Malta, an EU member state since 2004 and a Eurozone member since 2008, seeks foreign direct investment to increase its rate of economic growth. Malta provides incentives to attract investments in manufacturing, transshipment and servicing industries especially generic pharmaceuticals manufacturing, information and computer technology (ICT) and financial services.
Malta is a politically stable parliamentary republic with a free press and active political parties. Malta is well regarded as a safe and secure place to do business. Malta enjoys an 'A' investment grade rating by Standard's and Poor's and A3 by Moody's. Both agencies rate Malta's outlook as stable. Moody's upgraded the foreign and local currency government bond ratings from A2 to A1 following the introduction of the Euro currency on 1 January, 2008.
The government established The Malta Enterprise to promote foreign direct investment in Malta. The Malta Enterprise provides information to prospective investors, processes applications for government investment incentives and liaises between investors and other government entities.
Following are some of the most significant laws that govern foreign investment in Malta:
· The Income Tax Act of 1948 (as amended) established a single rate of taxation of 35 per cent for limited liability companies in Malta.
· The Business Promotion Act, which authorizes the government to allocate fiscal and other incentives to companies engaged in manufacturing (including software development), repair or maintenance activities.
· The Companies Act of 1995 regulates the creation of limited liability companies. The Companies Act provides for the establishment of investment companies with variable share capital (SICAVS) and companies with share capital denominated in a foreign currency.
· The Malta Financial Services Authority Act of 1989, which established the Malta Financial Services Authority, the agency responsible for the regulation of investment services in Malta. The Investment Services Act of 1994 contains a package regulating investment services, including banking and insurance.
Virtually all the manufacturing sectors are open to investors so long as they plan to export their products from Malta (as most manufacturers do). There are no legal prohibitions for investments oriented toward sales in the small Malta domestic market, but the government carefully screens such proposals from foreign companies. Certain sectors dominated by the state, such as the generation of electrical energy and distribution of fuels, are being liberalized in response to EU requirements. Energy distribution remains in the hands of the parastatal company Enemalta.
In its efforts to attract investment, the government gives priority to companies operating in the following fields:
· Information and Communications Technology, including electronic components;
· Health, Medical Equipment and Pharmaceuticals;
· Back Office and regional support operations including call centres;
· Knowledge-based services, including aviation repair, education and training; and research and development;
· Logistics-based services, including maritime, warehousing, and oil and gas services;
· Film Industry
· Education and Training
Private foreign investors are free to make equity arrangements as they wish - from joint ventures to full equity ownership.
The Maltese government has in recent years privatized a number of state-controlled firms, including its shares in the country's largest bank, and postal service and its remaining 60% of the share in a wireless telecommunications services company.
The government welcomes private investors, Maltese and non-Maltese, to participate in privatization projects. It affords foreign investors equal treatment as that given to domestic investors and sets few limitations on their operations. There are currently no performance requirements other than those linked to the goals stated by the investors at the time of application for assistance. Foreign investors have the right to repatriate or reinvest profits without restriction and can take disputes before the International Centre for Investment Disputes.
Conversion and Transfer Policies
The government routinely approves repatriation of profits, dividends, and capital. There are no limitations on the inflow or outflow of funds for remittances of profits, debt service, capital, capital gains, returns on intellectual property or imported raw materials as long as investors present the appropriate documents to the Central Bank of Malta. There are no significant delays in converting investment returns after presentation of the necessary documents. Maltese regulations and practices affecting remittances of investment capital and earnings have been improved as several foreign exchange controls were relaxed to conform to EU directives. Malta joined the eurozone in January 2008.
There have been no significant investment disputes over the past few years involving U.S. or other foreign investors or contractors in Malta.
The Maltese Parliament is the highest law-making institution. Its 65 members are elected every five years by proportional representation. Government functions through a cabinet of ministers, headed by the Prime Minister. The judiciary is independent and courts are divided into Superior Courts, presided by judges, and Inferior Courts presided by magistrates. The jurisdiction of the Inferior Courts is restricted to minor offences of a criminal nature and to small civil matters. Traditionally, the judiciary functions through the Criminal, Civil and Constitutional courts. The First Hall of the Civil Court adjudicates cases of a commercial nature. There is one Court of Appeal for all jurisdictions. The Constitutional Court has jurisdiction to hear and determine questions and appeals on constitutional issues.
