Business Briefing

Malta gained its independency at a point where it relied way too much on the British military presence.

When the UK started withdrawing its armed forces, many predicted a disaster.

However, as you may know: those who really want to thrive know how to take advantage of crises.

That’s what happened in Malta. The island diversified its economy in the 80s through government grants, tax credits, and loans to increase the FDI flow.

As usual, the impact of these state-led measures was limited. That led the island to a second transformation: during the 90s, a series of economic reforms turned the country into a market economy, to the point the government sought progressive privatization of public assets, and finally, all capital controls were eliminated when the country joined the European Union in 2004.

And since then, this small yet rocking archipelago has never looked back.

Malta’s economy is highly diversified and developed. Small economies are usually uber-reliant of foreign investment, which makes them excessively vulnerable to external shock.

That’s not the case with Malta. Don’t be fooled by its size.

Just to name one example: when all Europe was in chaos because of the economic crisis in 2010, Malta was the only EU country along with Germany to sustain economic growth.

What has been the key? Two factors: diversification and pro-business policies.

Nothing new.

Especially after entering the EU, the country has promoted FDI to diversify its economy, leading to the growth of sectors such as information and communication technologies, pharma, aircraft maintenance, financial services, and even crypto services.

Aren’t you already convinced of investing in Malta?  

Firstly, the country has created a friendly and attractive environment for investors in the country. It has a pro-business foreign investment policy, it serves as a link between North Africa and Europe, has had stable credit ratings for most of its history, has the largest hi-tech exports per capita of the EU, a highly competent workforce, and even as the country receives loads of FDI, there’s still a ton of potential to exploit.

Malta’s proven record of economic stability and growth is a key driver of foreign investment. However, there’s still a ton of unexploited potential. Most of the industries present in Malta are high-tech, innovative industries such as semiconductors, medicines, metal products, software, and food products. That means they always need fresh direct investment to conduct more research and acquire top-notch equipment.

One of the advantages of investing in Malta is that it has a skilled workforce, and most of the population speaks English, which is co-official alongside Maltese. Likewise, Malta is one of the most tech-savvy countries in Europe, as it has modern transportation and first-level telecommunication. Even better: all this comes with lesser operational and day-to-day costs.

The Business Promotion Act has been in force since 2001 and was one of the main drivers of the influx of FDI in Malta. It has given great flexibility for investment in the country and has provided incentives for investors and industries such as manufacture (it even includes software development), maintenance, and improvement businesses.

Malta has a straightforward business set up process and there are plenty of well-prepared service providers to aid prospective investors during the process, from their company registration, to bank account opening, tax planning, and recruiting employees.

The incentives for qualifying companies come in two forms: tax incentives and non-fiscal incentives. The agency responsible for promoting such investments is Malta Enterprise. They aid potential investors by introducing them to official bodies of their interest and introduce them to similar operations to those they seek to establish. If the potential investor wants to continue his process, Malta Enterprise can assist them in:

•          Finding an industrial space;
•          Access to soft loans and loan guarantees;
•          Tax credits based on their plant or employment prospects;
•          Many other schemes to assist them in their export, research, and development activities.

Likewise, Malta Enterprise is the body in charge of allocating industrial spaces for foreign investors in Malta and Gozo in activities such as injection molding and pharmaceutical and medical devices development. It also runs a start-up center.

All that sounds good, but you may say: How come is that different from Germany when I have all those benefits, but the overall tax burden of a company is almost 50 % of its income?

Well, Malta has one of the most competitive onshore tax systems in Europe. It’s in full harmonization with EU and international standards. It has a robust double taxation treaties network of more than 70 agreements, but corporate tax rates can be as low as 5 % for certain companies that may receive tax benefits.

Opening a business in Malta is a simple process, but it is somewhat costly. For example, to establish an LLC in Malta, you just need 1) A minimum of €1,200 share capital, 2) two shareholders, 3) a business address and a company representative. Likewise, branches and subsidiaries of foreign companies run under the same frame of LLCs or JSCS.

Even as opening a business itself is easy, Doing Business 2020 ranks Malta in the 88^th place, which doesn’t compare favorably in Europe. Registering property, getting credit, and resolving insolvency are particularly low ranked in Malta. Registering property is quite costly in Malta, and the recovery rate of resolving insolvency is less than half than the high-income OECD average and takes three years on average.

All this means Malta offers a beneficial business environment for foreign investors, with some costly processes. However, its investment opportunities make it worth it. Likewise, the government continues to promote pro-business reforms, which means the rankings are going up almost every year.

Countries with transparent and attractive tax systems usually offer little more aside from one or two leading industries. Malta is one of the few exceptions. It has a diversified economy with plenty of options for all kinds of investors, low operational costs, a competition-based tax regime, top-notch service providers and workforce, transparent and upfront processes, and the most prestigious CBI and RBI program in the world.

So, what are some of the best investment opportunities in Malta? The archipelago’s economy is heavily reliant on imports, as the island doesn’t have many natural resources. Not many parts of Malta are suitable for agriculture, and the only mineral resource that is exploited in the island is limestone, which is usually used for construction. Likewise, there has been some offshore oil exploration since the 1990s, but no significant discoveries have been made.

Nevertheless, the manufacturing sector is a driving force of the economy, primarily because it’s mainly focused on specialized technological or chemical products. Since the 1980s, the country has manufactured computer parts and electronics, and a wide array of consumer products such as foodstuffs, toys, and many other kinds of plastics. Since the 2000s, light manufacturing has been the main protagonist of Malta’s economy. The country is a leading producer of semiconductors, airplane and automotive parts, and pharmaceutical products. There are still significant investment possibilities in these areas in Malta.

Another protagonist of Malta’s development is financial services. The island is a well-established investment fund and banking jurisdiction. In fact, Malta was the first country to promote regulations and official licenses for crypto investment (we will explain all that in-depth in the next sections). These and other services such as tourism account for almost half of Malta’s GDP and employ around 60 % of the active population.  

Another important industry in Malta is yachting. One of the main benefits of investing in it is that since 2019, there’s a reduced VAT on leasing a yacht depending on how it is used. The main advantage is that no VAT is charged on the part of the lease that covers the use of the yacht on non-EU or international waters, as long as the lessor has a Maltese VAT ID, the yacht is disposed of in Malta, and they apply for approval from the VAT department.

Everything you need to know about Malta: