Getting The Deal Through logo
Getting The Deal Through


Country overview

1    Give an overview of the country’s economy, its structure and main characteristics, and prevailing government economic policy, particularly as regards foreign investment.

Over the last 20 years, Malta has established itself as a competitive platform for international business and foreign direct investment. There are a number of factors that contribute to this not least, the low operational overheads; a stable social climate and political, legal and regulatory environment; an extensive double tax treaty network; a convenient time zone (just one hour ahead of GMT) and a proactive business culture, with a skilled English-speaking labour force. English is, in fact, one of Malta’s two official languages, the other being Maltese. A proactive regulatory environment that for a number of years has driven innovation in financial services coupled with an efficient tax regime have also made a significant contribution to Malta’s attraction as a jurisdiction of choice for international operators. These characteristics were enhanced by Malta joining the EU in 2004 and the eurozone in 2008, which further consolidated Malta’s position providing operators in Malta with direct access to the European single market.

Economic performance

In 2016, Malta achieved real economic growth of 6.4 per cent, which is well above the general EU average of economic growth. With an employment growth rate in excess of 2 per cent; unemployment below the 5 per cent threshold and real GDP growth forecast in excess of 3 per cent for 2017 manifests important economic fundamentals for the small Mediterranean island. In addition, Malta is further aiming to reduce its deficit to 0.2 per cent of GDP by 2018. These economic fundamentals have also led Standard & Poor’s to raise Malta’s credit rating from BBB+ to A- acknowledging the long-term sustainability of a thriving economy.
There are a number of areas that have been identified as possible focus points to further support growth through foreign direct investment. These are Malta’s domestic or regional market; R&D and innovation environment, and the country’s transport and logistics infrastructure.

Legal overview

2    Describe the legal framework and legal culture in your jurisdiction as regards business and commerce.

Malta’s legal system can best be described as a hybrid. A strong civil law legacy, which has historically been the backbone of the Maltese legal system, has been enhanced with a corporate law structure modelled on English law, which provides a base understanding of both systems and facilitates flexible and diverse solutions. This is evidenced in the significant number of companies opting to shift their jurisdiction of domicile to Malta and the multitude of legal entities being registered in Malta.

Malta’s administrative law framework is highly influenced by the British model, since it was developed during Malta’s history as a British colony.

3    What are the main sources of civil and administrative law applicable to companies?

The Companies Act remains the main pillar of the laws regulating companies registered in Malta and regulates companies from their establishment to their winding up.

Dispute resolution

4    How does the court system operate with regards to large commercial disputes?

Disputes in Malta relating to civil and commercial matters are generally resolved through recourse to the civil courts. The First Hall of the Civil Court is the superior court that deals with all matters, civil and commercial, which are not by special provision of law assigned to be tried and determined by another court. Its jurisdiction increased dramatically after the suppression of the Commercial Court in 1995.

Civil proceedings before the superior courts are generally initiated by a sworn application filed by the claimant in the court registry. The sworn application should clearly state the subject of the claim and the remedy that is being demanded. The application must be confirmed on oath and once filed in the court’s registry, it will then be served on the defendant who is given 20 days to file a sworn reply unless it intends to admit to the claim. The preliminary written procedures are deemed to be closed upon the expiration of the 20-day period. If no defence is filed within that time frame, the defendant will be deemed by the court to be contumacious and will not be entitled to defend the claim or bring any evidence before the court. Once the preliminary written proceedings are closed, a first hearing is held before the court that will proceed to plan in advance the sittings to be held and will direct the parties on what evidence and submissions it expects at each sitting. Evidence will be heard either by the court itself or by a judicial assistant appointed by the court for that purpose. Once all parties present their evidence, the court generally orders the parties to present their final written submissions and a reply thereto. Once these submissions have been filed, the court will adjourn the case for judgment, although it may provide the possibility for the parties to put forward final oral submissions in addition to the written submissions filed.

Maltese law provides for the possibility of interim measures, which are a significant remedy pending proceedings, particularly in the context of large commercial disputes. A claimant under national law has the possibility to request the court to order interim remedies to secure the rights claimed by it through the issuance of precautionary warrants. Such demand must be made by means of an application confirmed on oath by the applicant. The various precautionary warrants available in terms of national law are the warrant of description, the warrant of seizure, the precautionary garnishee order, the warrant of prohibitory injunction, the warrant of arrest of sea vessels and the warrant of seizure of a commercial going concern. Once the precautionary warrant is issued, and in the event that the applicant has not already instituted an action before the courts, the applicant has 20 days to institute legal proceedings. In the event that the applicant fails to do so, the precautionary warrant will be revoked.

5    What legal recourse do consumers typically have against businesses?

Several options are available to consumers in order to settle disputes with traders.

In terms of recent regulations under Maltese law, alternative dispute resolution (ADR) entities have been made available to handle consumer complaints in specific service sectors in relation to contractual obligations arising from sales or service contracts. ADR entities act as intermediaries in a dispute related to their area of expertise by attempting to propose possible solutions in order to facilitate an amicable settlement. However, prior to resorting to an ADR entity, an aggrieved consumer must attempt to contact the particular trader in order to discuss his complaint and seek to resolve matters directly with him. If this initial step is not taken, an ADR entity may refuse to deal with the dispute.

There are two types of ADR procedures, those which aim to resolve the dispute by proposing a solution and those which do so by imposing a solution. In the former, the parties can choose whether to follow the proposed solution or not and their participation in the procedure does not preclude the possibility of seeking redress through court proceedings. As to the latter, the solution is binding on the parties only if they were previously informed of such binding nature and this was specifically accepted by them. Decisions of an ADR entity can be appealed before the Competition and Consumer Appeals Tribunal.

With respect to purchases made online, the online dispute resolution (ODR) platform now available in Malta, facilitates the resolution of disputes relating to domestic online purchases. The ODR platform allows consumers to submit their dispute and conduct the ADR procedure online which would be dealt with by an ADR body. In Malta the Complaints and Conciliation Directorate within the Office for Consumer Affairs handles complaints and acts as the residual ADR entity in cases where there are no sector specific ADR entities. This ensures that Maltese consumers have full ADR coverage and thus access to out-of-court settlement, regardless of the nature of their purchase and where the purchase was made from.

Alternatively, for claims which do not exceed a value of €3,500, consumers may resort to the Consumer Claims Tribunal. Again, prior to resorting to the Tribunal, consumers must refer their claim to the Director General for Consumer Affairs or a registered consumer association who would try to help consumers reach an amicable settlement with the trader. Only when such settlement is not reached can a consumer proceed with his claim before the Tribunal.
Such procedure is accessible to all consumers due to its straight-forward nature. A consumer simply needs to fill in a notice of claim, and can also ask the Tribunal staff for help with understanding the procedure to be followed before the Tribunal and filling in any forms. After the claim is presented, the trader will be notified and has the opportunity to reply or to file a counterclaim. If the trader disputes the claim, a hearing before an arbitrator is held during which each party can state the facts and present any relevant documentation or witnesses. The arbitrator will usually give a decision after one hearing thus enabling consumer to have redress in a short period of time. Moreover, there is no need for a lawyer because a party can conduct his own case. This makes the procedure even cheaper and more accessible.

Decisions of the Tribunal may be appealed before the Court of Appeal (Inferior Jurisdiction) within 20 days from the date of the decision on matters relating to the jurisdiction of the Tribunal, on questions of prescription or where the tribunal has acted contrary to the rules of natural justice and, as a result seriously prejudiced the rights of the appellant (where the claim amounted to less than €1,200) or on all grounds (where the claim exceeds €1,200).

If a trader does not honour a decision given by the Tribunal, a consumer can still enforce that decision by means of executive acts since such decisions are deemed to be executive titles in terms of Maltese law.

