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Advertisers MFSC - Malta Financial Services Centre Maltese-American Chamber of Commerce METCO - Malta External Trade Corporation Ltd.
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International financial services center emerges in Mediterranean
This legislation was meant to be temporary. According to the government, “It should be implicit … that at a future date the distinction between offshore and onshore business should be eliminated and a free open center established…”
In 1994, Malta took the proactive steps necessary to begin the country’s transformation into an open center by passing a comprehensive package of legislation and creating a regulatory framework for financial services and international business. The Malta Financial Services Centre (MFSC), an autonomous government agency, was created then to regulate financial services and to facilitate the entry of companies interested in conducting international business operations in Malta. It has “built upon the success achieved by the Malta International Business Authority, which had managed to provide a well-regulated environment that was nevertheless confidential, highly efficient and user-friendly,” states “KPMG’s Guide to Banking and Finance.”
The MFSC describes its role as one that “seeks to provide an ongoing stable regulatory environment that encourages the development of investment services business in a sound and professional manner. The protection of investors’ interests is paramount. The MFSC is mindful of the importance of providing license holders with the freedom to innovate and to develop new products to meet the changing needs of the market.”
To fully transition itself from a Mediterranean center for offshore activities to an open financial and trading center that offers competitive, efficient and diversified services, the government developed a comprehensive set of laws ranging from the enactment of new laws to the enhancement, amendment and/or consolidation of existing ones.
While no new offshore companies can be established in Malta, those that were already here have been allowed to remain, at least until 2003 when all offshore activities must be terminated. Unfortunately, despite Malta’s attempts to modernize this sector and its sincere desire to work with non-governmental organizations to create the rules and regulations needed to strictly monitor this sector, Malta has been caught in the crossfire of those looking to terminate the offshore regimes.
In 1996, the United States unilaterally ended Malta’s double taxation treaty. The (OECD) Organization for Economic Development’s Financial Action Task Force placed the country on its list of nations that were considered non-cooperative in their fight against money laundering in the offshore sector. Though Malta was quickly taken off the OECD list, it is still fighting for the reinstatement of the double taxation treaty.
“My major hope is that the United States will reinstate the double tax treaty, which it unilaterally abrogated in 1996,” said Professor Joe Bannister, chairman and president of the MFSC. John Dalli, minister of finance, agrees. “We are holding the door open to re-establish contact.”
A double taxation treaty will go a long way toward attracting American businesses. According to KPMG, “the current fiscal regime builds upon Malta’s existing imputation system of taxation, which eliminates entirely the economic double taxation of profits earned by companies. When applied to international business, this results in a tax efficient framework…” Malta has 38 tax treaties of which eight are awaiting ratification. It is anxiously waiting to renegotiate the American treaty.
Despite these challenges, many companies are looking to do business in Malta. The country is an attractive location for the establishment, licensing and listing of collective investment schemes. The MFSC also believes it is an interesting jurisdiction for the establishment of funds investing in emerging markets, for fund administrations and for global custody services. Malta is being touted as a “springboard” for investment in neighboring North African and Middle Eastern countries and as such is well situated as a regional headquarters or distribution center for funds, financial services and banking companies targeting the Mediterranean region.
The MFSC is particularly interested in attracting companies who want to set up back office operations. As an incentive these companies may be eligible for a ten-year tax holiday. Besides the holiday, dividends distributed by the company are also untaxed. Forum Financial Group is the first American company to come to Malta to set up such operations.
According to Karl Xuereb, chief executive officer of Forum Financial Group, Malta’s skilled workforce, good infrastructure and clear regulations make it an interesting market in which to set up operations. However, Malta’s $2 billion market is nothing compared to the $80 billion American market. Therefore, Forum plans to use Malta as “a springboard in the European Union, particularly Southern Europe and the Mediterranean,” explained Xuereb.
Xuereb is also very positive about the assistance received from the MFSC, which he describes as being “flexible and helpful, without maintaining its high standards.” Bannister explained that the idea of the MFSC is to act both as the regulator, the Securities Exchange Commission of Malta, while helping to develop the financial services sector. Since the MFSC is often the first contact with the investor, the organization strives to be useful and to cut down on bureaucratic red tape.
Others see Malta as a center for e-business and e-commerce. Maltacom has created Terranet to take advantage of Internet opportunities. E-shore is an e-commerce solution created by Terranet so that it can get involved in the business-to-business market. The information technology industry doesn’t care that Malta is a small island in the middle of the Mediterranean Sea. What matters is that Malta provides a high-quality, cost-effective locale for servers or for processing transactions.
As the world becomes increasingly globalized, time differences and size will become less important. And as the region undergoes political change, Malta will become increasingly important as a hub for financial investment services. Once again, the strategic location of this small island will guide Malta’s future.
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Table of Contents Building bridges and embracing the future |
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As part of Malta’s process of liberalization and privatization, the government has focused on the financial services sector. In 1988, the first step toward Malta’s development as an international financial services center was taken. The government passed a law that allowed offshore non-trading and trading companies to operate in Malta. However, when Malta set out this strategy to become a center for financial services, the offshore regime was not meant to be a permanent feature, said Central Bank Governor Michael Bonello.
New laws replaced the Banking and Companies Act and amended the Income Tax, International Business Activities and Offshore Trusts Acts. The government also enacted new legislation governing foreign trusts and investments services. As a basis for modernization, Malta adopted European Union standards in matters of insider trading, money laundering and in banking regulation in general. To provide assurance to international investors, the government is trying to balance secrecy without obstructing unnecessarily the supervision of regulatory and fiscal compliance.