|.: Doing Business in Malta :.|
Document Prepared by:
This document has been prepared to promote business in Malta.
This document has been prepared by ATS Business Services with the scope of giving an overview for any prospective businessman or coporate entity to establish a legal body in the Republic of Malta.
Malta is an island situated in the center of the Mediterranean Sea about 80 kilometers south of Sicily and 290 kilometers from the North African coast. Malta is therefore strategically placed for international business at the crossroads between Europe, North Africa and the Middle East.
Malta is a small country with around 375,000 inhabitants nearly all of whom are fluent in English in addition to the national language which is Maltese. Other foreign languages are also widely spoken, particularly Italian and French.
Malta can be reached by frequent and scheduled direct flights from most major European, North African and Middle Eastern cities that are served by Malta’s national airline as well as by numerous other international carriers.
Malta enjoys a moderate climate of warm dry summers and mild winters with the maximum mean temperature being approximately 15 degrees Celsius in winter and 30 degrees Celsius in summer.
Put simply, Malta is the ideal place to do business.
Introduction to Malta
To most people, Malta is a country of sunshine, sand and sea. But there is much more to Malta than just its reputation as an attractive holiday resort.
Malta exports over US$3.5 billion worth of goods and services to more than a hundred countries every year.
Few people know that Malta manufactures and exports a broad spectrum of goods and services ranging from sophisticated industrial equipment to general consumer goods such as giftware, cosmetics, toiletries, furniture, foodstuffs, footwear and clothing items.
Visitors to Malta are assured of warm welcome. People coming over to the Maltese Islands for the first time are invariably struck by the sense of hospitality and friendliness of the Maltese people. The visiting businessperson will find that it’s a pleasure to do business in Malta. Malta is in many ways an ideal place to mix business with pleasure.
Population and Language
Up to December 1997 Malta’s population amounted to just over 375,000 with a gainfully occupied labour supply of 140,000 persons. This is made up of 100,000 males and 40,000 females.
Maltese is the national language, but official purposes both Maltese and English are given equal status and use in the Government. Most business correspondence is normally in English.
The Maltese Islands, consisting of Malta, Gozo and Comino, are situated almost exactly in the centre of the Mediterranean Sea between Europe and North Africa.
The total area of the islands is 316 square kilometres and this lie 95 kilometres south of Sicily and 290 kilometres from the nearest point on the North African coast.
The main island, Malta, is 27 kilometres long and its widest point measures 14 kilometres.
Malta has neither mountains nor rivers. The island is characterised by a series of low hills with terraced fields on the slopes. Malta’s coastline, covering a total length of 137 kms, has many natural harbors, bays, creeks, sandy beaches and rocky coves. The capital city, Valletta, is situated on the main harbor and is the country’s Governmental, commercial and shopping centre.
Malta enjoys a moderate climate of warm, dry summers and mild winters. The proximity of all parts of the island to the sea ensures that cooling breezes are often in evidence. Earthquakes, floods, hurricanes and other violent natural occurrences are unknown on the islands.
Average annual rainfall is 590 mm and temperatures range from 12 Degrees Celsius in the winter months to over 30 Degrees Celsius in August, the hottest moth of the year.
Malta’s strategic position and its natural harbors have often made it an object of contest among competing powers.
The Maltese Islands, which were converted to Christianity by the visit of St Paul almost two thousand years ago, have been occupied through the ages by many different races including the Phoenicians, Carthaginians, Romans, Arabs, French and British, and retain an unmistakably European culture. Malta is also well known for its links with the Knights of St. John who were based in the country for 268 years and who left a lasting mark on its history and architecture.
Malta was a British colony from 1801 until 1964 when it became an independent sovereign state. In 1974 Malta became a Republic and today it remains a member of the British Commonwealth whilst enjoying close links with the European Union.
January 1; February 10; March 19, 31; Good Friday, May 1; June 7, 29; August 15; September 8, 21; and December 8, 13, 25.
Government offices are generally open Monday through Friday from 8 a.m. to 4.30 p.m. in winter and from 7.30 a.m. to 1 p.m. in the summer. Banking hours are from 8.30 a.m. to 12.30 p.m. Monday through Friday and from 8.30 a.m. to 12 noon on Saturday. Commercial and industrial establishments generally are opened from 8.30 a.m. to 4 p.m. Monday through Friday.
Malta’s currency is decimal. The unit of currency is the Maltese lira, which is represented by the symbol Lm. The lira is divided into 100 cents. One Maltese lira is roughly equivalent to 2.60 US Dollars.
There is no limit to the amount of foreign currency visitors may bring into Malta and any unspent foreign currency can be freely repatriated.
Time throughout Malta is one hour ahead of Greenwich Mean Time (GMT) during the winter and European Summer Time (two hours ahead of GMT) during the summer.
TYPES OF BUSINESS ENTITIES
The following are the most common types of Business entities.