Consumers also have the option to resort directly to the ordinary courts (without first having to go to the Tribunal) even where the claim does not exceed €3,500.

Class actions are permitted in Malta even though they have only been recently introduced. The Maltese Collective Proceedings Act provides for two forms of collective actions to be brought before the courts – group actions (the representative plaintiff instituting the action must have a personal claim that falls within the group of claims in the proposed collective action) and representative actions (where the action is filed by a representative body such as a consumer association that does not necessarily have a personal juridical interest to the case, however, serves the function of being a body set up to defend the interests of its members). In terms of the collective proceedings act, class actions may only be brought with respect to claims that fall under the auspices of three substantive laws: the Consumer Affairs Act, the Product Safety Act and the Competition Act.

The introduction of this procedural mechanism seeks to facilitate access to justice to individual citizens and businesses and improve judicial efficiency by allowing individuals to group their similar claims into one action. Moreover, it encourages businesses and enterprises in terms of deterrence, consequently encouraging them to honour their legal obligations knowing that victims are in a better position to seek reparation for harm suffered. However, class actions are not an unreasonable threat to businesses. This is ensured because as opposed to individual litigation, the sworn application does not automatically commence the judicial collective proceedings therefore allowing for inappropriate or weak cases to be filtered out. The court then proceeds to issue a decree certifying the proceedings as collective or alternatively dismiss the action altogether. Class members may attempt to institute collective proceedings afresh only if the claims are reformulated. Certification will not be granted unless, the court: (i) declares the collective proceedings as being the appropriate means for resolving the dispute; (ii) approves the proposed class representative and (iii) is satisfied that the claims fall within the purview of those specifically allowed in terms of the Collective Proceedings Act. Class actions might, therefore, become an increasingly significant threat for businesses in Malta.

6    How significant is arbitration as a method of dispute resolution?

Arbitration in Malta has increased in popularity as a result of a unique feature of the Maltese Arbitration Act, which contemplates mandatory arbitration in respect of a range of smaller disputes that rarely go to arbitration in other European states, among which condominium disputes, certain motor traffic disputes and disputes concerning water and electricity services. In addition, the Malta Arbitration Centre has several powers that are more commonly exercised by national courts, including the power of the registrar of the Centre to issue subpoenas to compel witnesses to give evidence or produce documents in a domestic arbitration. These factors have unquestionably given arbitration more prominence in Malta, although perhaps not to the extent desired, since the majority of arbitration cases in Malta still arise out of mandatory arbitration provisions.

Recourse to arbitration proceedings is, however, slowly gaining popularity in matters relating to commercial disputes, largely because arbitration is seen to be a cheaper, faster and more flexible form of dispute resolution. The fact that arbitral awards may be appealed from and enforced also helps in generating a greater interest towards the use of arbitration proceedings in Malta. Appeals from arbitral awards lie before the Court of Appeal on points of law arising out of a final award made in the proceedings unless the parties have excluded such a right in the arbitration agreement or otherwise in writing, or where the parties had expressly agreed that no reasons are to be given in the award. With respect to mandatory arbitration, appeals are allowed on both points of law and fact. Arbitral awards are deemed to be executive titles in terms of Maltese law and can therefore be enforced by means of the executive acts available at law, namely the warrant of seizure of moveable or immoveable property, warrant of seizure of a commercial going concern, judicial sale by auction of moveable or immoveable property or of rights annexed to immoveable property, executive garnishee order, warrant of ejection or eviction from immoveable property, warrant in factum, warrant of arrest of sea vessels, warrant of arrest of aircraft and the warrant in procinctu.

Malta provides for concurrent jurisdiction of state courts and arbitral tribunals, which is regulated by article 15(3) of the Maltese Arbitration Act and article 742 of the Code of Organisation and Civil Procedure. Article 15(3) of the Maltese Arbitration Act expressly states that in cases in which parties have submitted their disputes to arbitration based on an arbitration agreement and one party nevertheless initiates court proceedings, any party to such proceedings may at any time before delivering pleadings or undertaking other legal action apply to the court to stay the proceedings. The court should then issue an order staying the proceedings unless it is satisfied that the arbitration agreement in question is inoperative or void.

7    What other methods of dispute resolution are commonly used?

Mediation is admissible in disputes involving civil, family, social, commercial and industrial matters. This is generally, with the exception of family disputes, a voluntary private dispute resolution process in which both parties appoint a mediator to help them reach a negotiated settlement. The role of the mediator is different to that of an arbitrator or a judge since his role is a proactive one in which the mediator aids the parties to reach an amicable settlement. A mediator has no power to make any decision or award.

Parties to a dispute before a court may jointly request the court to stay proceedings while they attempt to settle their dispute by mediation. Furthermore, the court may, on its own initiative, stay the proceedings for the duration of the process and direct the parties to try and settle the dispute by mediation.

Mediation in family cases under Maltese legislation is mandatory, notably in cases dealing with personal separation, access to children, custody and maintenance of children or spouses or both. Accordingly, mediation is always tried before proceedings are escalated to a court of law.
As to disputes not relating to family matters, mediation is not a popular form of dispute resolution. However, the judiciary has recently tried to increase the popularity of mediation as a form of dispute resolution by putting forward proposals for mediation to be carried out while certain cases were pending appeal before the Court of Appeal. In this manner, there would be the possibility of certain disputes being resolved prior to the appeal being heard.

8    How easy is it to have foreign court judgments and foreign arbitral awards recognised and enforced in your jurisdiction?

The procedure for recognition and enforcement of foreign judgments and arbitral awards largely depends on whether the judgment or award emanates from a court in an EU member state or otherwise.

If the judgment or award is given by a court or authority in a member state and deals with a civil and commercial matter, it shall be recognised in Malta without any review as to its substance and without any special procedure being required since Malta is a signatory to the EU Regulation 1215/2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (Brussels I Bis). The party wishing to recognise in Malta a judgment given in another member state must produce for the Maltese court before which he or she is seeking recognition a copy of the judgment that satisfies the conditions necessary to establish its authenticity, a certificate issued by the court of origin (certifying that the judgment is enforceable and containing an extract of the judgment) and, where necessary, a translation of the contents of the certificate.

A court would refuse to recognise such a judgment or award upon the application of an interested party only if the recognition is manifestly contrary to Maltese public policy, if the defendant was not served with the document instituting proceedings in the foreign court so as to enable a defence, if the judgement is irreconcilable with a judgment given in a dispute between the same parties in Malta or if it is irreconcilable with an earlier judgment given in another EU or non-EU country involving the same cause of action and the same parties.

Such judgment or award would then be enforceable in Malta without any declaration of enforceability being required. The judgment would be enforced in Malta under the same conditions as a judgment given in the Malta, therefore by means of executive warrants as explained in question 3. For enforcement purposes, the party wishing to enforce should produce before the Maltese courts a copy of the judgment and a certificate issued by the court of origin, as explained above.

On the application of the person against whom enforcement is sought, the enforcement of a judgment shall be refused where one of the aforementioned grounds (for refusal of recognition of the judgment) is found to exist. The decision on the application for refusal of enforcement may be appealed against by either party.

As to judgments emanating from courts or tribunals outside Malta and the EU, national law provides that judgments would be enforced similarly to judgments delivered in Malta, provided an application is made requesting the court to order the enforcement of such judgment. The court will not order enforcement if:

  • in the case of judgment by default, the parties were not contumacious according to foreign law;
  • the judgment contains any disposition contrary to public policy or to the internal public law of Malta; and
  • for any of the reasons under which a person in terms of Maltese law may ask for a new trial of a decided cause (including where the judgment was obtained by fraud on the part of any of the parties to the prejudice of the other, where the party cast did not enter an appearance because he was not served with the sworn application, where any party was under a legal disability to sue or be sued, where the judgment was given by a court having no jurisdiction, where judgment was given on any mater not included in the demand, where judgment was given in excess of the demand, where the judgment contains contradictory dispositions, where the judgment contains a wrong application of the law, where the judgment conflicts with a previous decided cause on the same subject and between the same parties, where the judgment was based on evidence later found to be false, where a conclusive document was obtained after the judgment was given or where the judgment was based on an error resulting from the proceedings or the documents of the cause).

