The Jurisdiction of Malta

Jurisdiction Summary

The Republic of Malta is situated in the centre of the Mediterranean, south of Sicily, east of Tunisia and north of Libya. Malta gained its independence from the United Kingdom in 1964 and became a republic in 1974. Since 1964 it has been a member of the United Nations and in 2004 it joined as a member of the European Union. Malta is also a party to the Schengen Agreement and in 2008 it became part of the Eurozone.

Malta’s strategic geographical location and its membership of the European Union play a very important part in its economic, political and cultural development and its prosperity today. The island's increasing relevance as a corporate services and business centre is attributable to several factors. The network of double taxation treaties to which Malta is signatory and the solid and comprehensive legislative framework which provides a sound basis for conducting business activities, particularly in the financial services, shipping and online gaming sectors, have contributed substantially to Malta's successful development as an international business centre.

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Due to its extensive network of double tax treaties with almost all the important OECD countries, Malta is often chosen as a base by firms needing to set up a financial institution or investment company, or trading subsidiary.

Malta's financial services sector continues to expand, attracting considerable interest from international sources. The globally difficult economic situation during 2008 did not affect the sector as much as in most other countries. Malta was ranked 34th (out of 148 countries) by the World Economic Forum’s Competitiveness Index 2013-2014 for financial market development, while the banking system was reported to be the 14th soundest in the world.

Closely supervised by the Malta Financial Services Authority (MFSA), Maltese banks remain well capitalized, and have high liquidity ratios as well as sound, well diversified portfolios. Their funding is sourced mainly from customer deposits, and their prudent business model has enabled them to emerge largely unscathed from the turmoil of the 2008 banking crisis, as evidenced by the World Economic Forum’s October 2008 report on global competitiveness, which ranked Malta amongst the top ten countries insofar as soundness of the banking system is concerned.

As of today, there are 28 credit institutions and 35 financial institutions including 22 payment institutions and 7 electronic money institutions licensed by the Authority under the Financial Institutions Act.

Malta’s development as an international financial centre is reflected in the range of financial services available. Malta continues to be positively ranked for its performance in the financial sector. The World Economic Forum’s Global Competitiveness Index 2012-2013 ranked Malta 15th out of 144 countries for its financial market development.

Advantages of Malta as an International Business and Financial Center

Apart from its ideal geographical location, the benefits of EU membership and euro adoption, and a prompt, efficient and accessible Regulator, Malta offers many other advantages as a domicile for international banking business.

The island has a good source of well-educated people and a cadre of qualified professionals in law, accounting, taxation, IT and other disciplines required by the financial services industry. The workforce possesses good language skills – English is an official language – and a positive work ethic prevails.

Costs are also measurably lower than in other European centres, with salaries averaging one-third to one-half of the EU Level. Other operating costs are likewise competitive, and excellent office space and housing are available at reasonable rents.

The Maltese fiscal regime has also been one of the main drivers in creating an attractive investment environment. Malta’s tax system has been deemed by the European Commission to be compliant with EU non-discrimination principles, and with proper planning and structuring, investors can achieve considerable fiscal efficiency using Malta as a base.

Facts about Malta

  • Solid economic performance;
  • Strongly committed parliamentary democracy where governments change at free elections, underpinned by a constitutionally entrenched policy of political neutrality;
  • Observance of the Rule of Law;
  • Low political and economic risk;
  • English alongside Maltese has the status of official language;
  • Reliability of telecommunication systems and trouble-free accessibility from most parts of Europe.
  • Double tax treaties with 59 countries currently in force (and additional treaties being negotiated)
  • Favourable tax regime
  • Membership of the European Union since the 1st May 2004, providing access to the entire EU marketplace.
  • Availability of quality office and residential accommodation for lease or for sale at reasonable prices.
  • Low set up and operating costs when compared to most other European financial centres
  • Liberal foreign direct investment regime
  • Simplified administrative procedures for acquiring necessary permits (when required)
  • Highly qualified, well-educated and multilingual labour force (English being a national language)
  • Freedom of movement of foreign currency
  • Availability of Free Zone Area
  • Efficient legal, accounting and banking services
  • European standard of living
  • Central European Time Zone
  • Pleasant climate and agreeable topography
  • Regulatory and legal framework

    While most of public law is inspired by the United Kingdom model, the country’s private law is largely continental (European). Malta is basically a civil law jurisdiction, and much of its law has been codified. Five codes of law still provide the bulk of Malta’s civil and criminal rules and procedures.

    Since Malta follows what is usually referred to as the continental (European) model of private law, English common law as a rule does not apply. Nonetheless, its influence is greatly felt in much of local commercial practice and regulation, especially in company law and in insurance and banking law which closely follow English practice. Most recent legislation, including the various financial services laws adopted in 1994 owes a debt to English statutes.

    Since 1988, Malta has been establishing a comprehensive legislative and regulatory framework for financial services activities and international business.

    In 2004 Malta became a member of the European Union and has since then been adopting all European Directives.

    The legislative framework for the payment services sector includes the following basic laws:

  • The MALTA FINANCIAL SERVICES AUTHORITY ACT establishes the MFSA as the single regulator of financial services;
  • The BANKING ACT incorporates a modern banking law which conforms with the best practices of European Union banking regulations and supervision requirements;
  • The FINANCIAL INSTITUTIONS ACT with subsidiary legislation (Financial Institutions (Fees) Regulations, Financial Institutions (Fees) (Amendment) Regulations, Financial Institutions Act (Safeguarding of Funds) Regulations, European Passport Rights for Financial Institutions Regulations, Interest Rate(Exemption) Regulations, Fines and Penalties for Offences Regulations) provides for an adequate level of regulation of a number of designated non-banking financial activities;
  • The PREVENTION OF MONEY LAUNDERING ACT together with subsidiary legislation PREVENTION OF MONEY LAUNDERING AND FUNDING OF TERRORISM REGULATIONS 2008 make provision for the prevention and prohibition of the laundering of money in Malta;
  • The COMPANIES ACT has brought Maltese company law in line with European Union Company Law Harmonisation Directives, particularly by providing new rules for mergers, divisions and the disclosure of financial statements, the regulation of branches and other matters
  • The INCOME TAX ACT, the INCOME TAX MANAGEMENT ACT, the VALUE ADDED TAX ACT,  the DUTY ON DOCUMENTS AND TRANSFERS ACT and subsidiary legislation govern the income tax in Malta, which is levied on income and some specific kinds of capital gains for legal persons.
  • The payment services and electronic money issuing in Malta are regulated by Financial Institutions Act 1994 (for non-lending institutions), as well as all the applicable Financial Institutions Rules (FIRs), together with the amendments to the Financial Institutions Act (Cap 376 - Distance Selling (Retail Financial Services) Regulations) undertaken in May 2010 and June 2011, which reflect changes mainly effected in order to transpose locally part of the requirements of the EU Payment Services Directive 2007/64/EC as well as the EU Electronic Money Institutions Directive 2009/110/EC.

    For the better carrying out of the provisions of the Financial Institutions Act and to better transpose the provisions of the Electronic Money Directive and the Payment Services Directive, the competent authority may, from time to time, issue and publish Rules which shall be binding on licence holders and others as may be specified therein. Such Rules may lay down additional requirements and conditions in relation to activities of licence holders, the conduct of their business, their relations with customers, the public and other parties, their responsibilities to the competent authority, reporting requirements and any other matters as the competent authority may consider appropriate.

    Customer confidentiality is adequately safeguarded by the provisions of the Banking Act, the Professional Secrecy Act and the Data Protection Act, whilst the 3rd EU Directive on the Prevention of Money Laundering and Funding of Terrorism has been fully transposed into Maltese Legislation to guard against abuse of the financial system for criminal purposes.

    While Malta has the same regulatory standards as other EU member states, the country’s framework allows for the flexibility necessary in a modern and dynamic financial environment, without imposing undue bureaucratic burdens on operators.

    Malta is a jurisdiction that complies with and helps develop international best practice and is actively involved with the OECD, the EU and the Commonwealth in modelling global regulatory policy.