There are also a number of administrative tribunals, such as the Industrial Tribunal, the Rent Regulation Board and the Board of Special Commissioners for income tax purposes.
In 1987 Malta adopted the European Convention of Human Rights as part of Malta's domestic law.
The Maltese judiciary has a long tradition of independence. Once appointed to the bench, judges and magistrates have fixed salaries, which do not require annual approval, and they cannot be dismissed except for a proven inability to exercise their function properly or proven misbehaviour, following a two-thirds vote in the House of Representatives. The Constitution guarantees the separation of powers between the executive and the judiciary. Fair trial is also recognized as an enforceable human right under the Maltese Constitution.
Malta has a distinct Commercial Code. Commercial activities are regulated by the Commercial Code and related legislation, such as the Banking Act, the Central Bank of Malta Act, etc. Bankruptcy is covered in the Commercial Code. The court appoints a curator to liquidate the assets of the bankrupt company, organization or individual and distributes the proceeds among the creditors.
In 2002, Malta signed the Convention on the Settlement of Investment Disputes. It is also a member of the New York Convention of 1958 on the recognition and enforcement of foreign arbitration awards. Modes of settlement of disputes are also provided in bilateral investment guarantee agreements, which Malta has with several countries.
Performance Requirements and Incentives
The government offers several generous fiscal and other incentives for investment in industrial projects.
- Investment Tax credits are available for qualifying companies, which include those companies involved in pharmaceuticals, plastics, biotechnology, electronic and electrical activities. Investment Tax credits are calculated as a percentage of either the amount invested; or of the first 2 years wage costs of new jobs created. For Small Enterprises, the relative percentage is 50%, 40% for Medium Enterprises, and 30% for Large Enterprises.
- An Investment Allowance of 50% on plant and machinery and 20% on industrial buildings and structures, in addition to normal tax depreciation.
- Tax on Reinvested Profits is reduced from 35% to 19.25%.
- Incentives for job creation: The creation of new jobs for particular persons (e.g., persons unemployed for more than two years or disabled persons) would entitle a company to an additional tax deduction based on the wage costs of such persons.
- Factory Buildings are made available at competitive prices
- Soft Loans: Promoters of industrial projects may seek soft loans from Malta Enterprise covering up to 75% of the projected capital outlay. Alternatively, companies may benefit from low interest rates payable on loans taken up from licensed financial institutions to acquire additional assets. Loan guarantees are also available.
- Other Incentives: include training and management service grants. Depending on whether the company is classified as a large enterprise or an SME, such assistance may vary from 35% to 80% of costs incurred on training.
- Work Permits: Indefinite work permits are granted to shareholders (or their nominees) holding more than 40% of the equity. Definite work permits for specialists are granted according to company requirements.
The government offers generous incentives to trading and financial companies registered with the Malta Financial Services Authority. Legislative changes in 1994 removed the distinction between offshore and onshore companies with the result that all companies in Malta are subject to a 35% tax rate on profits. However, a system of refunds due to non-resident shareholders substantially reduces the effective tax rate for international investors.
Companies operating within the Malta Freeport, a customs-free zone, benefit from two main incentives: namely, reduced rates of taxation and investment tax credits. In effect, tax credits may offset the tax payable for a number of years or reduce it substantially.
All investment incentives are specified by law and not made available in an ad hoc manner. Treatment of domestic and non-Maltese investors is identical. Non-Maltese investors do not receive favoured treatment.
There are currently no performance requirements other than those linked to the goals stated by the investor at the time of application for assistance to Malta Enterprise. There are no stated requirements that a foreign investor should reduce his shareholding interest over time, transfer his technology, or employ Maltese nationals. These factors might, however, influence Malta Enterprise's decision regarding a firm's application for assistance.