Foreign investment and trade

9    Outline any relevant treaty organisations, economic or monetary unions, or free trade agreements.

The firm commitment to negotiating and concluding double tax treaties, as one of Malta’s key international tax policies, is clearly reflected in the fact that to date, there are treaties with 72 jurisdictions in force. A further three double tax treaties have been signed but are not yet in force. These treaties are for the most part based on the OECD Model Convention, with certain treaties also having elements of the United Nations Model Convention.

Malta became a member of the European Union in 2004, and is therefore a member of the single market facilitating trade, business and investment in the European Union.

10    Are foreign exchange or currency controls in place?

Since Malta’s accession to the European Union, there have been no exchange control regulations in place.

The Minister of Finance is, however, conferred with the power to make regulations to impose restrictions on capital transactions in limited and exceptional circumstances provided by law, intended to preserve the stability of Malta’s financial system. Such powers are intended to address extreme circumstances such as the prevention of a balance of payments crisis, or the implementation of sanctions against specific countries in line with resolutions adopted by any international organisations of which Malta is a member.

The External Transactions Act also includes ministerial power, which can be exercised after consultation with the Central Bank of Malta and the National Statistics Office, to require the furnishing of any foreign exchange transactions for statistical purposes. Operators in the financial services sector are required to complete periodic statistical returns (usually annually) for the purpose of compiling Malta’s balance of payments and international investment position and also for submission to Eurostat.

The Cash Control Regulations (Legal Notice 149 and 411 of 2007) introduced regulations requiring any person entering or leaving Malta, or travelling through Malta, with an amount of cash (including monetary instruments) amounting to €10,000 to report such cash to the Customs Department on a prescribed form. This measure is intended to help prevent money laundering.

11    Are there restrictions on foreign investment?

Foreign investment is a major contributor to the Maltese economy. Malta has developed a strong pro-foreign investment approach, providing an array of financial and tax incentives to prospective investors, with little in the way of restrictions on such investment provided that the investment complies with European Union and national regulations. Malta’s European Union membership is compounded by other attractive features that Malta possesses, including a skilled, English-speaking labour force and highly developed infrastructure.

One possible restriction to foreign investment in Malta, in principle, relates to the acquisition of immoveable property in Malta by non-residents. In terms of the Immoveable Property (Acquisition by Non-Residents) Act non-residents must apply for a special permit that would allow them to purchase immoveable property in Malta.

12    Are there grants, incentives or tax reliefs for foreign investors or businesses?

The Maltese income tax system

The taxability or otherwise of companies in Malta mainly depends on whether a company is resident and/or domiciled in Malta. A company is considered to be domiciled in Malta if it is registered in Malta. As for residence, ‘resident in Malta’ when applied to a company refers to either a company the control and management of whose business is exercised in Malta or any company incorporated in Malta (even where the management and control of the business of the company is exercised outside Malta).

Therefore if a company is incorporated in Malta, it should be considered to be both domiciled and tax resident in Malta. If it is incorporated outside Malta but managed and controlled in Malta, it should be considered to be resident but not domiciled in Malta. Being domiciled and resident in Malta leads to Maltese income tax being levied on a worldwide basis, irrespective of where the income or capital gains arise, and irrespective of remittance to Malta. On the other hand, in the event that a company is resident but not domiciled in Malta, it should be subject to Maltese income tax on a source and remittance basis (ie, on income and capital gains arising in Malta and income arising outside Malta that is remitted to or received in Malta (for instance, paid into a Maltese bank account)). Non-Maltese sourced income that is not remitted to Malta and non-Maltese sourced capital gains (even if remitted to or received in Malta) should not be subject to Maltese income tax.

The chargeable income of the Maltese company is subject to Maltese income tax at a flat rate of 35 per cent. Non-resident shareholders of a company incorporated in Malta or of a company incorporated outside Malta but that is tax resident in Malta would be entitled to benefit from a tax refund scheme applicable in terms of Maltese law, which could result in an effective tax rate of 5 per cent.

Exemptions

No Maltese income tax liability, whether by way of withholding or otherwise, should arise on the payment of interest or royalties to persons who are not resident in Malta. This exemption is applicable unless: the person is engaged in trade or business in Malta through a permanent establishment; the debt claim in respect of which interest is paid is not effectively connected to such permanent establishment; and the beneficial owner of the interest must be a person not resident in Malta and must not be not owned and controlled, directly or indirectly, nor acts on behalf of individuals who are ordinarily resident and domiciled in Malta.

The attractiveness of Malta as a holding company jurisdiction is the applicability or not of the participation exemption to the receipt of dividends by a Maltese company from participating holdings held in foreign entities. If the participation exemption is claimed (provided a number of tests are satisfied), the receipt of dividends is exempt from tax in Malta and further distributions of dividends from the Maltese company will also not be subject to further tax. In order to claim the participation exemption the shareholding must qualify as a participating holding where it consists of an equity shareholding in a non-resident company and meets inter alia any one of the following conditions:

  • the holding constitutes a direct holding of 10 per cent or more of the equity shares or partnership capital;
  • the amount invested is that of at least €1.164 million and is held for a continuous period of at least 183 days; or
  • the right to nominate, appoint or withhold appointment of a director to the board of the foreign company.

A number of anti-abuse provisions must also be satisfied with respect to the receipt of dividends. The foreign subsidiary must meet at least two of the following criteria: be resident in the European Union; (2) be subject to foreign tax at the rate of at least 15 per cent; or (3) derive not more than 50 per cent of its income from passive interest and royalties. If one of the latter conditions is not met, the investment must not be held as a portfolio investment and the non-resident company, or its passive income, must have been subject to foreign tax at a rate of at least 5 per cent, in order to claim the exemption. There are certain exceptions on the availability of the participation exemption in the case of property companies and a further new anti-abuse rule emanating from the Parent-Subsidiary Directive that is designed to block artificial structures from availing itself of the exemption.

Alternatively, a company may choose not to take advantage of such an exemption but rather be charged to Malta tax, in which case upon a distribution thereof, the recipient will be entitled to a full refund of the Malta tax paid by the company.

Further notable exemptions from income tax are (i) the exemption from tax on income or gains derived by a company registered in Malta from a permanent establishment outside of Malta or from the transfer of such permanent establishment and (ii) the exemption from tax on profits derived by a non-resident on the disposal of units in a collective investment scheme or from shares in a company which is not a property company.

Credits

One of the ways in which Malta has been able to attract foreign investors to particular industries (for example IT, gaming and other innovation-based industries) has also been in the form of tax credits such as investment tax credits, credits for entities that carry out activities in innovative sectors such as research and development, as well as grant schemes for business development and seed funding for start-up companies.

Tax accounting

Malta operates a full imputation system. Profits are first taxed in the hands of a company at the flat rate of 35 per cent. However, when distributed to shareholders by way of dividend (out of taxed profits), the dividend carries an imputation credit of the tax paid by the company on the profits so distributed. The credit results in the elimination of Malta tax that is chargeable at shareholder level on dividends received.

