Malta is a small island nation in the heart of the Mediterranean Sea with anything but a small economic potential. This strategically located island holds close ties to mainland Europe, North Africa, and the Middle East. The island is considered the best choice for European Union investments in knowledge-based sectors and high-end manufacturing according, to the BMH Group. Malta is also considered an ideal logistical hub due to its excellent port infrastructure. This, together with EU membership, makes the country a perfect gateway to the Euro-Mediterranean region.
The government of Malta has done a lot in the past few decades to liberalize its economy and encourage foreign investment. Malta has a thriving industrial sector with over 200 foreign and some 400 locally-owned manufacturing companies. Products made in Malta are exported worldwide and comprise semiconductors, electronic components and sub-assemblies, pharmaceuticals and medicinals, rubber and plastics, fabricated metal products and machinery, software, garments, food products, and other exports.
The flexible and highly-trained multi-lingual workforce is Malta’s main asset and helps to ensure the country’s competitive edge through high-quality production at costs that are highly competitive, relative to mainland Europe.
(Image Caption: Left: His Excellency, Ambassador William Weiss, MA, JD, Hon. Consul for the Republic of Malta, Right: Mr. Nawaf Alfaouri, Economic Development Specialist, Greenfield Advisors)
Why invest in Malta?
Greenfield Advisors held a meeting with His Excellency, Ambassador William Weiss, MA, JD, Hon. Consul for the Republic of Malta, to discuss foreign investments into Malta.
Weiss is a prominent Maltese figure, receiving the UNCTAD award for trade and development in Asia among other recognitions.
According to Ambassador Weiss, Malta offers numerous advantages to foreign investors seeking to set up shop on the island, including:
- Membership of the EU
- Adoption of the Euro in January 2008
- Financial Services accounting to 13% of GDP
- Highest percentage share of high-tech imports and exports within the EU
- High inward Foreign Direct Investment (FDI) performance and high inward FDI potential (World Investment Report 2007 )
- Stable credit ratings
- Established trade links with Europe, North Africa, and Middle East
- Dedicated and well-educated workforce
- High quality educational facilities, easy to set up courses tailor-made for specific industries that are able to quickly adapt to the needs of industry
- High tech offices and innovative incubators in “Smart City Malta”, a modern commercial and business development
- Hub for knowledge-based industries
- Multilingual workforce – English is a primary language, and Italian, French, German and Spanish are widely spoken.
- Modern developed telecommunications system, wireless internet connections, VOIP, WiMax, and 3.5G
- Malta Freeport services 115 ports worldwide
- International airport has direct flights to 37 major cities
- High quality health care services
Key investment areas
Malta is a highly competitive location for foreign investments. Some of the sectors that are booming in Malta are niche manufacturing and many others in the service sectors. Key industries for foreign investors to explore in Malta include bio-technology, maritime activities, financial services, electronics, ICT and software development, automotive, pharmaceutical, and Healthcare.
The financial sector, thanks to the tremendous growth it has registered recently, is a key sector drawing foreign investments. According to the Global Financial Centers Report Index, the financial service sector of Malta is identified as one of the top three financial sectors in the entire world. This bodes well for financial security for foreign investors, as Malta is classified as an advanced economy by the IMF. Measuring for GDP growth, projections show Malta topping advanced economies in 2017.
Furthermore, The Business Promotion Act (BPA) has succeeded in attracting foreign investment and encouraging foreigners to do business in Malta. It has been in force since 2001 and introduced greater scope and flexibility to the incentives available for the promotion of businesses, and it covers a wide range of qualifying sectors and activities. The BPA provides incentives for those industries demonstrating growth and employment potential that are engaged in manufacture (including software development), repair, improvement, and maintenance activities.
The Business Promotion Regulations, issued as part of the Business Promotion Act, provide attractive fiscal incentives for companies engaged in particular manufacturing and qualifying activities. The incentives available under the Business Promotion Act may be subdivided under two headings: tax related incentives and non-fiscal related incentives for doing business in Malta.
Malta’s overall entrepreneurial environment supports the development of a dynamic private sector. The judiciary, which is fairly independent and efficient, provides strong protection of property rights. The financial market is small but sound and has become more open to competition. The financial sector weathered the global financial crisis relatively well.
Investment Aid Regulations
The Investment Aid Regulations include tax incentives aimed to stimulate investment and job creation by attracting new investment projects and promoting the expansion or diversification of existing enterprises into certain targeted fields of business defined in these regulations as ‘qualifying activities.’ In order to qualify for tax credits under the Investment Aid Regulations, undertakings solely carrying out a qualifying activity may organize themselves in the following legal forms:
- a partnership constituted under the Companies Act, or
- a body of persons constituted, incorporated or registered outside Malta and of a nature similar to a partnership set up under the Companies Act; or
- an oversea company registered in accordance with the Companies Act; or
- a co-operative society duly registered under the Co-operative Societies Act.