    Obtaining a license from the competent authority

    The competent authority and its legal framework

    The Malta Financial Services Authority (MFSA) is the single regulator for financial services in Malta. It was established by law (Malta Financial Services Authority Act) on 23 July 2002 taking over supervisory functions previously carried out by the Central Bank of Malta, the Malta Stock Exchange and the Malta Financial Services Centre. The Authority is a fully autonomous public institution and reports to Parliament on an annual basis.

    The organisational structure of the MFSA ensures that the regulatory and operational functions of the Authority are exercised within strict legal demarcations. The Board of Governors, presided by the Chairman, sets out policy and general direction and is assisted by the Legal and International Affairs Unit. The Director of this Unit is also the Secretary to the Board of Governors. The Supervisory Council, headed by the Director General, is exclusively responsible for licencing, supervision and regulation and is composed of the Directors responsible for Authorisation, Banking Supervision, Securities and Markets Supervision, Insurance and Pensions Supervision, and Regulatory Development. Operations are the responsibility of the Board of Management and Resources composed of the Directors responsible for Communications, Human Resource Development, Information Technology and Administration chaired by the Chief Operations Officer. Co-ordination between these three organs is ensured at Co-ordination Committee level.

    The MFSA is also responsible for consumer education and consumer protection in the financial services sector. This function is vested in the Consumer Complaints Manager.

    The MFSA has a staff of over 234 people, consisting of specialist regulators, lawyers, accountants and support staff facilitating the formulation of policy, decision making and support for both licence holders and consumers. The MFSA premises also house the International Tax Unit of the Inland Revenue Department and the Registry of Companies.

    Definition of a financial institution and licensed activities

    The Financial Institutions Act (Cap. 376 – Laws of Malta) regulates non-bank financial institutions, namely institutions which do not fund their activities through the taking of deposits. Financial institutions providing payment services in terms of the Payment Services Directive (Directive 2007/64/EC) and financial institutions issuing electronic money in terms of the Electronic Money Directive (Directive 2009/110/EC) fall within the remit of this Act.

    Amendments to and the creation of new Financial Institutions Rules (FIRs), together with the amendments to the Financial Institutions Act undertaken in May 2010 and June 2011, reflect changes which were mainly effected in order to transpose locally part of the requirements of the Payment Services Directive as well as the Electronic Money Institutions Directive. In particular, FIR/03, which is a new Rule, deals specifically with the taking up, pursuit of and prudential supervision of the business of financial institutions authorised to Issue Electronic Money.

    In the Financial Institutions Act the "financial institution" means any person who regularly or habitually acquires holdings or undertakes the carrying out any activity listed below for the account and at the risk of the person carrying out the activity (the First Schedule to the Act):

  • 1. Lending (including personal credits, mortgage credits, factoring with or without recourse, financing of commercial transactions including forfeiting);
  • 2. Financial leasing;
  • 3. Venture or risk capital;
  • 4. Payment services as defined below;
  • 5. Issuing and administering other means of payment (travellers cheques and bankers’ drafts and similar instruments) in so far as this activity is not covered by point 4 above;
  • 6. Guarantees and commitments;
  • 7. Trading for own account or for account of customers in:
  • a. money market instruments (cheques, bills, Certificates of deposit and similar instruments);
  • b.  foreign exchange;
  • c. financial futures and options;
  • d.  exchange and interest rate instruments;
  • e.  transferable instruments;
  • 8. Underwriting share issues and participation in such issues;
  • 9. Money broking;
  • 10. Issuing of electronic money as defined below.
  • The "payment institution" means a company that has been licensed in accordance with this Act or that holds an equivalent authorisation in another country in terms of the Payment Services Directive, to provide and execute the payment services.

    List of Activities (the Second Schedule to the Act)

    Payment institutions may engage in the following activities:

  • 1. Services enabling cash to be placed on a payment account as well as all the operations required for operating a payment account;
  • 2. Services enabling cash withdrawals from a payment account as well as all the operations required for operating a payment account;
  • 3. Execution of payment transactions, including transfers of funds on a payment account with the user’s payment service provider or with another payment service provider:
  • a. execution of direct debits, including one-off direct debits;
  • b.  execution of payment transactions through a payment card or a similar device;
  • c. execution of credit transfers, including standing orders;
  • 4. Execution of payment transactions where the funds are covered by a credit line for a payment service user:
  • a. execution of direct debits, including one-off direct debits;
  • b. execution of payment transactions through a payment card or a similar device;
  • c. execution of credit transfers, including standing orders;
  • 5. Issuing and/or acquiring of payment instruments;
  • 6. Money remittance;
  • 7. Execution of payment transactions where the consent of the payer to a payment transaction is transmitted by means of any telecommunication, digital or IT device and the payment is made to the telecommunication, IT system or network operator, acting solely as an intermediary on behalf of the payment service user and the supplier of the goods and services.
  • The following additional activities may also be carried out by a payment institution:

  • 1. The provision of operational and closely related ancillary services such as ensuring execution of payment transactions, foreign exchange services strictly in relation to payment services, safekeeping activities, and storage and processing of data;
  • 2. The operation of payment systems;
  • 3. Without prejudice to the provisions of article 5(6) of this Act, business activities other than the provision of payment services;
  • 4. When payment institutions engage in the provision of payment services, they may only hold payment accounts used exclusively for transactions; any funds received by payment institutions from payment service users with a view to the provision of payment services shall not constitute a deposit or other repayable funds within the meaning of article 2 of the Banking Act, or electronic money within the meaning of article 2 of the Banking Act;
  • 5. Payment institutions may grant credit related to payment services referred to in paragraph 4, 5, 7 on the list of principal activities above only if the following requirements are met:
  • a. the credit is ancillary and granted exclusively in connection with the execution of a transaction; and
  • b. notwithstanding national rules on providing credit by credit cards the credit granted in connection with a payment and executed with the act shall be repaid within a short period which shall in no case exceed twelve months; and
  • c. such credit is not granted from the funds received or held for the purpose of executing a payment transaction; and
  • d. the own funds of the payment institution are at all times, to the satisfaction of the supervisory authority, appropriate in view of the overall amount of credit granted.
  • The "electronic money institution" means a financial institution that has been licensed in accordance with this Act and authorised to issue electronic money or that holds an equivalent authorisation in another country in terms of the Electronic Money Directive to issue electronic money.

    List of Activities (the Third Schedule to the Act)

    In addition to issuing electronic money, electronic money institutions may also engage in any of the following activities:

  • 1. the provision of payment services listed above;
  • 2. the granting of credit related to payment services referred to in paragraph 4, 5, 7 on the list of principal payment activities above , where the conditions laid down in paragraph 5 on the list of additional activities above are met;
  • 3. the provision of operational services and closely related ancillary services in respect of the issuing of electronic money or to the provision of payment services referred to in point 1;
  • 4. the operation of payment systems;
  • 5. business activities other than the issuance of electronic money, having regard to the applicable law regulating such activities.
  • Credit referred to in point 2 above shall not be granted from the funds received in exchange of electronic money and held in accordance with safeguarding requirements prescribed.

    Apart from the activities mentioned, payment institutions would also be entitled to perform all operational and ancillary services necessary for the performance of payment services. These activities may include foreign exchange services, safekeeping activities, storing and processing data on behalf of undertakings or public institutions, and the operation of payment systems.

    The "electronic money issuer" means entities referred to in paragraph 5 of FIR 03, namely:

  • credit institutions licensed under the Banking Act
  • electronic money institutions
  • post office giro institutions
  • the European Central Bank and national central banks when not acting in their capacity as monetary authority or other public authorities
  • Member States or their regional or local authorities when not acting in their capacity as public authorities and
  • legal persons benefiting from the waiver under Article 3(7) of the Act;
  • The "small electronic money issuer" means a legal person authorised to issue electronic money in Malta benefiting from the waiver under Article 3(7) of the Act.