The Maltese income tax system prescribes the use of different tax accounts, into which a company allocates its distributable profits. Depending on the particular tax account, certain distributions to shareholders may result in a reduced effective tax rate of 5 per cent. When a company distributes a dividend to its shareholders out of profits allocated to Maltese Taxed Account and Foreign Income Account, the shareholder may be entitled to claim a full or partial refund of the tax paid by the company on the profits it distributes. The rate of tax refund to which the shareholders of a Maltese company will be entitled to will depend on the following factors: (i) the nature of the underlying profits out of which dividends will be distributed; and (ii) the application of any double taxation relief on such profits. The tax refund entitlement of a registered shareholder of a Maltese company may accordingly vary as follows.

  • A six-sevenths refund of the Maltese tax chargeable will be available in cases where the shareholder is in receipt of a dividend paid to him from profits not consisting in passive income or royalties. This includes profits generated from foreign source trading income that is not linked to a permanent establishment.
  • A five-sevenths refund of the Maltese tax chargeable will be available in cases where the shareholder is in receipt of a dividend paid to him from profits derived from foreign source passive interest or royalties. In addition, this refund can be claimed upon dividends received by a company from a participating holding in an entity which does not satisfy any of the anti-abuse conditions that are applicable to the participation exemption.
  • A two-thirds refund of the Maltese tax chargeable will be available in cases where the shareholder is in receipt of a dividend distributed out of profits that were subject to double tax relief at the level of the distributing company.

Tax residency schemes

A number of attractive tax residency schemes have been promulgated over the years in order to attract high net worth individuals to relocate to Malta, whether such individuals are from the European Union or from outside the European Union. These schemes generally offer a reduced income tax rate on foreign source income remitted to Malta to individuals who satisfy a variety of a conditions mainly relating to investment (acquisition or rental) in a qualifying immoveable property, repatriation of funds and payment of a minimum amount of tax in Malta.

The Residence Programme is one such scheme. It is designed for individuals who seek to take up residence in Malta, by offering a special tax status of 15 per cent on the receipt of foreign source income in Malta. Other conditions that must be satisfied, among others, include having adequate insurance and not living in any other jurisdiction for more than 183 days in a calendar year. There is a one-time registration fee under this scheme of €5,500–€6,000. The minimum tax that needs to be paid in Malta per year is €15,000. Its counterpart is the Global Residence Programme, targeting non-EU individuals.

Other schemes exist depending on an individual’s personal circumstances such as a scheme for retirement purposes (with one scheme specifically targeting individuals who benefit from a United Nations pension) and a scheme for individuals who are highly qualified and who seek to work in licensed companies.

Other notable incentives include:

  • Non-resident investment committee members of a SICAV are subject to tax in Malta on the portion of remuneration they receive that is attributable to management services that are physically performed in Malta. The tax authorities of Malta have determined that the portion of the services that are physically performed in Malta is to be computed on an annual basis, as the higher of:
  • (i) a pro rata amount of the total remuneration received, determined on the actual number of days of presence in Malta in a given calendar year; and (ii) one-twelfth of the investment committee member’s compensation as such for a given calendar year. The investment committee fees will be chargeable to tax in Malta at the progressive non-resident tax rates.
  • In terms of the Duty on Documents and Transfers Act, exemptions from duty may apply in respect of certain transfers, including the transfer of securities listed on the Malta stock exchange, intragroup transfers and transfers of securities in or by a company that has, or intends to have, business interests to the extent of more than 90 per cent outside Malta.
  • In the remit of VAT, attractive yacht and aircraft leasing schemes can be availed of. Depending on the size of the yacht or aircraft and the deemed percentage of usage in the European Union, the effective VAT rate could be reduced to around 5.5 to 6 per cent.
  • An efficient re-domiciliation procedure. It is even possible to re-domicile into Malta from outside the European Union; few jurisdictions are considered to be ‘not approved’ jurisdictions.
  • A company can be registered with the Registrar of Companies in Malta within three days (provided all constitutive documentation and due diligence documentation is in order).

13    What are the main taxes that apply to cross-border or foreign-owned business and investors?

The income tax rate levied on companies is a nominal flat rate of 35 per cent. As described above, there is a lower effective tax rate provided the correct structure is put in place. Individuals are taxed at progressive rates, the highest tax band is of 35 per cent. Income tax legislation also provides specific bands for non-resident individuals.

There are no withholding taxes on dividends, interest and royalties, as well as no branch remittance tax. The transfer of immoveable property is generally taxed at a final tax rate that varies between 2 and 12 per cent depending on; inter alia, the nature of the immoveable property and the length of ownership.

In terms of the Duty on Documents and Transfers Act, duty is chargeable on documents evidencing transfers of immoveable property, marketable securities or an interest in a partnership. A document is subject to duty if it is executed in Malta or, in certain circumstances, if it is executed outside Malta and used in Malta. Duty is chargeable at the rate of 5 per cent of the higher of the consideration and the real value upon a transfer of immoveable property. Duty is chargeable at a rate of 2 per cent of the higher of the consideration and the real value upon a transfer of marketable securities or an interest in a partnership, although a 5 per cent rate applies to transfers of marketable securities in a company or of an interest in a partnership where 75 per cent or more of its assets consist of immoveable property. Duty is also chargeable on certain specified documents, such as policies of insurance.

The standard rate of value added tax is set at 18 per cent, with reduced rates of zero per cent (with or without the right to claim input value added tax), 5 per cent or 7 per cent for specific supplies.

Regulation

14    Which industry sectors are regulated or controlled by the government?

The main industry sectors regulated or controlled by the government include the financial services sector (comprising credit institutions, financial institutions, insurance and reinsurance undertakings, investment services providers, funds, trustees and fiduciaries and company service providers), listed companies, the gaming sector, energy and water services, telecommunications, transportation, and health services.

15    Who are the key industry regulators, and what are their powers?

The Malta Financial Services Authority (MFSA) is the single regulator for financial services in Malta; it also services as the listing authority. The main functions of the MFSA include the regulation, monitoring and supervision of financial services in Malta and its powers comprise a range of regulatory, investigatory and enforcement powers, including those relating to licensing, the implementation of subsidiary regulations, the right of entry and access to information, the issuance of directives to licensed entities, and the imposition of administrative penalties.

The Malta Gaming Authority (MGA) regulates the various sectors of the gaming industry that fall under it by ensuring gaming is fair and transparent, preventing crime, corruption and money laundering and protecting minor and vulnerable players. The MGA is therefore responsible for granting licences relating to gaming, monitoring licensed gaming, collecting gaming taxes on behalf of the Government and enforcing gaming laws and regulations.

The Regulator for Energy and Water Services is responsible for the regulation of energy and water services in Malta. It is responsible for the granting of licences or other authorisation for the carrying out of activities in connection with energy and water services, establishing the minimum quality and security standards in relation to these services, regulating the price structures, promoting fair competition as well as the interests of consumers of energy and water services, and other related matters. Other environment regulators include the Malta Resources Authority (responsible for the registration and metering of boreholes, mineral resource regulation, climate change reporting and operation of the emission trading scheme), the Environment and Resources Authority (the national regulator on the environment) and the Planning Authority (responsible for development permits and planning services).

The Malta Communications Authority (MCA) regulates communications services which include fixed and mobile telephony, internet and TV distribution services. It also regulates the postal sector and e-commerce services and Malta’s radio networks. The MCA’s primary objective is to ensure the provision of products and services, based on the latest innovative technologies, at the right price and of the highest quality to consumers.

Transport Malta is responsible for the promotion and development of the transport sector in Malta. It comprises various transport-related directorates, including those on civil aviation, ship registration, ports and marinas, boats and yachting, public transport, private and commercial vehicles, and road safety.

In the health services sector, the Medicines Authority is responsible for the regulation of medicinal products and pharmaceutical activities, while the Health Inspectorate (responsible for safeguarding and protecting human health by ensuring that food produced, distributed, marketed and consumed by humans meets the highest possible standards of food safety and hygiene).

