Malta’s evolving economy

Covering just over 300 sq km of land, Malta may be one of the tiniest countries in the EU, but it has big ambitions. Shirley Redpath speaks to Rosanne Bonnici

April 20, 2011

The small island nation located in the Mediterranean Sea has few natural resources, restricted fresh water supplies and no domestic energy sources. Until the late 1980s, the Maltese economy was heavily dependent on tourism, a limited manufacturing sector and its favourable position as a freight trans-shipping stopover, but that has changed radically over the past 25 years.

Working closely with an emerging financial services industry, the government aims to grow that sector to 25 percent of GDP by 2015. The growth of Malta’s financial services sector is to be attributed to a highly experienced, professional talent pool, a sound legal and regulatory framework, a ‘can do’ and reasonable time to market culture, and cost-competitiveness. Already, Malta is seen as a viable alternative to Dublin and Luxemburg as a base for investment funds and operators alike.

“Malta has evolved from an offshore tax haven set up in the late 1980s to a fully fledged financial services centre,” says Dr Rosanne Bonnici, partner at law firm Fenech & Fenech Advocates. “According to the University of Malta, the number of professional investor funds locating here since 2007 has grown to over 400, an increase of over 40 percent.”

Although the country is sometimes still referred to as an offshore tax haven or a low tax jurisdiction, neither term correctly describes Malta’s tax system. In response to a request from the European Commission that Malta abolish tax provisions that might distort competition within the EU, a number of changes were introduced in 2007 creating a tax regime that is fully EU sanctioned.

Safe benefits
It is still, however, favourable. The Maltese fiscal regime has played an essential role in creating an attractive business environment. Malta has also proved to be a sought-after holding company jurisdiction and a base for conducting international activities. These regimes are underpinned by Malta’s favourable tax system and its key advantages, which include the fact that Malta is the only EU member state with the full imputation system (with certain distributions also triggering a right to tax refunds in the hands of the shareholder, bringing the overall effective Malta tax rate to five percent or less), an extensive network of double taxation treaties, with benefits being granted unilaterally when no bilateral treaty is in force, and an ideal tax residency status for individuals.

Regulatory bureaucracy is also kept to a minimum, making it possible to set up a company in Malta in two to three days. “Clients intending to establish operations will find all the expertise and support they need to incorporate and maintain Maltese companies,” Dr Bonnici says. Dr Bonnici, winner of this year’s World Finance award for Best Tax Consultant in Malta, is widely recognised as one of the country’s leading tax lawyers, and heads Fenech & Fenech Advocates’ tax practice. The firm also includes an inhouse corporate services group and accordingly provides clients with a comprehensive A-Z service.

It is no wonder, then, that investors are moving in and Malta is winning awards. The country is in fact emerging alongside traditional rivals to London, such as Switzerland, as a European location for hedge fund managers. Managers who have moved to Malta recently include Clive Capital, Vector Commodity Management, Duet Asset Management, Finisterre Capital and Belay Partners. Custom House Global Fund Services relocated its headquarters from Dublin to Malta in 2008, with Chairman Dermot Butler noting that the regulator in Malta is “more pragmatic, business friendly and helpful than anywhere else.” 

In preparing its Global Competitiveness Report 2010-11, the World Economic Forum reviewed 139 countries and ranked Malta 10th soundest banking sector and 11th in financial market development. In the third edition of the Global Financial Centres Index (published by the City of London University in February 2008), Malta was named as one of the top three financial centres likely to increase in importance over the next two to three years. Only Dubai and Shanghai were placed above Malta in the index.

Mediterranean appeal
“There are, of course, many other reasons to take a look at Malta,” says Dr Bonnici, whose firm is one of the largest full service law firms in Malta. “In addition to our well-regulated financial services sector, Malta offers excellent opportunities for efficient tax planning for the private and corporate client alike.” Fenech & Fenech Advocates advises clients across a wide range of practice areas, including the highly specialised areas of financial services and taxation through its well established Tax Department. High net worth clients welcome the firm’s expertise in related areas of corporate law, trusts and foundations, amongst others.

Many of those high net worth clients also appreciate the lovely climate and beautiful harbours of the island. Malta has a long maritime tradition: with its strategic location inside the Straits of Gibraltar, the island has been a position of naval importance to conquering nations from the Phoenicians to the British. Today the Maltese maritime flag is ranked second largest in Europe and seventh largest in the world, and many beautiful Maltese registered yachts can be found moored in her marinas.

“We are proud of what we have achieved in Malta,” Dr Bonnici says. “A recent survey of investor and fund manager views on domiciliation, migration and fund servicing in the Mediterranean for International Fund Investment recognised our island as the best know Mediterranean fund domicile, with 76 percent of respondents aware that it is an option for those looking for a base in the European Union. Malta is becoming a real destination of choice.”