    Article 3(7) of the Act states that the competent authority may, in relation to a licensed company whose head office is in Malta and that issues electronic money in Malta, waive the application of all or part of the provisions relating to general prudential requirements, initial capital, own funds and safeguarding requirements, as set out in this Act and in any Financial Institutions Rules applying to financial institutions authorised to issue electronic money, in cases where:

  • the total business activities of the company generate an average outstanding electronic money that does not exceed the amount of two million euro (ˆ2,000,000); and
  • none of the natural persons responsible for the management or operation of the company’s business has been convicted of offences relating to money laundering or the funding of terrorism or other financial crimes
  • Provided that, the underlying contractual arrangements of the company shall provide that the payment instrument or payment account of the consumer where the electronic money is stored is subject to a maximum storage amount of not more than two hundred and fifty euro (ˆ250).

    Because some of these activities may be similar to those carried out by credit institutions authorised under the Banking Act 1994, the Act specifically makes a distinction on the method by which a financial institution funds its activities. A financial institution cannot fund its activities through the taking of deposits or other repayable funds from the public as defined in the Banking Act 1994.

    The Authority recommends that prior to seeking a licence under the Act, prospective applicants should first consult the authority to establish whether their potential activities would seem to require a licence and whether such licence should be sought under the Act, the Banking Act 1994 or the Investment Services Act 1994.

    Therefore, a financial institution is an entity which may raise its funds, for instance, on the interbank market from credit or other financial institutions or from other professional market parties such as institutional investors and insurance companies. Accordingly, financial institutions, whether acting as payment service providers within the meaning of the Second Schedule to the Act (payment institutions) or issuing electronic money1 within the meaning of the Third Schedule to the Act (electronic money institutions) or undertaking other activities licensable under the First Schedule to the Act, shall not be involved in deposit-taking.

    Payment institutions shall not issue electronic money unlike electronic money institutions which may engage in the provision of payment services.

    Financial institutions undertaking activities under the Second and Third Schedules to the Act shall be permitted to grant credit, although it is explicitly prohibited to use customers’ money to fund such credit. Apart from the activities mentioned, payment institutions would also be entitled to perform all operational and ancillary services necessary for the performance of payment services. These activities may include foreign exchange services, safekeeping activities, storing and processing data on behalf of undertakings or public institutions, and the operation of payment systems.

    The Authority expects financial institutions that are proposing to undertake any additional activities when these activities are either of a financial nature or deemed as being complementary to the activities included in the Schedules to the Act, to seek the authority’s prior written authorisation.

    Any company desirous of commencing the business of a financial institution in Malta shall, before commencing any such business, apply in writing to the competent Authority for a licence under the Financial Institutions Act.

    A financial institution shall not carry out any business in or from Malta unless it is in possession of a licence granted under the Financial Institutions Act by the Authority.

    Licensing stages

    Pursuant to Article 4(2) of the Act, the Authority will apply the provisions of Financial Institutions Rule FIR/01 on the Application Procedures and Requirements for Authorisation of Licences under the Financial Institutions Act in respect of prospective payment institutions and electronic money institutions as appropriate.

    The licensing process can be divided into three stages and summarised as follows:

  • the preparatory stage,
  • the pre-licensing stage and
  • the post-licensing or pre-commencement of business stage.
  • The preparatory stage commences with a formal meeting with the MFSA in order to discuss the projected application before the submission of the draft application documents and any other supporting documentation. For financial businesses the documentation would typically include a business plan and financial projections. In order for the MFSA to grant a licence, it must be satisfied that the applicant fulfils the minimum criteria relating to prudent conduct, fit and proper persons, integrity, professional staff and safety of potential clients.

    In the pre-licensing stage, the MFSA will issue an ‘in principle’ approval for the license. After such ‘in principle’ approval is issued, the applicant would proceed to the incorporation of the corporate vehicle and the submission of the final signed application form.

    At the Post-Licensing stage, the firm must satisfy all the ad hoc requirements arising in the post licensing / pre-commencement of business stage. Once a license is issued, the firm would then need to comply with a number of conduct-of-business rules that seek to safeguard the welfare of both the consumer as well as that of the service providers themselves.

    Minimum licensing criteria

    The statutory minimum criteria for authorisation, which the Authority must be satisfied are fulfilled with respect to an applicant before granting a licence, are set under Article 5(1) of the Act.

    A company shall be granted a licence only if:

  • its own funds are equal to such amount established by the Authority as appropriate for the activities to be undertaken by the applicant. Therefore the initial own funds of the applicant institution will be set on a case by case basis and will be commensurate to the business plan submitted by prospective applicants. Own funds requirements applicable to financial institutions providing payment services and/or issuing electronic money are outlined below;
  • there are at least two individuals who will effectively direct the business of the financial institution in Malta;
  • all qualifying shareholders, controllers and all persons who will effectively direct the business of the financial institution are suitable persons to ensure its prudent management;
  • the Authority is satisfied that the financial institution has sound and prudent management and a clear organizational structure;
  • the Authority is satisfied that there are no close links between that company and another person(s) which through any law, regulation, administrative provision or in any manner prevent the company from exercising effective supervision of that company under the provisions of the Financial Institutions Act.
  • The Act defines “close links” as follows. “Close links” means a situation in which two or more persons are linked in any of the following ways:

  • by participation, in the form of direct ownership or by way of control, of twenty per centum or more of the voting rights or capital of a body corporate;
  • by control, through the relationship between a parent undertaking and a subsidiary undertaking as defined in Article 2(2) of the Companies Act, or a similar relationship between any natural or legal person and an undertaking; or
  • permanently to one and the same third person by a control relationship;
  • The company shall, after being licenced under the Act, immediately inform the Authority of any change in circumstances concerning the application as well as supply the Authority with all the information necessary for monitoring compliance with the conditions referred to above on a continuous basis.

    Capital requirements

    The "initial capital" means paid up capital and reserves as defined in a Financial Institutions Rule.

    Payment institutions

    With respect to financial institutions licensed to carry out the activities found under the Second Schedule to the Act (i.e. those institutions carrying out solely activity 4 under the First Schedule to the Act), the authority shall require these types of financial institutions to hold, at the time of authorisation, initial capital as follows:

  • where the institution provides only the payment service listed in paragraph 2(f) of the Second Schedule to the Act, its capital shall at no time be less than ˆ20,000;
  • where the institution provides the payment service listed in paragraph 2(g) of the Second Schedule to the Act, its capital shall at no time be less than ˆ50,000; and
  • where the institution provides any of the payment services listed in paragraphs 2(a) – (e) of the Second Schedule to the Act, its capital shall at no time be less than ˆ125,000.
  • Electronic money issuers

    Electronic money institutions shall be required to hold, at the time of authorisation, initial capital amounting to not less than EUR 350,000.

    The own funds of an electronic money institution for the activity of issuing electronic money shall amount to at least 2% of the average outstanding electronic money.

    Small electronic money issuers

    The initial capital of small e-money issuers is calculated as follows:

  • Where the business activities of the applicant small electronic money issuer generate an average outstanding electronic money of less than one million euro (ˆ1,000,000), it is required to hold an amount of initial capital equal to fifty thousand euro (ˆ50,000);
  • Where an applicant small electronic money issuer generates an average outstanding electronic money between one million euro (ˆ1,000,000) and two million euro (ˆ2,000,000), it is required to hold initial capital amounting to one hundred thousand euro (ˆ100,000).
  • Small electronic money institutions must maintain at all times own funds, equal to or in excess of the applicable initial capital requirement.

    Where the financial institution can no longer meet the conditions as stipulated by law, the company must within thirty calendar days apply to the Authority for a modification of the licence to reflect the new circumstances of the company. If a company does not seek for the modification of the licence within such period, it shall be prohibited from issuing electronic money.

    The Authority draws the attention of applicants to the ongoing own funds requirements applicable to institutions carrying out activities falling under the Second and Third Schedule to the Act and which are required to be calculated in line with the requisite provisions found under Financial Institutions Rules FIR/02 and FIR/03 respectively.

    Without prejudice to the minimum level of the capital requirements laid down in a Financial Institutions Rule, the own funds of a financial institution may not fall below the amount of initial capital or any such amount as may be required by the competent authority from time to time, unless such a reduction is of a temporary nature and is effected after having obtained the prior approval of the competent authority.

    License application

    Article 4(1) of the Financial Institutions Act requires that any company desirous of establishing the business of a financial institution operating in or from Malta shall, before commencing such business, apply in writing to the authority for a licence.

