Malta: Tax Incentives for Foreign Investors to Setup Their Business in Malta

Whether your business is established, or you are just looking to get started, the prospect of making your investment in a foreign country can be a mixture of both appealing and scary. The correct incentives need to be in place for such an investment to happen and one country that fits this bill is Malta. 

A Little Background on Malta 

The Republic of Malta is an island type country located in Southern Europe (east of Tunisia and south of Italy). It is made up of an archipelago and is known for being the 10th smallest country in the world. 

Maltese natives account for over 95% of the population and the official languages spoken are English, Maltese, and to a much lesser extent, Italian. 

Tax Benefits for Foreign Investors 

A major factor in the decision to establish a business in a foreign country is taxation. While the amount of revenue a business can pull in is a big indication of profitability, expenses such as taxes also play a large role. If tax laws in a country mean businesses are heavily taxed, then such a country may not be the best option to establish your business. 

In Malta, tax incentives are generally governed by the Malta Enterprise Act and the Business Promotion Act, which aim to attract potential investors to the country. 

This is over and above the Malta Tax refund system which provides for distribution of taxes paid up to the level of 6/7 on the taxes paid by the trading company. 

The major tax incentive is Malta’s unique tax credit system. To put it simply, tax credits allow a company to make deductions from the tax that is due once required conditions are met. The most prominent of all these conditions is industry. This system most heavily applies to firms engaged in the electrical, pharmaceutical, biotechnology, and the manufacturing industry. The credits can be calculated as a percentage of expenditure on certain fixed assets and as a percentage of salary/ wage expenses as a result of employing Maltese nationals (for the first two years of operation). 

The actual percentages depend on the amount of expenditure and unused credits do roll over across accounting periods. Other notable tax credit applications include: 

• Credits for expenditure on research that ultimately results in new product development or existing product improvement 

• Credits for expenditure on any creative activity that results in economic development in Malta 

• Credits on various costs for self-employed persons and small companies 

• Credit on expenses associated with financing approved projects (tax rates can go from the standard 35% to as low as 15.75% here) 

Double Tax Treaties 

The existence of double tax treaties is another large contributing factor to the likelihood of foreign investment. Malta has established double tax treaties with many countries. The idea is to provide relief to businesses that are based in Malta and have operations in external territories. Typically, this means that taxation occurs at both endpoints, but the treaties aim to provide relief from the Maltese end of this. Double taxation relief comes in the following forms: 

i) Unilateral relief – Where there is an application of taxes in a foreign country on businesses transactions that warrant a similar type of taxation in Malta, relief is provided to Maltese residents or companies registered in Malta. 

ii) Flat Rate Foreign Tax Credit (FRFTC) – Companies that are registered in Malta enjoy a 25% credit on income received from overseas investments such as rents, royalties, etc. 

Commonwealth Relief – While this is not commonly applied, relief is granted when a company registered in Malta pays taxes to Commonwealth countries excluding the United Kingdom. 

Financial Incentives 

Apart from those that are taxation-based, other financial incentives are just as important to the decision to establish a business in Malta. 

First, there is the benefit of labour costs. Compared to countries such as the United States of America, labour costs associated with operations are much lower in Malta. This even applies to labour provided by highly skilled individuals. 

The Malta Freeport is customs-free, which means shipping requirements attract much lower costs when compared to many other countries. 

Foreign investment is also encouraged as Malta provides financial aid to undertakings that are deemed beneficial to the Maltese economy. This financial aid includes: 

• Assistance for structural work required for investment in factories (there is also assistance provided in locating prospective factories) 

• Training grants that are granted to companies that engage in qualifying training activities 

• Business loans with interest rates as low as 2.5% 

• Various business cash grants that are available for activities such as research and development, engaging field advisors, participation in trade fairs, etc. 

Malta is an attractive territory for foreign investment and the information provided above lists a subset of the reasons why this is the case. If you are considering such a venture, Malta may be the place for you. 

Should you need further information for setting up your business in Malta please contact Mr. Robert Borg at robert@reandamalta.com.

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