16    What are the other main enforcement authorities relevant to businesses?

The Inland Revenue Department is responsible to the government for the administration of the Income Tax Act and the enforcement of social security contributions under the direction of the Ministry for Finance. The VAT Department is then responsible for the administration of the Value Added Tax Act.

The Financial Intelligence Analysis Unit (FIAU) is a government agency responsible for the collection, collation, processing, analysis and dissemination of information with a view to combating money laundering and the funding of terrorism. The FIAU is also responsible for monitoring compliance with the relevant legislative provisions.

The Malta Competition and Consumer Affairs Authority (MCCAA) is made up of four entities:

  • the Office for Competition is responsible for promoting and enhancing effective competition in all sectors of the economy. It is entrusted to investigate, determine and suppress practices which restrict competition and abusive conduct by dominant undertakings;
  • the Office for Consumer Affairs is responsible for creating awareness of consumer rights, assisting consumers with complaints following the purchase of goods or services that are not in conformity with the contract of sale, and the enforcement of consumer protection legislation;
  • the Standards and Metrology Institute provides various technical services to industry, consumers, the government and other interested parties in connection with national standardisation, legal metrology and independent testing services; and
  • the Technical Regulations Division is responsible for the implementation of European legislation on products.

The Office of the Information and Data Protection Commission is responsible for upholding the rights of individuals under the Data Protection Act and enforcing the obligations upon data controllers. The Commissioner has a broad range of powers including those relating to obtaining information, enforcing compliance with the Data Protection Act, entering and searching premises of a data controller or data processer, and imposing administrative penalties.

17    On which areas have regulators particularly focused their recent enforcement activities?

The MFSA and FIAU have been particularly active in the financial services space in the recent months. More specifically, they have upped their onsite inspections and have also levied numerous penalties for breach of the relevant rules and regulations. Any such penalties or other regulatory measures taken by regulators are made public on the respective website.

Over the last two years the Office for Competition (OC) has made a concerted effort to concentrate its resources on decreasing the number of pending cases.

Remarkably, in 2015, the OC closed 41 cases. The sectors involved covered the carriage of passengers, food services, fuel sales, car parking rates and yacht marinas.

The OC also concluded a much-awaited sector inquiry in response to concerns relating to interest rates charged by commercial banks on loans to small and medium-sized enterprises. The OC had consulted the main core banks, representatives of SMEs, the Central Bank of Malta and the Malta Financial Services Authority. In its report the OC proposed a number of recommendations addressed to commercial banks, to the Central Bank of Malta and the Planning & Priorities Coordination Department as well as SMEs. In particular, the OC proposed the following: free of charge quotations for SMEs, more information on business loans and EU-funding packages through more than one bank, charges to be listed on bank websites, restricted information on future pricing and the setting up of a credit register by the government.

Compliance

18    What are the principal bribery, corruption and money laundering concerns for businesses?

Malta boasts a strong money laundering regime while also criminalising bribery and corruption activities via its criminal law framework. Malta has implemented laws criminalising the offence of money laundering as well as establishing procedures for the investigation and prosecution of money laundering offences, as well as the measures for the confiscation of property upon conviction of money laundering, the freezing of assets when a person is charged with an offence of money laundering and measures for the issuance of an investigation or attachment order when a person is suspected of having committed an offence of money laundering. The money laundering regulatory framework, which is fully compliant with EU law, spells out the obligations and procedures that subject persons are required to fulfil and implement. Compliance with this regime is supervised and enforced by the FIAU. The Maltese Criminal Code also criminalises terrorism, the financing of terrorism and ancillary offences.

Active and passive bribery, abuse of office, extortion and embezzlement are among the corruption-related offences that constitute a criminal activity under the Maltese Criminal Code. Facilitation payments and giving and receiving of gifts are similarly criminalised under the legal framework. All in all, bribery and corruption do not represent a challenge for businesses operating in Malta, thanks to the country’s transparent administration and economy, low levels of official impunity, and small room for arbitrary spending of public funds.

These stringent frameworks, which are effectively enforced, have prompted local businesses to review and strengthen their compliance policies, practices and procedures. Businesses are becoming increasingly aware of the legal, financial and reputational risks connected to bribery, corruption and money laundering and of the importance of ensuring they have appropriate procedures in place to prevent these illegal activities.

19    What are the main data protection and privacy risks for businesses?

The processing of personal data by businesses, be it customer, client, subcontractor, or employee data, among others, may be subject to the requirements under Malta’s Data Protection Act. Businesses, as data controllers, are under an obligation to safeguard the privacy and security of such personal data. In this respect, businesses are under an obligation to implement appropriate technical and organisational measures to protect the personal data that is processed against accidental destruction, loss or unlawful forms of processing.
Further to the above, the Data Protection Act requires data controllers to adhere to the principles of personal data, namely that personal data is processed fairly and lawfully. The latter requires that data controllers acquire prior consent from data subjects, which is to be freely given, specific for the purposes used by the controller for processing and which attests to an informed indication of their wishes to have said data processed by that business. To attain valid consent, the Data Protection Act requires that data subjects are informed by the business of their rights, among others, on the purposes of processing, the recipients of that data, any cross-border transfers of personal data, and the right to access, rectify and, where applicable, to erase the data about them.

Today, data has become very easily portable and transferrable even overseas, and as a result, data transfers pose a higher data protection risk. In this regard, while only a general notification to the Data Protection Commissioner regarding transfers of personal data from Malta to the EU/EEA is necessary, data transfers to third countries that do not offer an adequate level of security (note that in this context, a ‘third country’ refers to a country not being an EU or an EEA country) may only take place if the data controller has appropriate measures in place, such as the EU Model Clauses, and has notified said transfer to the Data Protection Commission for prior approval.

Further to the above, it should be noted that in general, it may be observed that businesses in Malta are becoming more aware of their data protection compliance obligations and the risks they are exposed to through the handling of personal data. Indeed, with the coming into force of the General Data Protection Regulation (GDPR – Regulation (EU) 2016/679), such awareness will be ever more crucial. In this respect, new obligations will be imposed on Maltese businesses as a result of the GDPR, including the obligation to notify data breaches to the Data Protection Commissioner and the requirement of prior impact assessments in case of high-risk data processing activities. Businesses will also be exposed to considerably higher penalties in case of data protection breaches with the coming into effect of the GDPR.

20    What are the main anti-fraud and financial statements duties?

Under the Companies Act, the directors of a company are obliged to retain proper accounting records so that the financial position of the company can be properly ascertained. The accounting records should be kept in Malta for at least 10 years.

Moreover, the directors are obliged to prepare a profit and loss account, balance sheet and director’s report once a year and to have these audited by the company’s auditors. The accounts shall give a true and fair view of the company’s assets, liabilities, financial position and profit or loss. The form and content of the annual accounts of companies engaging in certain activities (such as those providing financial services) must comply with the requirements prescribed in the applicable rules.

The directors are then obliged to lay the financial statements before the annual general meeting for the approval of the general meeting. After the annual general meeting, the directors must file a copy of the accounts with the Maltese registry of companies.

Any person, being an officer of the company, who fraudulently either disposes of, alters or makes an omission in any such document relating to the company’s assets or affairs, shall be guilty of an offence.

Further, listed companies are to abide by the Listing Rules and the market abuse regime, which provide for a series of controls and notifications around insider dealing and market manipulation.

21    What are the main competition rules companies must comply with?

Maltese businesses are subject to both Maltese and EU competition rules. Maltese competition law is principally contained within the Competition Act and is modelled on EU competition law. The 2011 amendments to the Competition Act strengthened the OC’s enforcement powers by endowing the OC with decision-making and fining powers. There are two main prohibitions:

  • cartels and other anticompetitive agreements found in article 5; and
  • abuses of a dominant position found in article 9.

The first prohibition is intended to capture classic price-fixing, bid-rigging and market sharing conduct. However, the competition rules also cover vertical agreements – distributorship agreements, for example – that contain anticompetitive restraints such as, territorial and customer restrictions, resale price maintenance and non-compete clauses that have a foreclosure effect.

Any agreements in contravention of the competition rules are null and unenforceable.
The second prohibition concerns conduct by one or more undertakings that amounts to the abuse of a dominant position in a market that may affect trade within Malta or the EU or a substantial part of it. In this case, the definition of the relevant market involves a product and geographic market assessment, which is critical to the assessment of dominance. A relevant market share in excess of 40 per cent is usually indicative of dominance, although the assessment is made on other factors of competitive conditions such as control over an essential facility. Abusive conduct generally falls within an exploitative or exclusive category and includes, predatory or excessive pricing, exclusivity arrangements, and the tying or bundling products. Unlike in the case of vertical agreements, there are no exemptions – although the dominant undertaking is afforded the opportunity to advance an objective justification for its conduct.

22    Outline the corporate governance regime.

The primary corporate governance legislation for companies is contained in the Companies Act, which all companies must abide by. Maltese companies are also subject to their own memorandum and articles of association, which are tantamount to a contract between the company and its shareholders. The memorandum of association sets out the principal objects of the company, while the articles of association provide for the internal regulations of the company in connection with matters such as shareholder meetings, voting rights, powers and duties of directors, the composition of the board of directors, and communications between the company and its shareholders. Also relevant are the fiduciary duties of directors contained in the Civil Code.

Maltese incorporated companies with securities admitted to trading on a regulated market are subject to the additional EU-based regulations, including, for example, the Market Abuse Regulation (2014/596/EU), as well as the domestic Listing Rules. The latter also comprise the Code of Principles of Good Corporate Governance – although compliance with this Code is voluntary, the Listing Rules require listed companies, in their annual accounts, to (i) report on how they apply its main principles, and (ii) either confirm that they comply with its detailed provisions or explain their non-compliance (ie, using the ‘comply or explain’ principle).

Companies licensed to provide financial services by the MFSA must comply with a number of additional corporate governance requirements emanating from the respective rulebooks, including those contained in the Capital Requirements Regulation (2013/575/EU) for credit institutions, the Solvency II Directive (2014/51/EU) for insurance and reinsurance undertakings, the Markets in Financial Instruments Directive (2004/39/EC) for investment service providers, and the Maltese Trusts and Trustees Act for trustees and other fiduciaries.

23    Can business entities incur criminal liability? What are the sanctions for businesses, related companies and their directors and officers for wrongdoing and compliance breaches?

Corporate criminal liability is contemplated by the Maltese Criminal Code in connection with the abuse of public authority through unlawful exaction, extortion or bribery, crimes against the public peace, and money laundering offences. Where the person found guilty of an offence relating to the aforementioned crimes, is a director, manager, secretary, or other principal officer of a company, has a power of representation of such a company, has authority to take decisions on behalf of that company, or otherwise has authority to exercise control within that company, and the offence of which that person was found guilty was committed for the benefit (in whole or in part) of that company, the said person shall be deemed to be vested with the legal representation of the same company, which shall be liable to the payment of a fine.
In relation to the offence of money laundering, the Prevention of Money Laundering Act provides that, in addition to any penalty to which the company may become liable, the court may also order the forfeiture in favour of the government of Malta of the proceeds of crime. Where the proceeds of the offence have been dissipated or otherwise cannot be identified and forfeited, the court shall sentence the person convicted, or the company (or both) to a payment of a fine that is equivalent to the amount of the proceeds of the offence. Corporate criminal liability is also envisaged within the context of market abuse. To this end, the Prevention of Financial Market Abuse Act provides that a legal person found guilty of an offence shall be liable on conviction to a fine of not less than €5,000 and not exceeding €15 million or up to three times the profit made or the loss avoided by virtue of the offence, whichever is the greater. Sanctions can also include exclusion from entitlement to public benefits or aid, temporary or permanent disqualification from the practice of commercial activities, placing under judicial supervision, judicial winding up, and temporary or permanent closure of establishments that have been used to commit the offence. Legal persons can also be held liable for any such infringements committed for their benefit by any person having a leading position within the legal person, or where the lack of supervision or control by these persons made possible the commission of an offence for the benefit of the legal person by a person under its authority.

Criminal liability may also be recognised in connection with offences relating to compliance with specific rulebooks, including but not limited to, those governing financial services, anti-money laundering, gaming and the environment. In these cases, criminal liability of legal entities can coexist with that of their officers (including directors, managers, company secretary or any person effectively acting in such capacity whether formally appointed or not). Broadly speaking, the types of sanctions imposed on businesses in these circumstances can predominantly be in the form of a pecuniary fine, restriction or closure of business, and remediation of damage. The officers involved can be subject to a range of sanctions, including monetary sanctions, imprisonment, and prohibition form acting as an officer of legal entities.

Business operations

24    What types of business entity are most commonly used by foreign investors and why? What are the main requirements for their establishment and operation?

Maltese law provides for different forms of corporate entities which may be utilised by foreign investors looking to Malta for their next business opportunity. The most frequently used form of business entity is the limited liability company, which may be established as either a private or public limited liability company regulated by the Companies Act (the Act). The Act finds its roots in the UK Companies Act 1985 and the UK Insolvency Act 1986 and has, since 2004, been heavily influenced by European Union law.

Some of the most attractive features of the limited liability company are the relatively low costs, expediency and straightforward process associated with its establishment. If all necessary documentation is in order, the process from assessing an investor’s requirements to having the desired company registered could take just a few days. The incorporation procedure entails, in particular: (i) the subscription by a minimum of two members (other than in the instance of a single member company) to the company’s memorandum of association; (ii) having the minimum required authorised and issued share capital, which shall be equal to €46,587.47 with respect to public companies and €1,164.69 with respect to private companies; (iii) the payment of a minimum amount (20 per cent in the case of private companies and 25 per cent in the case of public companies) of the nominal value of each share taken up; (iv) the payment of a registration fee; and (iv) the registration of the company with the Registrar of Companies (the Registrar).

In addition to the memorandum, a company must also subscribe to articles of association. Subscribers may opt for the default articles of association contained in the First Schedule to the Act, for bespoke articles replacing the default articles in their entirety, or for a mix of default and bespoke articles. The articles of association of a company regulate, among other things, the transfer and transmission of shares; the general meeting of the company’s shareholders; the issue of new shares; and the pledging of shares. Following the registration of the company with the Registrar, the Registrar will issue a certificate of registration and the company will be authorised to commence business as from the date of registration indicated in the certificate.
Although public and private limited liability companies are generally regulated in a similar manner under the Act, several restrictions are specifically applicable to private companies. Private companies are required, in their memorandum and articles of association, to impose a restriction on the right to transfer shares therein, to limit the number of their members to 50 and to prohibit the inviting of the public to subscribe for any shares or debentures of the company. Furthermore, such companies may be set up as single member companies, as well as exempt companies in the instance of small companies that satisfy particular conditions under the Act and that are exempt from complying with certain requirements under the Act, such as the requirement to draft a director’s report for each accounting period. On the other hand, public companies are not subject to restrictions on the transfer of shares therein or on the offering of shares therein to the public. Such companies may therefore be listed on a regulated exchange such as the Malta Stock Exchange, and should they do so they would be required to comply with the Listing Rules of the Malta Financial Services Authority (MFSA), being the Listing Authority in Malta.

