Malta’s antiquated tax regimes hit the spotlight, by mistake

By Julian Manduca and David Lindsay
A number of Malta’s various tax regimes hit the international headlines this week after an article in the Financial Times erroneously quoted an antiquated EU report that had listed seven Maltese tax regimes found to be harmful and out of line with those of member states, Malta Financial Services Authority Chairman Professor Joe Bannister told this newspaper yesterday.
In fact, as matters stand today only one of the issues remains outstanding – that which offers a number of tax breaks to international companies setting up operations in Malta.
In fact, no less than three of the tax regimes quoted in the Financial Times referred to Malta’s now defunct offshore sector, Profs. Bannister told The Malta
Financial and Business Times yesterday. Three of the others taxes practices listed have also been resolved with the EU.
However, the tax regime related to internationals operating out of Malta remains a pending issue, albeit outside the scope of the Acquis Communitaire and is being treated by the Code of Conduct.
Within this scope the EU had objected to Malta’s beneficial tax treatment for foreign companies, claiming a case of reverse discrimination as non-residents are given preferential tax benefits to residents.
Malta has prepared a proposal that will hopefully rectify the situation and the EU’s last report noted the fact that Malta had submitted such a proposal to that effect.
The details of Malta’s proposal are still not known and the matter is being handled by Malta’s Chief Negotiator Richard Cachia Caruana.
On conclusion of EU negotiations, Malta committed itself to comply with the principles of the Code of Conduct for Business Taxation and to introduce only new tax measures that are in conformity with these principles.
The Malta Financial and
Business Times yesterday contacted Jonathan Todd, spokesperson for EU Taxation Commissioner Frits Bolkestein, who confirmed that acceding countries are expected to fall in line with the EU Code of Conduct before accession.
Malta’s Business Promotion Act’s had introduced a new incentives range including reduced income tax rates and investment tax credits. The Act was drawn up to assist companies that either carry on, or plan to carry on trade in Malta.
According to the Act, manufacturing companies can benefit from reduced tax rates so that in the first seven years only five percent is due, in the next six years only 10 per cent is paid, while for the following five years the rate goes up to 15 percent to reach the full 35 percent in subsequent years.
Companies that qualify for reduced income tax are also entitled to an investment tax credit of up to 65 percent for small or medium sized enterprises and up to 50 percent for any other company for specified investments made by the company within a specific period of time.
Other incentives that the Act offers include: loan interest rate subsidies, loan guarantees and incentives for job creation.