    A financial institution whose head office is in Malta which intends seeking authorisation to issue electronic money in Malta may either apply for a licence as a financial institution authorised to issue electronic money or apply for authorisation as a small electronic money issuer.

    List of required documents

    Pursuant to Article 4(2) of the Act, the authority requires that all applications for a licence shall be filed in accordance with its official application forms as applicable, and shall be accompanied by:

  • a programme of operations, setting out in particular the type of activities envisaged to be undertaken;
  • a copy of the Memorandum and Articles of Association of the proposed institution;
  • proposed level of initial capital;
  • a business plan including the structure, organisation, management systems, governance arrangements and internal control systems of the institution which demonstrates that these arrangements, control mechanisms and procedures are proportionate, appropriate, sound and adequate; and a forecast budget calculation (financial projections) for the first three financial years which demonstrates that the applicant is able to employ the appropriate and proportionate systems, resources and procedures to operate soundly. The plan shall incorporate all relative financial information required by the authority to enable it to establish the initial capital requirement. Moreover, the business plan should also include a description of the measures to be taken to safeguard payment service users’ funds;
  • a description of the internal control mechanisms which the applicant will establish in order to comply with obligations in relation to money laundering and terrorist financing under the Money Laundering and Terrorist Financing under the Prevention of Money Laundering Act and the Prevention of Money Laundering and Funding of Terrorism Regulations;
  • a description of the structural organisation, including, where applicable, a description of the intended use of agents and branches and a description of outsourcing arrangements, and of participation in a national or international payment system. For the purposes of this sub-paragraph and (d) above, the applicant shall provide a description of its audit arrangements it has set up with a view to taking all reasonable steps to protect the interests of its users and to ensure continuity and reliability in the performance of payment services;
  • Audited Financial Statements for the last three years, if applicable;
  • the identity of all officers and controllers of the institution as defined in Article 2 of the Act;
  • the identity of all shareholders holding directly or indirectly a qualifying shareholding and the size of their holdings and evidence of their suitability, taking into account the need to ensure the sound and prudent management of the institution;
  • the identity of the individuals who will be effectively directing the business of the institution and, where relevant, persons responsible for the management of the activities of the institution, as well as evidence that they are of good repute and possess appropriate knowledge and experience;
  • where applicable, the identity of statutory auditors and audit firms;
  • the applicant’s legal status;
  • the address of the applicant’s head office; and
  • for applicants for a financial institution’s licence for the provision of any of the activities under paragraph 2 of the Second Schedule to the Act, a description of the measures taken for safeguarding payment service users’ funds.
  • List of forms to be filled in by the applicant

  • Form 1 - Application for Authority to set up a Financial Institution operating in or from Malta
  • Form 2 - Questionnaire for qualifying shareholders other than individuals
  • Personal Questionnaire
  • Procedures and terms for application processing

    Notwithstanding the above list, the Authority reserves the right to demand that prospective applicants for a licence complete the Internet and Electronic Banking Questionnaire as may be required where the Authority considers this procedure as being necessary in view of the medium through which business activities would be undertaken.

    The Authority may also require the applicants to submit additional information as it may deem appropriate to determine an application for a licence or to determine whether to restrict or revoke a licence.

    The competent authority may, in relation to a licensed company whose head office is in Malta and that issues electronic money in Malta, waive the application of all or part of the provisions relating to general prudential requirements, initial capital, own funds and safeguarding requirements, as set out in the Financial Institutions Act and in any Financial Institutions Rules applying to financial institutions authorised to issue electronic money, in cases where:

  • the total business activities of the company generate an average outstanding electronic money that does not exceed the amount of two million euro (ˆ2,000,000); and
  • none of the natural persons responsible for the management or operation of the company’s business has been convicted of offences relating to money laundering or the funding of terrorism or other financial crimes
  • provided that, the underlying contractual arrangements of the company shall provide that the payment instrument or payment account of the consumer where the electronic money is stored is subject to a maximum storage amount of not more than two hundred and fifty euro (ˆ250).

    The competent Authority shall determine each application for a licence within three months of receipt of the application or, if the application does not comply with article 4(2) or additional information is required, within three months of compliance with the said sub-article or the furnishing of the information as the case may be, whichever be the later. In any event an application shall be determined within six months of its receipt.

    The competent authority may grant or refuse to grant a licence applied for under the Act and where it refuses an application it shall inform the applicant in writing with the reasons for the refusal.

    Where the competent authority for any reason fails to determine an application for a licence within the time prescribed, such fact shall be deemed to constitute a refusal to grant a licence.

    In granting a licence the competent authority may subject a financial institution to such conditions as it may deem appropriate and having granted a licence it may, from time to time, vary or revoke any condition so imposed or impose new conditions.

    State Fees

    A financial institution applying to the competent authority for a licence under the Act shall, upon submission of the application, irrespective of whether the licence is eventually granted or not, pay to the competent authority the sum of ˆ3,500 as an application and processing fee.

    A financial institution licensed under the Financial Institutions Act shall pay to the competent authority an annual supervision fee equivalent to 0.0002 of the total assets as reported in the statutory schedules under Banking Directives BD/06 or Banking Rule BR/06 of the year immediately before the year when the fee is payable. The annual amount payable by a financial institution by way of supervision fee shall in no case be less than ˆ2,500.

    The first supervision fee payable by a financial institution licensed after 1st January of any calendar year shall be due immediately once a licence is granted, and shall be equal to a proportion of the minimum fee. The fee payable shall be proportionate to the period remaining between the date of the granting of the licence and the end of that calendar year.

    The annual supervision fees due by a financial institution subsequent to the first supervision fee shall be payable to the competent authority on the 1st January of each year based on the supervision fee paid the previous year, whilst any resulting difference being equivalent to the balance of the annual supervision fee due shall be paid on the 1st July of each year.

    Fees are not refundable.

    Appeal of decisions of the competent authority

    Any person who is aggrieved by a decision of the competent authority may appeal against the decision to the Financial Services Tribunal within such period and under such conditions as established under the Malta Financial Services Authority Act (Article 21(8)).

    Agency Arrangements

    The Act provides that financial institutions can enter into agency arrangements with third parties only after informing and obtaining prior written approval from the Authority. The Authority will grant any approval in circumstances where the third party will only act as agent of the licenced financial institution.

    No financial institution shall enter into agency arrangements, with third parties, unless it has communicated the following information to the Authority:

  • the name and address of the agent;
  • a description of the internal control mechanisms that will be used by the agents so as to comply with the obligation in relation to money laundering and the funding of terrorism under the Prevention of Money Laundering Act and the Prevention of Money Laundering and Funding of Terrorism Regulations; and
  • the identity of the directors and persons responsible for the management of the agent to be used in the provision of services, and evidence that they are suitable persons.
  • A person who is appointed as agent of a licenced financial institution shall only act as agent:

  • in respect of those activities for which the financial institution to which he will act as agent is licenced under the Act;
  • to not more than one person licenced under the Act; and
  • subsequent to the verification by the Authority of the information provided by the financial institution.
  • A financial institution authorised to issue electronic money shall not issue electronic money through agents. However a financial institution authorised to issue electronic money may, subject to such conditions as may be established by the Authority, distribute and redeem electronic money through agents.

    The Authority may list the agent in the public register as provided for in the Act. If the Authority refuses to list such agent it shall inform the financial institution in writing of the reasons for the refusal. If the Authority is not satisfied that the information provided to it is correct, it shall refuse to list the agent in the public register.

    Outsourcing of certain functions by the payment institution

    Where a financial institution intends to outsource operational functions of its services and, or activities, such outsourcing provider shall require the recognition of the competent authority provided that the outsourcing of important operational functions may not be undertaken in such way as to impair materially the quality of its internal control and the ability of the competent authority to monitor the financial institution’s compliance with all obligations provided for under the Act, and any Regulation or Rules made thereunder.

    Where financial institutions rely on third parties for the performance of operational functions, those financial institutions shall take reasonable steps to ensure that the requirements of this Act are complied with.