Limited liability companies are incorporated under the Companies Act of 1995. The provisions for the operation, management and financial statement reports are contained in this Act. The Act also deals with administration, winding up and dissolution of companies.
The Memorandum and Articles is the statute of the company. It governs the rules for management and administration of this type of entity.
Partnerships en nom collectif and en commandite
Partnership en com collectif
This type of “partnership” can be formed by two or more partners and operates under a partnership name. Its obligations are guaranteed by unlimited and join several liabilities of all the partners.
Partnership en commandite
This type of “partnership” operates under a partnership name and has its obligations guaranteed by the Public and private companies.
Public companies may offer shares or debentures to the public, although these need not necessarily be quoted or dealt with on a stock exchange.
All other companies are private companies. The minimum authorised share capital of Lm500. A private company must also include as the last part of its name either the word ‘Limited’ or the abbreviation ‘Ltd’.
A company’s authorised share capital and division of that capital into shares should be set out in the company’s memorandum. Allotment of shares can be made in different closes having different voting rights. Closes can be Ordinary shares and Preference shares, the latter usually home fixed dividend but no voting rights. The issuance of redeemable preference shares is permitted.
The liability of each shareholder is limited to the amount, if any, unpaid on the shares respectively held by each member.
The Companies Act (1995) also makes provisions for single member companies, by of which a private exempt company may have a single member where the objects of such company specify the activity of the company as its main trading activity and the business of the company shall have this object as its main trading activity.
Almost any form of business may be carried out in Malta by a partnership. In general, the partners are not only jointly liable to the creditors for the debts of the firm but each partner is also personally liable for all the debts of the firm that are not satisfied by the partnership assets.
Generally partnerships are not subject to the same degree of statutory control over their constitution and administration as are companies, not to the same level of public disclosure. For example, there is no public filing of their accounts.
Malta is a Republic with a democratic system of Government. The titular head of state is the President who is appointed by the House of Representatives. Legislative power lies in the hands of the House of Representatives which currently has sixty-five members drawn from the two political parties. Elections are held every five years.
The Prime Minister and the Cabinet exercise executive power. The Prime Minister is usually the party leader commanding the greater support in the House.
The Maltese Islands offer varied accommodation in hotels, guest’s houses, and holiday complexes and in self-catering apartments and villas. The islands boast a number of hotels of international standard.
Until 1979, Malta was used as the main naval base for the British Mediterranean Fleet and, as a result, received a rent, which together with other income indirectly generated from such use, accounted for a substantial portion of the country’s total earnings.
As this source of income drew to a close there was a shift in emphasis in Malta’s economic policy towards the development of the manufacturing and tourism industries.
Manufacturing now accounts for 21% of employment and is the leading contributor to gross domestic product. Since 1994 total manufacturing production amounted to approximately US$ 3.5 billion per annum.
Banking Finance and Insurance
Maltese banks generally offer all the usual services provided in major financial centres. There is no major bank in most countries of the world that does not maintain either a direct account or a correspondent relationship with one or other of the Maltese commercial banks and the Central Bank of Malta.
Central Bank and Stock Exchange
The Central Bank of Malta is responsible for currency notes and coin issues and for monetary and exchange rate policies. It also provides banking facilities to Government and the other commercial banks.
The Malta Stock Exchange was set up in 1991 to encourage private investment in a range of commercial and government stock.
Commercial Banks and Lending Institutions
Between them they operate a network of over 100 branches that offer the recognised banking services rendered by similar institutions throughout the world. All this combines to making the banking sector in Malta a modern and efficient one.
One will find many international insurance companies operating in Malta, usually through well-established local agents. A local insurance company, Middle Sea Insurance Company Ltd, plays a major role in the insurance industry in Malta. A life insurance company, Middle Sea Valletta Life Assurance Company Ltd was set up as a partnership between Middle Sea Insurance Co Ltd and Bank of Valletta plc. Another Insurance Company is the HSBC Life Assurance Company Limited (formerly Mid-Med Bank Life Assurance Limited).
ACCOUNTS AND AUDIT REQUIREMENTS
Partnerships and sole traders are under no statutory obligation to prepare annual accounts or to have them audited (although some form of accounts is usually required for fiscal purposes). Companies incorporated under the Companies Act are, however, subject to extensive statutory requirements, which are described below.
Accounts and directors’ reports
The directors must prepare reports, and present them to the shareholders during the Annual General Meeting. A set of Financial Statements as approved by the shareholders is to be submitted to the Registrar of Companies at the Malta Financial Services Centre within 42 days from the date of the General Meeting.
The General Meeting must be held within 15 months from the from the previous Annual General Meeting and within 9 months from the company’s Financial Year End.
BOOK-KEEPING AND ADMINISTRATION
Limited Liability Companies are requested to keep a proper set of books of accounts. The Books of the company must reflect the company’s financial position.
The company must submit its Annual Return to the Registrar of Companies at the Malta Financial Services Centre.
