accessibility, lower licensing and regulation costs, familiar business environment.
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Conclusion
• The number and quality of the “blue-chip” companies that already make use of Malta as a platform, and have done so for some years, will surprise you • Typically, operations are not large at the outset, but are quickly expanded with the appreciation that the reality lives up to the hype •
Malta - where getting things done is a way of life !
Finance Malta