    Exercise by financial institutions of the right to European passport

    A Maltese financial institution may exercise a European right to provide payment services and, or issue electronic money in another Member State or EEA State once it gives notice, in accordance with regulation 7 of the European Passport Rights for Financial Institutions Regulations 2011, with the following information:

  • the Member State or EEA State within which the Maltese Financial institution intends to provide its services;
  • the name and head office address of the Maltese financial institution;
  • the electronic money issuance and / or payment services activities which the Maltese financial institution intends to perform in the host member state or EEA State.
  • The competent authority is required to transmit the information above to the European regulatory authority within one month from its receipt from the Maltese financial institution. The European Regulatory authority must be notified of any changes to information previously transmitted.

    A Maltese financial institution may only exercise its European right to establish a branch in another Member State or EEA Member State once it gives notice in accordance with regulation 8 of the European Passport Rights for Financial Institutions Regulations 2011 as to:

  • the member state or EEA State within the territory of which the Maltese financial institution intends to establish a branch;
  • its name and head office address;
  • the activities it intends to perform in the host member state or EEA State;
  • the address of the proposed branch;
  • the names of the managers of the proposed branch; and
  • the organisational structure of the proposed branch.
  • The competent authority is required to transmit the information above to the European regulatory authority within one month from its receipt from the Maltese financial institution. The European Regulatory authority must be notified of any changes to information previously transmitted.

    Payment instituiton’s accounting and reporting requirements

    The authority requires the licensed institution to keep all appropriate records for the purpose of the Act for at least five years without prejudice to the provisions of the Directive 2005/60/EC on the prevention of the use of the financial system for the purpose of money laundering and terrorist financing, the Prevention of Money Laundering Act (Cap 373) and any Regulations issued thereunder, or any other applicable EU or national legislation.

    A financial institution shall submit to the competent authority such information and statements as the competent authority may require in the discharge of its duties under the Financial Institutions Act or any regulations and Rules issued thereunder or any other law.

    All statements required shall be submitted in such form and at such periods the competent authority may from time to time prescribe by Financial Institutions Rules.

    Financial institutions providing the services listed in paragraphs 2 and 3 of the Second Schedule and financial institutions authorised to issue electronic money carrying out the additional activities listed in paragraphs 2(b) to (e) of the Third Schedule, shall provide separate accounting information as specified in a Financial Institutions Rule issued by the competent authority. The accounting information shall be subject to an auditor’s report.

    The competent authority may, by notice in writing, require a financial institution or any of its officers to do all or any of the following:

  • to furnish to the competent authority, at such time and place and in such form as it may specify, such information and documentation as it may require and of such description as may be so specified in the notice;
  • to furnish to the competent authority any information or documentation aforesaid verified in such manner as it may specify;
  • to attend before the competent authority, or before a person appointed by it, at such time and place as it may specify, to answer questions and provide information and documentation as the competent authority may reasonably require for the performance of its functions under the Financial Institutions Act or any regulations and Rules issued thereunder.
  • Every financial institution shall each year appoint an approved auditor or auditors whose duty shall be to report on the financial statements of the financial institution examined by them and on all financial statements prepared by the financial institution.

    Requirements for safeguarding of users' funds held on accounts with financial institutions

    Under the Financial Institutions Act (Safeguarding of Funds) Regulations, which came into force on the 30th April, 2011, a financial institution in receipt of funds from a payment services user or electronic money holder shall hold such funds solely for and on behalf of and in the interest of that payment services user or electronic money holder.

    Notwithstanding anything stated in article 1894 of the Civil Code or in the agreement entered into between the financial institution and the payment services user or electronic money holder or the fact that the payment services user’s funds or electronic money holder’s funds held by the financial institution are registered in the name and title of or are otherwise vested in the financial institution, such funds shall be deemed to constitute a distinct patrimony, separate from that belonging to the financial institution.

    The control of funds belonging to a payment services user or electronic money holder by a financial institution shall not give or be deemed or construed to give to the financial institution any rights over such funds; nor shall it create any form of loan between the financial institution and the payment services user or electronic money holder notwithstanding the nature of the funds or the rights or obligations of the financial institution in relation thereto.

    Any records, accounts and other statements held or issued by the financial institution shall, saving any proof to the contrary, constitute evidence of their contents and of the right of ownership of the payment services user or electronic money holder.

    A financial institution shall segregate the funds of payment services users at all times from the funds of any other person, provided that the funds of each payment services user may be held in a common account of payment services users. The funds of each payment services user held in a common account shall remain separately identifiable at all times.

    A financial institution in receipt of funds belonging to payment services users or electronic money holders shall be liable for any loss or prejudice suffered by the payment services users due to the financial institution’s fraud, wilful default or negligence including the unjustifiable failure to perform in whole or in part the financial institution’s obligations arising under these regulations, the terms and conditions of the agreement entered into with the payment services users or electronic money holders, the conditions of any financial institutions licence or such other requirements as may be laid down by the competent authority.

    Funds received in the form of payment by payment instrument need not be safeguarded until credited to a payment account of a financial institution issuing electronic money or otherwise made available to the financial institutions issuing electronic money in accordance with the execution time requirements laid down in the Payment Services Directive, where applicable. In any event, such funds shall be safeguarded by not later that five working days after the issuance of electronic money.

    Taxation of financial institutions

    Maltese financial services license holders, whose activities are limited to services from Malta but not in Malta (i.e. not necessarily dealing with Maltese individuals) could benefit from the use of the Maltese International Company as the corporate vehicle wherein they are subject to a corporate tax of 35% but non-resident shareholders would then benefit from a very attractive tax refund ending up in a final rate of taxation of 4.17%.

    List of consultants on compliance with the requirements of regulatory authorities

    A list of Maltese law firms specialising in financial services consultancy can be found at:

  • http://www.chambersandpartners.com/141/1718/editorial/2/1 or
  • http://www.lawfirmslawyers.eu/index.php?task=viewcategory&catid=31
  • Registration of companies

    Selection of corporate form

    The Malta Financial Services Authority (MFSA) is an autonomous public authority entrusted with the regulation of financial services in Malta.

    The MFSA also houses the Registry of Companies where all commercial partnerships including companies are registered irrespective of what type of activities they carry out. The Registry of Companies is a public registry and all registered information and documentation is available to the public. The Registrar of Companies is appointed in terms of the Companies Act 1995 and is entrusted with ensuring compliance with the provisions of the Act.

    Financial institutions (including e-Money and payment institutions) can usually be set up as private or public limited liability companies in Malta. They are regulated by the Companies Act which is in line with EU company law. The main difference between a public and a private limited liability company is the fact that a private company must limit the number of its shareholders to 50 and it cannot offer its shares to the general public. The minimum share capital required to set up a private company is ˆ1,164.69 with 20 per cent paid up and subscribed to by at least two persons, except in the case of single member companies, with restricted objects. In the case of a public company, the minimum share capital requirement is ˆ46,587.47 with 25 per cent paid up and subscribed for by at least two persons.

    Financial institutions are either set up with a head office in Malta, or as a branch or a subsidiary of a foreign institution. Foreign financial institutions can enter into agency arrangements with third parties. Both branches and subsidiaries operating in Malta are subject to the regulatory and supervisory authority of the MFSA.

    Registration documents and requirements thereto

    A limited liability company is validly constituted in accordance with the Companies Act once a memorandum of association is entered into and subscribed by at least two persons and a certificate of registration is issued in respect thereof by the Registrar of Companies.

    A private company is a company that must, by its memorandum or articles:

  • restrict the right to transfer its shares;
  • limit the number of members to fifty; and
  • prohibit any invitation to the public to subscribe for any shares or debentures of the company.
  • A private company may have the status of an exempt company, and qualify for certain advantages if the following conditions are contained in its memorandum or articles of association:

  • the number of persons holding debentures of the company is not more than 50; and
  • that no body corporate is a director of the company, and neither the company nor any of the directors is party to an arrangement whereby the policy of the company is capable of being determined by persons other than the directors, members or debenture holders thereof.
  • A public company is a company which does not qualify as a private company. A public company may offer shares or debentures to the public but it may not issue any form of application for its shares or debentures unless the company is registered and the issue is accompanied by a prospectus.