Malta Enterprise monitors compliance with any conditions set by the government as a condition of government assistance. Investors are not required to disclose proprietary information.
Right to Private Ownership and Establishment
The GOM recognizes the right to private ownership in theory and in practice. Private entities are free to establish, acquire and dispose of interests in business enterprises and engage in all forms of remunerative activity.
Many US firms sell their products or services in Malta through licensing, franchise or similar arrangements. The GOM would normally allow foreign companies to operate in merchandising areas especially if they operate a licensing, franchising or similar agreement through a local representative.
It is the government's stated policy not to allow public enterprises to operate at the expense of private entities. Some sectors, such as the generation of electrical energy, are now also open to the private sector participation. Private enterprises are given the same opportunities as public enterprises for access to markets and other business operations.
Protection of Property Rights
Property and contractual rights are enforced by means of (a) legal warning; (b) warrants of seizure; (c) warrants of prohibitory injunction; (d) warrants of impediments of departures (if proceedings fall within the jurisdiction of the Criminal Court); and, (e) sale of property by court auction. Procedures for registering and enforcing judgments of foreign courts are laid out in the Code of Organization and Civil Procedures.
Privilege and secured interest over immovable property have to be registered at the public registry in order to be enforceable. The GOM has occasionally been a party to various international arbitrations and has abided by their decision. There is no regulation, which prohibits the government from accepting binding international arbitration.
Acquisition and disposition of intellectual property rights is adequately protected and facilitated in the Maltese legal system. In 2000, Malta implemented the pertinent provisions of the WTO Trade-Related Aspects on Intellectual Property Rights (TRIPS). It has now fully implemented the EU and WTO rules into national law.
Malta is a member of the World Intellectual Property Organization (WIPO); the Paris Convention for the Protection of Industrial Property; the Bern Convention for the Protection of Literary and Artistic Works, the Universal Copyright Convention (UCC); and the World Trade Organization (WTO) Agreement.
The Association against Copyright Theft claims that the minimum local laws do not contemplate high enough minimum fines to deter vendors from selling pirated material. The Ministry for Competitiveness and Communications has assured the Embassy that the GOM will take the necessary steps to remedy the situation.
Transparency of Regulatory System
Malta has transparent and effective policies and regulations to foster competition. It has revised labour, safety, health and other laws in general to conform to EU standards.
Efficient Capital Markets and Portfolio Investment
Capital is available from both public and private sources. Both foreign and local companies can avail themselves of local lending facilities. Commercial banks and their subsidiaries can provide loans at the commercial interest rate. New investors can negotiate soft loans from the government covering up to 75 percent of the projected capital outlay.
Local commercial banks have in recent years expanded the scope of their lending portfolios. The Maltese banking system is considered extremely sound.
Malta's Stock Exchange was set up in 1993. In 2002, the Financial Markets Act effectively replaced the Malta Stock Exchange Act of 1990 as the law regulating the operations and setup of the Malta Stock Exchange. This legislation divested the Malta Stock Exchange of its regulatory functions and transferred these functions to the Malta Financial Services Authority (MFSA). The Financial Markets Act also set up a Listing Authority, which is responsible for granting "Admissibility to Listing" to companies seeking to have their securities listed on the Exchange.
The small numbers of companies publicly listed on the Malta Stock Exchange have not been concerned with the possibility of hostile takeovers.
There are no laws or regulations authorizing firms to adopt articles of incorporation/association that would limit foreign investment, participation or control. Legal, regulatory and accounting systems are transparent and consistent with international norms. Several U.S. auditing firms have local correspondents.
There have been no recent incidents involving politically motivated damage to projects and/or installations, and there are no signs that civil disturbances may become more likely.
Malta has been a member of the Council of Europe's Group of States against Corruption (GRECO) since 2001. According to a report drawn up by GRECO in January 2005, "de facto instances of corruption within the public administration are rare". GRECO also noted that: "Malta promotes international and coordinated actions to prevent and fight corruption, organized crime and money laundering and takes account of the link between these crimes. It has taken several initiatives to adopt the legal provisions concerning the seizure and forfeiture of proceeds of crime as well as the criminal and civil liability of legal persons with a view of implementing the Criminal Law Convention on Corruption. Minor adaptations are still required. It also adapted in 1995 a Code of Ethics for employees in the public sector and subsequently several other code of ethics".
GRECO notes that: "Malta still lacks a comprehensive anti-corruption strategy and appropriate coordination for implementing and monitoring such a strategy in the public sector and in specific areas of law."
In 2007, Transparency International ranked Malta 33rd in its corruption rankings of the world's economies, with a Corruption Perception Index (CPI) of 5.8, behind several EU member states, such as the UK and France, and ahead of Italy which was in the 41st place.
Malta has signed all the relevant Council of Europe conventions on corruption. In 2004, it ratified the Council of Europe's Civil Law Convention on Corruption, which it had originally signed in January 2003.
OPIC and Other Investment Insurance Programs
Malta qualifies for OPIC investment guarantee programmes. Malta's leading trading partners (UK, Germany, France and Italy) offer insurance programmes similar to OPIC's which cover investments in Malta. Malta is a member of the Multilateral Investment Guarantee Agency (MIGA).
Malta's labour force currently stands at roughly 164,377 (47 per cent), the number of unemployed persons at 12,758 (4 per cent), and the number of inactive persons at 175,154 (50 per cent). The country's population is about 412,966, the lowest in the EU. The national minimum monthly wage is approximately €660.
Employees are entitled to 24 days annual leave and 14 public holidays. Sick leave entitlement varies according to the industrial sector.
Foreign companies that have invested in Malta have a high regard for the ability, productivity and learning potential of Maltese workers, nearly all of whom speak English. In some industries, labour productivity is comparable to Western European countries and Maltese managers now run most of the foreign firms in Malta. On the labour front, Malta enjoys one of the lowest strike rates in Western Europe, and labour unrest is unlikely in the foreseeable future. The Government strictly adheres to the ILO convention protecting workers' rights.
Foreign-Trade Zones/Free Ports
Malta's Freeport container port offers modern transshipment facilities, storage, assembling and processing operations as well as an oil terminal and bunkering facilities. It is operated by a private company, Malta Freeport Terminals Ltd, under a long-term lease. The operator ascertains that goods that have been subjected to processing or other transformation in the Freeport are not labelled as having Malta as their country of origin, unless their identity has been substantially transformed. Companies operating within the Freeport require licensing to guard against illegal operations.
Companies licensed to operate in the Freeport benefit from reduced rates of tax and investment tax credits.
Source: U.S. Department of State
Malta commercial classes and permits
Which commercial property types are available in Malta?
Commercial properties are mainly distinguished by their intended purpose. For this reason, permits are issued in order to determine what kind of activities may be undergone in the commercial property.
An office for example, would require a different permit than that required by a restaurant outlet. There would also be different requirements and restrictions imposed on the two.
Commercial classes and permits in Malta
Commercial Property Class 1 license – Dwellings
Commercial Property Class 2 license – Residential institutions
Commercial Property Class 3 license – Hostels
Commercial Property Class 4 license – Shops
Commercial Property Class 5 license – Financial, professional & other offices
Commercial Property Class 6 license – Food and drink
Commercial Property Class 7 – Non residential institutions
Commercial Property Class 8 – Education
Commercial Property Class 9 – Assembly and Leisure
Commercial Property Class 10 – Marine Leisure
Commercial Property Class 11 – Business and Light industry
Commercial Property Class 12 – General Industrial
Commercial Property Class 13 – Special industrial group A
Commercial Property Class 14 – Special industrial group B
Commercial Property Class 15 – Special industrial group C
Commercial Property Class 16 – Special industrial group D
Commercial Property Class 17 – Storage and Distribution
Commercial Property Class 18 – Agriculture
Commercial Property Class 19 – Boatyards
Commercial Property Class 20 – Aquaculture
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