The regulations provide an exhaustive list of activities which may be eligible to receive tax incentives. In general, qualifying activities are those related to:
- Information and Communications Technology (I.C.T.)
- Research and development and innovative start-ups
- Eco-innovations, waste treatment and environmental solutions
- The provision of facilities directly required in the development or production of feature films
- Science and technology private tertiary educational services
- Private health-care services
- Logistics services
- Activities set out in Article 11 of the Malta Freeports Act
These activities listed above are more clearly defined in the Incentive Guidelines.
In general, the tax incentives under these regulations take the form of an investment tax credit. The regulations provide two bases over which the tax credit may be calculated. The tax credit may be calculated either as:
- A percentage of the capital expenditure on the qualifying activity; or
- A percentage of the wage costs for wages paid in connection with the jobs created as a result of the qualifying project
The amount of credit varies in accordance with the size of the undertaking and is capped at the percentages prescribed in the Incentive Guidelines. Further, given that the regulations do not impose any conditions on the choice of basis over which the tax credit may be calculated, this implies that an undertaking is free to use the most favorable basis to maximize its tax credit.
Assistance to Small and Medium-Sized Business
(L.N. 69 of 2008)
The incentives prescribed by these Regulations aim to provide financial aid by way of cash grants to small and medium-sized undertakings carrying on the specific types of listed business activities. It follows that large undertakings will not qualify for this incentive. In line with the preceding regulations, reference should be made to Commission Recommendation 2003/361/EC7 which defines the parameters as to what constitutes a small, medium-sized, or large undertaking.
The term ’undertaking‘ is also broadly defined, implying that enterprises wishing to avail themselves of these incentives may carry out their qualified activities through a wide range of legal forms. The term ‘undertaking’ also includes an association or other body of persons which promotes the goals or objectives of an undertaking carrying out a qualifying activity.
Regulation 3 provides an exhaustive list of the business activities which may be entitled to receive financial aid under these regulations. The qualifying activities are equivalent to those which may receive an investment tax credit under the Investment Aid Regulations, excluding those activities in connection with the provision of logistical services and those activities set out in Article 11 of the Malta Freeports Act.
Regulation 3 also lists certain undertakings which are disqualified from obtaining financial assistance under these regulations. Such undertakings include those selling by retail, undertakings whose trade or business includes dividing, sorting, packaging, mixing of goods which are acquired in bulk and undertakings carrying out business activities in connection with the preparation and the production of food in the course of catering.
The Malta Enterprise Corporation promises a wide range of assistance for:
- The development of new businesses
- Small start-ups
- The use of experts
- The participation in fairs and exhibitions
- The preparation and submission of proposals for the participation in projects funded through the initiatives promoted by the European Union such as the FP7 and the CIP
- The use of ICT and e-business
Enterprise Support Incentives Regulations
The Enterprise Support Incentives Regulations (ESIR) have been introduced by virtue of Legal Notice 70 of 2008. These regulations provide the necessary legal basis by which Malta Enterprise Corporation may provide cash grants to those undertakings which carry on or intend to carry on an activity which may contribute to the economic development of Malta. Details as regards to the assistance provided may found in the Incentive Guidelines. This gives a certain degree of flexibility to the Malta Enterprise Corporation to apply its discretion to the type undertakings or business activities qualifying for these incentives.
In line with the above, the ESIR only lists the undertakings to which these incentives do not apply. Such undertakings include those operating in the fishery and aquaculture sectors and those operating in the primary production of agricultural products (excluding undertakings that operate in the processing or marketing of agricultural products as described in Annex 1 to the EC Treaty under certain conditions).
Rules 4 to 8 of the Regulations provide the various types of assistance which may be granted. It should be noted that the amount of assistance under each rule is capped to a percentage of eligible costs. The nature of the assistance includes assistance for participation in trade fairs, assistance for collaboration with other undertakings, assistance for business development projects, assistance in the engagement of advisors and assistance for the development of international competitiveness.
It should be stressed that in terms of Article 6(1) of the Malta Enterprise Act, any incentives, benefits, or grants received by virtue of these regulations are exempt from income tax in the hands of the relevant beneficiaries. Further, where such benefits are received by a partnership which is a transparent entity for tax purposes, the partners or members of the partnership will also be exempt from income tax. The tax-sparing provisions in Malta’s double tax treaties should also ensure that any benefits received in accordance with these regulations are ultimately enjoyed by the foreign investors.