    The memorandum of association of every company shall contain the following information:

  • whether the company is a public company or a private company;
  • the name and residence of each of the subscribers thereto;
  • the name of the company;
  • the company's registered office in Malta;
  • the objects of the company;
  • the amount of share capital with which the company proposes to be registered (also referred to as the authorised capital), the division thereof into shares of a fixed amount, the number of shares taken up by each of the subscribers and the amount paid up in respect of each share and, where the share capital is divided into different classes of shares, the rights attaching to the shares of each class;
  • the number of the directors, the name and residence of the first directors and, where any of the directors is a body corporate, the name and registered or principal office of the body corporate; the manner in which the representation of the company is to be exercised, and the name of the first person or persons vested with such representation;
  • the name and residence of the first company secretary or secretaries;
  • the period, if any, fixed for the duration of the company; and
  • in respect of each shareholder, director and company secretary, the number of an official identification document should also be given.
  • In the case of a public company, an additional document shall be annexed to the memorandum providing:

  • the total amount or an estimate of all the costs payable by the company or chargeable to it by reason of its formation up to the time it is authorised to commence business, and of all the costs relating to transactions leading to such authorisation; and
  • a description of any special advantage granted, prior to the time the company is authorized to commence business, to anyone who has taken part in the formation of the company or in transactions leading to such authorisation.
  • The memorandum of association may be accompanied by the articles of association, which is a document which prescribes the internal regulations of the company.

    If articles of association are not registered, it is assumed that the model articles of association found in the First Schedule to the Companies Act have been adopted.

    The memorandum and articles, if any, must be delivered to the Registrar of Companies who, being satisfied that all the requirements of law have been complied with, shall register them. A company comes into existence from the date of registration indicated in its Certificate of Registration.

    The Memorandum of Association must specify the objects for which the company is set up. The objects may not be simply stated to be any lawful purpose or trade in general.

    The maximum number of shareholders for a private company is fifty, whereas there is no maximum number of shareholders in the case of a public company.

    The minimum number of shareholders is normally two; however a “single member company” may also be registered under the Companies Act. A single member company is a private limited liability company, which qualifies as an exempt company and which is incorporated with one member or whose membership is reduced to one person after incorporation. In the case of a single member company, the Memorandum of Association should indicate the main trading activity of the company.

    Requirements for directors and secretaries

    Every public company must have at least two directors whereas every private company must have at least one director.

    Every company must have a company secretary. No company may have:

  • as company secretary its sole director unless the company is a private exempt company.
  • as sole director of the company a body corporate, the sole director of which is company secretary to the company.
  • It shall be the duty of the directors of a company to take all reasonable steps to ensure that the company secretary is an individual who appears to them to have the requisite knowledge and experience to discharge the functions of company secretary. The law does not require that the company secretary be resident in Malta.

    Registered Office

    Every company registered in Malta must have a registered office in Malta. This may be at the office of a firm of lawyers, accountants or other providers of corporate services. Any changes to the company's registered office must be notified to the Registrar of Companies.

    Registration procedures

    The Memorandum and Articles of Association, constituting the company are forwarded to the Registrar of Companies for registration. These should be accompanied by all relevant documentation, including certified copies of identification documents, references and declarations by trustees where applicable. Evidence of paid up share capital in the form of a bank deposit advice should also be produced.

    Upon registration, the Registrar will issue a certificate of registration, showing that the company has been officially registered. A record of all company registrations is available for public inspection.

    All businesses must register with the Inland Revenue Department (IRD) and, if applicable, with the VAT authorities. A business with employees must also register with the social security authorities and the Employment Training Corporation.

    Registration terms

    The length of time to incorporate a company depends on the type of company being incorporated and on whether all information and documentation is available and in order. Once the Registrar has all necessary documentation and information, the process may take from as little as 24 hours.

    State Registration Fees

    The fees payable to the Registrar of Companies for the registration of a company are calculated according to the company’s authorised share capital as indicated in the table below. Registration can be made either in paper format or in electronic format and the fees levied vary accordingly:

    Authorised Share Capital

    Fee Payable for Registration in Paper Format

    Fee Payable for Registration in Electronic Format

    Up to ˆ1,500

    ˆ245

    ˆ210

    Over ˆ1,500 but not exceeding ˆ5,000

    ˆ245 with the addition of ˆ15 for each ˆ500 or part thereof in excess of ˆ1,500

    ˆ210 with the addition of ˆ12 for each ˆ500 or part thereof in excess of ˆ1,500

    Over ˆ5,000 but not exceeding ˆ10,000

    ˆ350 with the addition of ˆ20 for each ˆ1,000 or part thereof in excess of ˆ5,000

    ˆ294 with the addition of ˆ17 for each ˆ1,000 or part thereof in excess of ˆ5,000

    Over ˆ10,000 but not exceeding ˆ50,000

    ˆ450 with the addition of ˆ20 for each ˆ2,500 or part thereof in excess of ˆ10,000

    ˆ379 with the addition of ˆ17 for each ˆ2,500 or part thereof in excess of ˆ10,000

    Over ˆ50,000 but not exceeding ˆ100,000

    ˆ770 with the addition of ˆ20 for each ˆ10,000 or part thereof in excess of ˆ50,000

    ˆ651 with the addition of ˆ17 for each ˆ10,000 or part thereof in excess of ˆ50,000

    Over ˆ100,000 but not exceeding ˆ250,000

    ˆ870 with the addition of ˆ10 for each ˆ15,000 or part thereof in excess of ˆ100,000

    ˆ736 with the addition of ˆ8 for each ˆ15,000 or part thereof in excess of ˆ100,000

    Over ˆ250,000 but not exceeding ˆ500,000

    ˆ970 with the addition of ˆ10 for each ˆ10,000 or part thereof in excess of ˆ250,000

    ˆ816 with the addition of ˆ8 for each ˆ10,000 or part thereof in excess of ˆ250,000

    Over ˆ500,000 but not exceeding ˆ1,000,000

    ˆ1,220 with the addition of ˆ20 for each ˆ20,000 or part thereof in excess of ˆ500,000

    ˆ1,016 with the addition of ˆ17 for each ˆ20,000 or part thereof in excess of ˆ500,000

    Over ˆ1,000,000 but not exceeding ˆ2,500,000

    ˆ1,720 with the addition of ˆ10 for each ˆ50,000 or part thereof in excess of ˆ1,000,000

    ˆ1,441 with the addition of ˆ8 for each ˆ50,000 or part thereof in excess of ˆ1,000,000

    Over ˆ2,500,000

    ˆ2,250

    ˆ1,900

    If a company subsequently increases its authorised share capital, the difference in registration fees would be levied.

    Opening of bank account

    When opening a bank account for a limited liability company, a bank would typically ask for the following documents. This information is being provided for guidance purposes only and every bank may have its own account opening procedures which may vary from what is being indicated hereunder:

  • A duly filled in Know-Your-Client (‘KYC’) form.
  • A completed request to open an account specifying the type of account, the currency and the preferred mode of payment of tax.
  • A Copy of the Memorandum and Articles of Association together with a certified copy of the Certificate of Registration issued by the Registry of Companies once the company is registered. The bank may also require a description of the activities of the company and the past and anticipated turnover thereof.
  • A Confirmation of the permanent address of the Directors through a completed identification statement certified by a Prime bank or Maltese Embassy in the country of residence. The bank also requires the authenticated identification documents for all the directors, signatories, beneficial owners and secretaries. An original copy of a utility bill to be certified by the bank may also be required.
  • Bankers' references on all foreign directors, foreign signatories, beneficial owners. The references should be issued in the personal capacity and should be addressed to the bank otherwise the bank will reserve the right to re-confirm the references with the said institutions.
  • Where the shareholder is a trustee or other fiduciary, the bank will require the disclosure of the identity of the beneficial owners accompanied by an authenticated copy of the beneficiary’s passport.
  • Where the ultimate beneficial owner is a listed company, the bank will require a declaration to this effect from the company secretary.
  • A completed form signed by the directors of the company appointing the bankers.
  • General accounting and reporting requirements

    All companies must prepare an annual return in the prescribed format to be made up, upon each anniversary of its registration. The return must be filed with the Registrar of Companies within 42 days after the date to which it is made up. A payment between EUR 100 and EUR 1,400 depending on the authorised capital is to be submitted along with the return.

    Companies are also required to file a copy of the annual accounts. These must generally be accompanied by a copy of the auditors' report thereon, and the directors' report. The annual accounts must be filed within 10 months from the end of the financial year, with a grace period of 42 days.

    The format of the accounts to be submitted depends on the size of the company. Small companies may draw up abridged balance sheets and abridged layouts of profit and loss accounts. A small company is a company which on its balance sheet dates does not exceed the limits of two of the three following criteria:

  • balance sheet total: EUR 2,562,310.74;
  • turnover: EUR 5,124,621.48
  • average number of employees during the accounting period: 50.
  • Private companies which on their balance sheet date do not exceed the limits of two of the three following criteria:

  • balance sheet total: EUR 46,587.47
  • turnover: EUR 93,174.94
  • average number of employees during the accounting period: 2
  • shall be exempted from the requirements concerning, auditing of accounts and such companies may, draw up abridged balance sheets and abridged layouts of profit and loss account and abridged notes to the accounts.

    Taxation

    Legal persons, resident and domiciled in Malta, are taxed on their overall taxable income, i.e. income and capital gains obtained in Malta and other countries, at 35%.

    In the case of non-residents in Malta, only the income and capital gains obtained in Malta are subject to taxation in Malta.

    A company is domiciled in Malta if it was incorporated there. A foreign company which transfers its head office to Malta will be considered to be resident for tax purposes, but will still be considered to be a foreign company and not domiciled in Malta. In this case, the foreign company will only be taxed on income and capital gains obtained in Malta and on revenues received or sent to Malta. Capital gains from aboard (whether they are sent to Malta or not), and income made and held abroad will be exempt from taxation in Malta.

    Taxable income

    Article 4 (1) of the Income Tax Act lists which income is subject to tax, including:

  • Profits or gains from commercial activities, a profession or vocation
  • Remuneration from employment or self-employment, including fringe benefits
  • Dividends, bonuses, interest or discounts
  • Pensions, compensation, annuities
  • Rent payments, royalties, bonuses and other income from property
  • Other income
  • Capital gains are taxed as another source of revenue, but only capital gains on the sale of the following assets are taxable:

  • Property: use and enjoyment or other property rights
  • Securities: use and enjoyment or other securities rights
  • Shares: use and enjoyment or other rights related to Partnership interests.
  • Transfers, goodwill, licenses and authorizations
  • Some intellectual property: brands, patents, copyright, trade names
  • Beneficiary interest in a trust that includes the assets mentioned above
  • Tax calculation

    A company’s taxable profit is calculated from the net profit for the year using accounting standards with the adjustments (exemptions, deductions and accruals) set out in the ITA. This taxable profit is subject to a 35% tax.

    Tax Accounts

    According to Maltese tax legislation, a company registered in Malta must allocate its distributable profits to five (5) different tax accounts, depending on the source of the respective incomes:

    Final Tax Account (FTA): profits, subject to a final withholding tax, are allocated to this profits account where they are tax exempt (and the exemption is passed onto the shareholder after distribution).

    Immovable Property Account (IPA): profits, derived directly or indirectly from property located in Malta, are allocated to this account.

    Foreign Income Account (FIA): profits derived from investments outside Malta, such as dividends, rents, royalties and other income from investments abroad, are allocated to this account. Profits from stable establishments abroad or dividends received from the FIA account of another company registered in Malta must also be allocated to this account.

    Maltese Tax Account (MTA): profits subject to taxes in Malta that have not been allocated to the FTA, IPA or FIA accounts, are allocated to the MTA account.

    This account includes taxable trading operating profits that are not attributable to a stable establishment abroad, other income obtained in Malta either from trading or property, as well as dividends received from the MTA account of another company registered in Malta.

    Untaxed Account (UA): This is the account in which the difference between the total distributable profit and the sum of the profits allocated to the other four accounts is appropriated; it is the difference between book profit and taxable profit.

    UA= distributable profits – FTA – IPA – FIA – MTA

    The allocation of profits through these different accounts must be made in the sequence shown above.

    These accounts are not part of the accounting plan and are only relevant for tax purposes. These accounts will govern how shareholder dividends are handled fiscally.

    Tax refund system

    Malta offers an extremely competitive tax regime, based on a full imputation system, in which tax on profits paid by the company distributing dividends is made available to the shareholder as a tax credit, to avoid double taxation on the same income (for the company and subsequently for the shareholder).

    As the 35% tax rate applied to the company is equal to the maximum tax rate on individuals, paying out dividends does not lead to further taxation for shareholders.

    The full imputation system and the tax refund system provide very efficient tax-planning opportunities.

    In fact, a shareholder receiving profit dividends, allocated to the Malta Tax Account (MTA) and Foreign Income Account (FIA) , can request a tax refund on those profits paid by the company in Malta. The amount of the refund depends on the nature of the distributed profits and if these have benefited, or not, of any double taxation relief mechanisms.

    In most cases, the tax refund to the shareholder is 6/7 of the tax paid by the company on profits distributed as dividends.

    Refunds are guaranteed by Law and are paid without delay by the Tax Authority within 14 days as of the date on which the refund is requested.

    For the purposes of Maltese law, dividends include any profits distributed by the company to its shareholders and any amount credited to them as partners, including capital increases by incorporation of earnings and distributions to shareholders following the dissolution of the company, as long as distribution reflects earnings. Therefore, dividends do not actually have to be paid, i.e. the profits can be capitalised or merely credited to the shareholder.

    Payments to non-residents

    Non-resident companies may benefit from tax exemptions or exemptions of other taxes on dividends, interest, royalties, capital gains, long term insurance policies and other investment income. In all other cases, payments to non-residents of income taxable in Malta shall be subject to a 35% income tax rate if the non-resident is a company, or 25% for all other cases.

    The responsibility for withholding tax lies with the entity paying the income.

    If the entity paying the income is unable to determine whether the income is subject to taxation in Malta, it can ask the Commissioner for Inland Revenue to rule on this, and he may authorize a lower or zero tax rate.

    The amount to be deducted shall be paid to the Commissioner for Inland Revenue within a period of 30 days. Failure to comply with this rule shall result in heavy fines, including the obligation to pay the amount of the taxes not deducted at source, in addition to twice this amount.

    Withheld tax is not final and any taxes owed by the non-resident must be paid on the date on which income tax return has been filed.

    If a non-resident declares his income in an income statement, the tax paid shall be considered a credit, and any excess credit may be refunded.

    VAT

    VAT first came out in 1995 and on 1 May 2004, the Maltese system was fully adapted and harmonized with EU legislation.

    VAT is payable on the import of goods, intra-community transactions, sale of goods and supply of services in exchange for a fee.

    The standard VAT rate in Malta is 18%, 5% for certain goods (electricity, medicines, services and cultural goods, etc.) and 7% for the hotel and restaurant industry.

    VAT is overseen by the Commissioner of VAT, whose powers and jurisdictions include providing information to the Controller of Customs and to the Commissioner of Inland Revenue, performing inspections, accessing properties, performing assessments and applying penalties.

    Appeals to any decisions made by this authority can be made to the Administrative Revenue Tribunal in terms of tax matters and the decisions of this Tribunal can be sent to the Court of Appeal, but only with respect to matters of law.

    Every business entity in Malta that carries out an economic activity is required to register for VAT purposes under the VAT Act. Registration for VAT purposes does not automatically ensue from establishing the entity. Any entity registered in Malta that undertakes an operation subject to taxation must register for VAT purposes within 30 days from the date of such an operation.

    Any entity that is not registered in Malta must fulfil this obligation too, if it performs any supply subject to taxation in Malta and, as such, shall be obliged to make the respective payment.

    Article 10 of the VAT Act applies in most cases requiring VAT registration. An entity registered under Article 10 is assigned a Malta VAT number with an MT prefix. It is required to charge VAT on all supplies of taxable goods or taxable services and is entitled to a VAT return on purchases incurred in the course of business.

    VAT registration involves the obligation to keep VAT accounts, make VAT payments and entitlement to receive VAT reimbursements.

    VAT returns must be submitted on a quarterly basis, along with their respective payments. Under certain circumstances returns may be annual (exempt entities and small businesses) or monthly (activities that generate the right to receive regular reimbursements).

    Submission of VAT returns and respective payments must take place within a period of 6 weeks after the end of the respective period. Delay in VAT payment shall be subject 0.75% interest.

    In addition to regular accounting records, the taxpayer must also keep updated VAT accounting records listing the total tax, input and output for each period, with reference to the accounting entries for each transaction.

    Anti-money laundering requirements

    Competent authorities

    The central authority for reporting in the context of AML / CTF in Malta is Financial Intelligence Analysis Unit (FIAU).

    The FIAU is a governmental agency having a distinct legal personality. It is responsible for the collection, collation, processing, analysis and dissemination of information of suspected money laundering or terrorist financing activities in order to combat money laundering and terrorist financing in Malta.

    While the authorities mentioned below are not anti-money laundering regulators as such, they fall under the definition of 'supervisory authority' under the Prevention of Money Laundering and Funding of Terrorism Regulations (Legal Notice 180 of 2008, as amended by Legal Notices 328 of 2009 and 202 of 2012) (the PMLFTR). The PMLFTR were enacted under the principal piece of legislation the Prevention of Money Laundering Act 1994, as subsequently amended (Chapter 373 of the Laws of Malta) (the PMLA). The below-mentioned authorities are themselves subject to the PMLFTR and are bound to report to the FIAU suspicious activities that may be linked to money laundering or the financing of terrorism:

  • The Malta Financial Services Authority (the MFSA) is the single regulator for financial services. This is a fully autonomous public authority, which reports to the Maltese Parliament on a regular basis. In certain instances, the MFSA acts as an agent of the FIAU, in that it undertakes a number of on-site Anti-Money Laundering checks on its License Holders during its compliance visits. In fact, on 18 March 2014, the FIAU and the MFSA signed a Memorandum of Understanding aimed at enhancing the level of cooperation between them;
  • The Central Bank of Malta, which is an independent, autonomous body, established by statute and responsible to Parliament;
  • The Lotteries and Gaming Authority (LGA) is the single public regulator and supervisory body for all forms of gaming in Malta.
  • Legal Notice 42 of 2006(The Prevention of Money Laundering (Amendment) Regulations, published in Government Gazette Number 17,886 on the 28 February 2006) amended the former Prevention of Money Laundering and Funding of Terrorism Regulations 2003 (Legal Notice 199 of 2003) and transposed many of the provisions of the EU’s Third Anti-Money Laundering Directive (including the extension of the 2003 Regulations to cover the funding of terrorism).

    However it was the Prevention of Money Laundering and Funding of Terrorism Regulations, 2008 (which came into force on 31 July 2008 and were published in Government Gazette Number 18,289) that transposed all the remaining provisions of the EU’s Third Anti-Money Laundering Directive into Maltese law. Due to the number of amendments that were made, the legislator opted to repeal the 2003 Regulations rather than amend them. The original Legal Notice 180 of 2008 was further amended by Legal Notices 328 of 2009 and 202 of 2012. If and when the proposed EU’s Fourth Anti-Money Laundering Directive comes into force, the PMLFTR would undoubtedly have to be amended again to transpose it into Maltese law.

    Appointment of responsible officer

    In virtue of the PMLFTR, subject persons are required to have internal and external reporting procedures in place for the purpose of reporting knowledge or suspicion of ML/FT to the FIAU.

    A financial institution is required to appoint a Money Laundering Reporting Officer (MLRO) from amongst employees which are in official appointment and of sufficient seniority and command.

    The PMLFTR state that internal reporting procedures maintained by a subject person shall include the appointment of a Money Laundering Reporting Officer (MLRO) who shall be an officer of the subject person and who shall be of sufficient seniority and command.

    The person to be appointed by the subject person to act as MLRO shall be a person who is an official in employment with, or the executive director of, the subject person and resident in Malta. In addition the functions of a MLRO may not be:

  • outsourced;
  • carried out by a non-executive director of the subject person;
  • carried out by a person who only occupies the position of company secretary of the subject person and does not hold any other position within the organisation; or
  • carried out by a person who undertakes internal audit functions within the organisation.
  • The MLRO must occupy a senior position within the institution where effective influence can be exercised on the subject person’s AML/CFT policy. The person occupying this position must have a direct reporting line to the Board of Directors and should not be precluded from posing effective challenge where necessary. The MLRO must also have the authority to act independently in carrying out his responsibilities and should have full and unlimited access to all records, data, documentation and information of the subject person for the purposes of fulfilling his responsibilities.

    The MLRO is responsible for the oversight of all aspects of the subject person’s AML/CFT activities and is the focal point for all activity relating to AML/CFT. The senior management of the subject person must ensure that the MLRO has sufficient resources available to him, including appropriate staff and technology, to be able to monitor the day-to-day operations of the subject person to ensure compliance with the subject person’s AML/CFT policy.

    According to the PMLFTR the MLRO is responsible for:

  • receiving reports of knowledge or suspicion of ML/FT;
  • considering such reports to determine whether a suspicion of ML/FT subsists;
  • reporting knowledge or suspicion of ML/FT to the FIAU and
  • responding promptly to any request for information made by the FIAU.
  • Once the appointment of the MLRO is duly approved by the relevant supervisory authority, where applicable, the appointment and any subsequent changes thereto, must be notified to the FIAU through the submission of the MLRO Details Sheet which may be downloaded from the FIAU website.

    Financial institutions must also set procedures for the reporting of suspicious activity, which, must ensure that any knowledge or suspicion of money-laundering activities must be reported as soon as it is reasonably practical provided that it is not later than five working days from when the suspicion first arose. Disclosures are carried out through a Suspicious Transaction Report. Investigations are subsequently carried out by the FIAU, and the MLRO is also required to submit an Annual Compliance Report.

    List of firms specializing in corporate services

    Check out a list of Maltese law firms specialising in corporate services

    Useful Information

  • Directive 2007/64/EC on Payment Services in the Internal Market (Payment Services Directive)
  • Directive 2009/110/EC on the Taking up, Pursuit and Prudential Supervision of the Business of Electronic Money Institutions
  • Directive 2005/60/EC on the Prevention of the Use of the Financial System for the Purpose of Money Laundering and Terrorist Financing
  • Regulation (EU) No 260/2012 Establishing Technical and Business Requirements for Credit Transfers and Direct Debits in Euro (the SEPA Regulation)
  • Regulation (EC) No 924/2009 on Cross-border Payments in the Community
  • Regulation (EC) No 2560/2001 on Cross-border Payments in Euro
  • Regulation (EU) 2015/751 on Interchange Fees for Card-based Payment Transactions
  • Laws of Malta
  • Banking Act
  • Malta Financial Services Authority Act
  • Financial Institutions Act
  • Financial institutions (fees) regulations
  • FIR/01/2011 - Application Procedures and Requirements for Authorisation of Licences under the Financial Institutions Act 1994
  • FIR/02/2011 - Supervisory and Regulatory Requirements of Institutions Authorised under the Financial Institutions Act 1994
  • FIR/03/2011 - Taking Up, Pursuit of and Prudential Supervision of the Business of Financial Institutions Authorised to Issue Electronic Money under the Financial Institutions Act 1994
  • Financial Institutions Act (Safeguarding of Funds) Regulations
  • Companies Act
  • Companies Act (Fees) Regulations
  • Professional Secrecy Act
  • A Guide to the Authorisation of Financial Institutions in Malta
  • Framework of Supervision of Financial Institutions
  • Prevention of Money Laundering Act
  • Prevention of Money Laundering and Funding of Terrorism Regulations
  • Consultation Paper on the implementation of draft EBA Guidelines on the security of internet payments prior to the transposition of the revised Payment Services Directive (PSD2)
  • Sources of Information

  • http://eur-lex.europa.eu/homepage.html 
  • http://europa.eu/index_en.htm
  • www.eba.europa.eu
  • www.mfsa.com.mt
  • www.justiceservices.gov.mt  
  • www.financemalta.org
  • www.anti-moneylaundering.org
  • www.lowtax.net
  • www.ocra.com
  • www.newco.pro
  • www.finextra.com
  • https://bitcoinmagazine.com/