The Companies Act of 1995 requires the auditors to prepare a set of Financial Statements in accordance with International Accounting Standards and present this report to the shareholders of the Company.
The Auditors must include the following in their report:
In preparing his report the auditor is to carry out such investigations as will enable him to form an opinion as to:
If the auditor is unable to obtain all the information and explanations, which to the best of his knowledge and belief are necessary for the purpose of the audit, this fact is to be stated in the report.
The Companies Act lays down certain minimum requirements for information to be given in the notes to the financial statements themselves. The information covers a large number and variety of matters, such as accounting policies, departure from generally accepted accounting principles, fixed assets, purchase commitments, contingent liabilities, transactions with directors and their connected persons, and particulars of subsidiary and related companies.
Companies with shares quoted on the Stock Exchange are required to provide shareholders with preliminary announcements of their six-monthly as well as annual, profits. For these purposes, only certain significant figures need to be given, and they need not be audited.
International trade, and in particular export activities, represent Malta’s economic lifeline. Measures designed to increase the competitiveness of Maltese exports and to widen the range of incentives available to the industrial investor are given priority.
The importance of this emphasis follows from the fact that apart from its tourist attractions, Malta lacks natural resources and has to import a substantial part of its requirements.
Annual imports for 1998 amounts to approximately US$2.6 billion, compared to visible exports of approximately US$1.8 billion for the same period.
The Maltese have always been convinced that their future lay with exports. Exports of manufactures, along with tourism, transport-related services such as transshipment and ship repair, as well as financial services are now the prime motors of Malta’s economic growth and development.
Maltese goods make their way into practically every country of Europe, and also into North Africa and the Near East. However the European union consistently takes the lion’s share of Malta’s exports – approximately 53% in 1998. This pattern was favored by a long-standing Association Agreement, which gives the majority of Maltese exports duty-free access to markets in the EU, and by large amounts of direct investment in the Maltese economy by enterprises from the EU. This reflects Malta’s cultural and geographical proximity to the largest market in the world.
North America is another significant market absorbing more than 18% of Malta’s merchandise exports in 1998. In Canada and the USA, the General System of Preferences (GSP) has provided Maltese exporters with an entry into markets, which promise to become more important for Malta over the next few years. Other important markets include the Gulf States and North Africa while exports to South-East Asia are growing as the electronics industry develops and consolidates its operations.
The challenge facing Malta is to simultaneously increase, diversify and deepen its exports. New products must be added to the export portfolio, while fresh markets must be continuously sought and developed. The continued growth of the Maltese economy depends on export success, whether in manufacturing or in services.
Incentives for Investors
Malta provides significant opportunities for the establishment of profitable industrial undertakings in a low cost and convenient location.
The skill and adaptability of its workforce, its climate, European culture and history, its location, accessibility, political and industrial stability are the main reasons behind Malta’s ability to attract foreign investment despite fierce international competition.
Investment in Malta has not been limited to large multinational groups; smaller European privately owned companies are also present. Solely overseas companies do not carry out industrial development in Malta since local businessmen have also been heavy investors.
The Malta Development Corporation (MDC) is the Government agency responsible for a range of activities relevant to the foreign investor. The Corporation administers a generous inventive package for the manufacturing industry which include:
A fundamental development to the corporation’s current strategy to attract foreign investment to Malta was the creation of the Mosta Technopark. This industrial complex offers companies advanced levels of factory premises and a reliable and qualitative supporting infrastructure targeted at high technology electronics and information technology companies. The Corporation has already successfully leased a considerable number of the twenty units available at the Technopark. The Mosta Technopark is considered to be a long-term commitment by Malta to enhance its international image as a competitive location for foreign investment in higher technology industries.
Tax holidays. A company formed on or after 1st June 1987 that exports at least 95% of its output is entitled to a tax holiday of ten consecutive years that fall within its first twelve years. The company must determine when the holiday is to start by submitting an irrevocable notice in writing to the Malta Development Corporation by not later than the end of its third year. If a company fails to achieve the 95% export target in any one year, the tax exemption is lost for that year without any extension of the holiday. In addition, years registering a loss during the tax holiday period do not bring about an extension of the ten-year period.
INTERNATIONAL TRADING COMPANIES
An international trading company (ITC) is defined in section 2 of the Income Tax Act, as a company registered in Malta which is engaged solely in carrying on trading activities, from Malta but not in Malta, with persons who are not resident in Malta and which has its objects expressly limited to such trading activities as well as to such acts and activities as are necessary for the conduct of its operations from Malta. This type of company may also engage in:
An ITC is therefore a normal onshore Maltese company having its status recognized only for tax purposes.
INTERNATIONAL HOLDING COMPANIES (IHC)
The Maltese tax system does not have a specific “international holding company” regime. However, a Maltese holding company may qualify to hold a “participating holding” in an overseas company. A “participating holding” can take various forms. Primarily, a “participating holding” means a holding of at least 10%, its shareholding still qualifies as a participating holding, provided that: