The business case in favour of Malta is clear. During these past 40 years, the country has notched up an impressive record in attracting foreign investors to Malta, and who continue to re-invest in their production and service facilities on the island. How has Malta achieved this? By successfully moving from labour-based to knowledge based industry and in so doing, attracting Foreign Direct Investment from countries like the UK, German, Italy, France, Spain and the United States. Malta’s favourable industrial climate and pro-business policies have been the pillars on which foreign companies have built their success.
Direct labour costs also hold up well, at a competitive 30% to 50% of those in the older EU Member States. However, when labour costs, productivity and working hours are factored together, the picture is even better. Malta’s workforce then becomes cheaper than all established EU economies. What’s more, when social security costs and other employment taxes are added in, Malta’s total labour costs are competitive with the new EU Member States and significantly lower than established EU Members.
The Maltese industrial relations law follows the British system of industrial relations. The shop steward represents the trade union at shop-floor level and collective bargaining is conducted at enterprise level. Strikes and stoppages are rare occurrences. The legal structure, accounting practices and trading environment run along UK lines as does the education systems.
There is also a strong national commitment to attracting foreign investment. In Malta there are no restrictions on foreign direct investment, so companies do not need to partner with a local company. What’s more, the country has long-standing experience in foreign direct investment and business activities, making it even easier and faster for investors to get going.
Other reasons that make Malta attractive include:
• High levels of productivity and profitability of investment.
• Quality intensive industries, supported by a qualified, flexible and multilingual workforce.
• International cost competitiveness.
• Availability of industrial premises at competitive costs.
• Incentive packages.
• English and Italian are widely spoken with a good understanding of French, German, Arabic and other languages.
• High professionalism in business support services and support from Malta Enterprise and Finance Malta: focused authorities acting as one-stop-shop for all investors.
• Economic, political and social stability.
• Healthy and safe environment.
• Excellent educational facilities.
The corporate tax rate payable in Malta stands at 35%. Malta has a single imputation system that avoids double taxation on companies and shareholders respectively. In fact, individual shareholders receive a refund of 6/7th on any tax paid in Malta upon distribution of dividends. This makes the effective rate of tax in Malta at 5%.
A company in such sectors can claim tax credits equivalent to 30% or 50% (depending on its size) of either the cost of capital investment including plant, machine and equipment or of 2 years wages for employees engaged between now and December 2013.
Moreover, tax liability can be further reduced through a mechanism of tax credits that Malta Enterprise grants to enterprises in selected sectors.
Malta has tax treaties with more than 65 countries which enhance the incentives provided by Maltese domestic legislation. Most of these treaties ensure such profits generated in Malta are either exempt from tax in the country of residence of the investor, or that such a country will provide a tax credit for the Malta tax spared as a consequence of the incentives Malta provides. Agreements with another 15 countries are currently being finalised.
The incentive gives fiscal benefits to persons (individuals and enterprises) that own the rights to patented intellectual property and are receiving income in the form of royalties.
The objective of this initiative is to encourage researchers to exploit intellectual property through the licensing of patented knowledge. The scheme should also encourage investment in research and knowledge creation and exploitation of intellectual property.
RESEARCH & DEVELOPMENT TAX CREDITS
Tax credits are available for enterprises investing in Industrial Research & Experimental Development. The tax credit percentage is related to the size of the enterprise. Additionally bonuses are provided to enterprise participating in collaborative projects with other industry partners or research organisations. Eligible costs include:
• Wages of researchers and technicians;
• Depreciation costs of instruments and equipment;
• Costs of material, supplies and similar products, bought specifically for the research project;
• Subcontracted research;
• Costs incurred for the purchase of technical knowledge and patents.
Investment Aid Tax Credits support enterprise in investment and job creation. The scheme is mainly focused on attracting new investment projects and promoting expansion or diversification of existing enterprises. This incentive is available to all sectors except specifically maritime, training and non-Maintenance Repair & Overhaul aviation services.
Eligible enterprises, as defined in the incentive guideline document, can benefit from tax credits calculated as a percentage of the value which is set according to the enterprise size. The principle beneficiaries are enterprises engaged in manufacturing, ICT development activities, call centres, pharmaceuticals, biotechnology, filming and audio-visual industries.
Tax credits are computed as a percentage of either the value of capital investment or the value of wages for 24 months covering new jobs created as a result of an investment project.
The tax credits which are not utilised during a particular year are carried forward to subsequent years.