Malta builds a road upon the sea

In the absence of developed industry, business services are partially responsible for driving the economy of the ninth smallest country in the World. The government is endeavouring to introduce favourable measures to encourage development not only in tourism, but also in business services and to switch the attention of foreign investors to Malta instead of Cyprus.

British control had a great impact on company law regulations in Malta and thus the Limited company (Ltd) is the most widespread company type, in which owners have limited liability. Company registration takes place electronically and takes one or two days to complete. 20% of the registered capital of the company needs to be paid by the owners on foundation, although the minimum required capital for company foundation is merely 1,200 EUR.

Companies face company tax of 35% on their profits, which is the second highest in the European Union. As a result, other Member States of the EU do not consider Malta to be an offshore location, however, its tax system has still remained appealing to local companies due to the so-called tax refund policy. The essence of the method is that profitable businesses have to pay company tax of 35% at the end of the business year, but, if dividends are paid to owners at the same time, then six-sevenths of the tax paid by the company is refunded  to owners by the tax agency. Due to the tax refund scheme, the effective level of company tax is a mere 5%. Holding companies are entitled to further tax benefits as certain incomes from investments, such as dividends and profit made on the sale of company stakes, are classified as entirely tax-free. Recently, similar regulations to the above have been established for patents and trademarks, but it seems that the process is far from coming to an end. Certain incomes are not only tax-free in Malta, but also at international level, as the country has made a number of tax agreements which offer further opportunities in this field.

It seems that Malta has not only entered into EU tax competition, but is also trying to attract financial businesses to the country. European legislation is uniform in this area, but if there is any discrepancy allowed, locals are trying to take advantage of it. An increasing number of experts are working on the establishment of investment funds and on obtaining EU financial licenses. However, high level business services cannot be possible without a well-developed banking system. The two most important participants in the financial system are HSBC and the Bank of Valletta which hold assets equal to 170% of the GDP of Malta. Besides these two financial institutions, the Turkish Akbank has a significant involvement on the island.

According to the Maltese proverb, with money you can even build a road on the sea. So far Maltese people do not have such major plans, however, the local environment for company registration, and the tax and financial systems clearly illustrate how can the lack of raw materials can be compensated for by ingenuity in business.

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