Another appealing feature of limited liability companies is that Malta adopts the full imputation tax system with respect to the taxation of limited liability companies. This entails that the tax chargeable and paid by a company domiciled in Malta is fully imputed onto shareholders as a tax credit when taxed profits of the company are distributed to them. This results in a tax credit of 35 per cent of company tax in the hands of the shareholders and completely eliminates the economic double taxation of distributed company profits.

Companies carrying on the business of insurance in or from Malta are increasingly being registered as or converted into protected cell companies (PCCs). The cell company concept lends flexibility to the structuring of various types of activities and products and has already been very successfully utilised in the insurance sector with the introduction of PCC legislation. The use of cellular structures has recently been extended to reinsurance special purpose vehicles and to securitisation cell companies. To date, Malta remains the only EU member state to have introduced PCC and incorporated cell companies (ICCs) legislation for the undertaking of insurance and reinsurance activities. Through the use of cell structures, operators benefit from capital leverage, limited recourse and other economies of scale, depending on the type of structure being opted for. The ability of the PCC to create protected cells within itself for the purposes of segregating and protecting the cellular assets of the company is one of the most attractive features of such a structure. Each cell has its own separate portion of share capital, and the income, assets and liabilities of each cell are kept separate from all other cell and the non-cellular assets of the PCC. Such ring-fencing offers superior creditor protection.

The most significant difference between PCCs and ICCs is that, in an ICC, its core and cells are individually separate legal entities whereas, with a PCC, the core and the cells are treated as having one legal personality. The separate legal personality means that capital leverage for insurance solvency purposes is not possible with respect to ICCs, as each cell within the ICC must meet its solvency and capital requirements in its own right. On the other hand, a PCC enables capital leverage for insurance solvency purposes. For Solvency II Directive (2009/138/EC) purposes, PCCs are categorised as ‘ring-fenced funds’, and therefore while standalone insurers will be required to satisfy both the solvency capital requirements (SCR) and minimum capital requirements (MCR), the cells will only be required to satisfy the SCR, with the PCC as a whole having to satisfy the MCR. Therefore, diversification is permitted within the core or any of the cells in isolation.

Companies are also commonly registered as investment companies with variable share capital (SICAV), most especially for the purpose of setting up investment funds, or investment companies with fixed share capital (INVCO). SICAVs are the most commonly employed vehicles for the structuring of Maltese investment funds, with their wide-ranging benefits making them an appealing conduit for the structuring of professional investor funds, alternative investment funds and UCITS funds. SICAVs are established as limited liability companies and are therefore regulated by the Act, which contains specific provisions for the regulation of such entities. In accordance with the Act, the memorandum of association of a SICAV must limit the object of the company to the collective investment of its funds, with a view to spreading investment risk and giving investors the benefits of the management of its funds. Furthermore, the share capital clause of the SICAV’s memorandum must specify that: (i) the share capital of the company shall be equal to the current value of the issued share capital of the company; (ii) such share capital shall be divided into a specified number of shares without assigning any nominal value thereto, which allows SICAVs to issue ‘no par value’ shares and eliminates the need for SICAVs to operate share premium accounts; and (iii) the actual value of the paid-up share capital shall be equal to the value of the net assets of the company.

Additionally, the memorandum and articles of association must also provide that the shares of the company must be purchased by the company out of its own assets, at the request of shareholders or as otherwise set out in the memorandum or articles of association. This characteristic makes SICAVs ideal vehicles for the structuring of open-ended funds as it allows investors the possibility to exit from an investment at their request. One of the most beneficial aspects of a SICAV, therefore, is its liquidity. A further benefit emanating from the SICAV structure is that they may be constituted as a multifund company with segregated sub-funds. Indeed, by virtue of an election in its memorandum, a SICAV may choose to have the assets and liabilities of each sub-fund treated as a patrimony separate from the assets and liabilities of each other sub-fund of such company. Therefore, the liabilities incurred in respect of each sub-fund will be paid out of the assets comprising the patrimony of that sub-fund and the creditors in respect thereof would have no claim or right of action against the other assets of the company, which eliminates the risk of cross-contamination between sub-funds.

Malta has introduced the common law concept of trusts through the enactment of the Trusts and Trustees Act. Under Maltese law, a trust may be established unilaterally or otherwise either by means of an oral declaration, an instrument in writing, by operation of law or by a judicial decision. However, the most common method of constituting and regulating a trust is by the creation of a trust deed. The trust obligation may be created either through the transfer of assets from the settlor to the trustee or through a declaration by the trustee that he or she holds the assets on trust for the beneficiaries.

One of the most attractive features of a trust set up is its fiscal treatment. Maltese law provides for the option for trusts to be taxed either as companies, or directly in the hands of the beneficiary. Under Maltese law companies are taxed at 35 per cent, however, this rate may be reduced significantly through a mechanism of tax refunds and relief. A body corporate trustee that is registered and authorised to act as a trustee in Malta may make an irrevocable election for the chargeable income of the trust to be computed as if such income was derived by a company ordinarily resident and domiciled in Malta. In the case of such an election, the distribution of profits to beneficiaries will be treated akin to the distribution of dividends to shareholders by a Maltese company. Income and gains attributable to a trust may be deemed to be directly received by the beneficiaries, and where such beneficiary is not resident or domiciled in Malta, no tax on any income or gains that are remitted to Malta would arise.

25    Describe the M&A market and the merger control regime. How easy is it to complete deals in your jurisdiction?

The Maltese M&A market

The local M&A market continues to flourish. According to the most recent annual report of the MFSA, there were 299 company mergers in 2015, a 10.8 per cent increase when compared with 2014. Malta has witnessed a number of significant M&A transactions stemming from an array of sectors (such as telecommunications, insurance and hospitality). The local M&A environment is characterised by a set of interrelated features, which, collectively, work to facilitate the completion of deals, including: the regulators’ willingness to engage with market participants; regulation that is robust yet conducive to M&A activity; and a competitive fiscal environment. These traits have also contributed to the buoyancy of the country’s economic climate, which, after having stood resilient in the face of global financial turmoil, continues to strengthen further. It is against this backdrop, therefore, that Malta’s success as a European platform for M&A activity is expected to endure.

M&A transactions: the local regulatory framework

The key legislative instruments pertinent to M&A transactions in Malta are as follows.
The Act sets out alternative methods for the amalgamation and division of companies, and contemplates an attractive range of corporate forms suited towards different business risks and operations. The Civil Code governs the law of obligations, and provides the basis for the establishment of contractual relationships between the parties to a deal. M&A deals involving public companies listed on the Malta Stock Exchange are subject to the Companies Act (the Prospectus) Regulations (Subsidiary Legislation 386.11 of the Laws of Malta) and the Listing Rules published by the MFSA (in its capacity as the listing authority).

Where an M&A transaction bears a foreign element, reference must be made to the Cross-Border Merger Regulations (CMBR), implementing Directive 2005/56/EC on Cross-Border Mergers of Limited Liability Companies, applicable to mergers of companies formed in accordance with the law of an EU member state and having their registered office, central administration or principal place of business in the EU, where at least one of the merging companies, or the company resulting from the merger, is registered in Malta.

The Competition Act, the Control of Concentrations Regulations (CCR), the Employment and Industrial Relations Act, the Transfer of Business (Protection of Employment) Regulations, and, importantly, tax legislation, with particular emphasis on the Income Tax Act and the Duty on Documents and Transfers Act, constitute further legislative instruments that occupy a key role in the design of M&A deals.

An M&A transaction concerning the transfer of a regulated entity will also be impacted by other, specific rules, including, as applicable, the Investment Services Act; the Banking Act; the Financial Institutions Act; the Insurance Business Act; and the Lotteries and Gaming Act. In these cases, M&A transactions will typically require regulatory clearance.

Gauging which legislative instruments are applicable will ultimately require an assessment of the circumstances particular to the deal in question.

Merger control

The Office for Competition (OFC), forming part of the Malta Competition and Consumer Affairs Authority, is empowered to assess particular M&A transactions in order to determine, on a case-by-case basis, whether these may substantially reduce competition in Malta. In terms of the CRR, a notification must be submitted to the OFC for this purpose when: (i) two or more previously independent undertakings merge or one or more undertakings acquire control of all or part of one or more other undertakings; and (ii) the combined aggregate turnover in Malta in the preceding financial year of the undertakings concerned exceeds €2,329,273.40, and each of the said undertakings had a turnover in Malta equivalent to at least 10 per cent of this combined aggregate turnover. The creation of a full-function joint venture may also require notification to the OFC. An abridged notification is permitted in the case of an acquisition of joint control by two or more undertakings where the turnover of the joint venture or the turnover of the contributed activities in Malta is less than €698,812.02, and the total value of assets transferred to the joint venture in Malta is less than €698,812.02. Upon review of the notification, the OFC will move to clear or (should it be deemed substantially prejudicial to competition) prohibit the proposed deal.

There is a general feeling that the decades-old CRR should be updated in order to reflect the evolving market. For instance, the existing financial thresholds are perceived by the market as being too low. It is suggested that, while no review of the CCR is in the pipeline, these thresholds ought to be revised in the near future to capture only those transactions that could have a practical impact on local competition.

26    Outline the corporate insolvency regime. Is bankruptcy protection available for corporates?

The Maltese corporate insolvency regime is enshrined in the Act. Under Maltese law, a company is deemed to be insolvent if it is unable to pay its debts, which is defined under the Act as (i) a debt due by the company that has remained unsatisfied in whole or in part after 24 weeks from the enforcement of an executive title against the company by any of the executive acts specified by law (otherwise known as the cash-flow test); or (ii) if it is proved to the satisfaction of the court that the company is unable to pay its debts, account being taken also of its contingent and prospective liabilities (otherwise known as the balance-sheet test).
Once deemed to be insolvent, the company is presented with three options in terms of the Act:

  • dissolution and winding up;
  • reconstruction; or
  • recovery.

The first regime is aimed at bringing the trading life of the insolvent company to an end and returning as much value to its creditors as is possible, such value being distributed pari passu according to the statutory ranking of creditors. On the other hand, reconstruction and recovery both aim to provide the company with a breathing space from creditor action, with the aim of restoring it as a viable going concern.

Under Maltese law, the term ‘bankruptcy’ is embodied in the Commercial Code and is used in relation to the inability to pay debts by sole traders and commercial partnerships en nom collectif and en nom commandite. ‘Insolvency’ is used in relation to limited liability companies that satisfy either the balance-sheet or cash-flow test in terms of the Act.

Dissolution and winding up

A company may be dissolved and wound up in one of the following manners:

  • compulsory winding up or winding up by the court; or
  • voluntary winding up, by way of either members’ voluntary winding up or creditors’ voluntary winding up.

Compulsory winding up or winding up by the court

The court shall have the discretion to order the dissolution and winding up of the company if the company satisfies either of the above-mentioned insolvency tests.

A company shall be dissolved and wound up by the court if its shareholders have by extraordinary resolution resolved that it be so dissolved and wound up. Additionally, the company shall be dissolved upon the occurrence of a number of circumstances specified in the Act, including, among other things, when the number of its members is reduced to below two and remains so reduced for more than six months (this does not apply to single member companies) or when the number of its directors is reduced to below the minimum prescribed by law and remains so reduced for more than six months. The Act provides the court with the discretion in such instances to determine whether the company shall be wound up by the court or voluntarily.

This winding-up process is initiated by means of an application made to the court by: the company following a decision of the general meeting; its board of directors; debenture holders; creditors; or contributories . The Act provides for a number of protective and provisional measures which may be imposed by the court during the time after a winding-up application has been presented to the court, in order to safeguard the company’s interests. Although a court-ordered winding up may be more costly and time consuming than the other methods for winding up a company, one of the benefits of this regime is the availability of a moratorium for the insolvent entity. This provides for a stay of any judicial or property-seizing claims by the company’s creditors and prevents a free-for-all grapple over the company’s remaining assets. Such protection is not available in a members’ and creditors’ voluntary winding up.

During the period between the submission of a winding up application and the issuance of a winding-up order by the court, the court may appoint certain officers to take over the affairs of the company. These include an official receiver, whose primary functions include carrying out investigations and submitting to the court a report on various aspects of the company’s business and conduct in the run up to its financial difficulties.

The court may also appoint a provisional administrator, who shall take over the administration of the estate or the business of the company as the court may deem fit. Furthermore, the provisional administrator shall temporarily take into his custody or under his control all the property and all the rights belonging to the company, until the liquidator is appointed.

The official receiver shall, upon notification by the court, become the liquidator of the company and continue in office until another person is appointed as the liquidator. At any time when he is the liquidator, the official receiver may, either at his own discretion or when requested by a number of creditors representing a quarter of the company’s oustanding debt, summon separate meetings of the company’s creditors and contributories for the purpose of choosing a person to act as the company’s liquidator.

The creditors and the contributories shall be entitled to nominate a liquidator during their respective meetings. The liquidator shall be the person nominated by the creditors, or where no person has been so nominated, the person nominated by the contributories. Where neither the creditors nor the contributories nominate a liquidator, the official receiver may at any time apply to the court for the appointment of a liquidator.

During the aforementioned creditors’ meeting, the creditors of the company shall determine whether or not to appoint a liquidation committee, which shall be made up of five creditors, to act together with the liquidator during the winding-up process. The aim of a liquidation committee is to monitor the liquidator’s conduct in the winding-up process.

The liquidator’s functions are restricted according to the sanctions given by the court and the liquidation committee. Such functions include:

  • bringing or defending any action on behalf of the company;
  • carrying on the business of the company;
  • paying creditors according to their ranking at law;
  • making any compromise or arrangement with creditors;
  • making calls on contributories; and
  • representing the company in all matters and to do all such things as may be necessary for winding up the affairs of the company.

Finally, once the affairs of the company have been completely wound up by the liquidator, the court shall order the name of the company to be struck off the register of companies held with the Maltese Registry of Companies from the date of such order.

Voluntary winding up

Members’ voluntary winding up

A members’ voluntary winding up is available only to solvent companies in respect of which a declaration of solvency would have been made by the company’s directors prior to passing a resolution for its dissolution and winding up. A declaration of solvency is drafted to the effect that the directors of the company would have made a full inquiry into its affairs, and that having done so, they have formed the opinion that the company will be able to pay its debts in full within a maximum period of 12 months.

Once the declaration of solvency is made, the winding up procedure can proceed as a voluntary winding up. In this type of liquidation, the law allows a certain degree of flexibility and consequently the court and creditors are not heavily involved. If such a declaration is not made, or if following this declaration the liquidator is of the opinion that the company will not be able to pay its debts within the stated period, the winding up will be treated as a creditors’ voluntary winding up and the liquidator must summon a meeting of the creditors and lay before the meeting a statement of the assets and liabilities of the company.

Creditors’ voluntary winding up

The distinguishing feature between the creditors’ voluntary winding up and the members’ voluntary winding up is that in the former insolvency procedure, a declaration of solvency by the company’s directors would not be forthcoming.

Although in a creditors’ voluntary winding up the company’s creditors are the driving force behind the procedure, this form of liquidation and winding up commences by virtue of an extraordinary resolution passed by the members of the company, whereby they resolve to dissolve and wind up the company. Following such meeting, the directors of the company must convene a creditors’ meeting within 14 days from the passing of such resolution.

As the name suggest, this type of liquidation features a number of creditor-control mechanisms. This includes the appointment of the liquidator, whereby both the members, by means of an extraordinary resolution, and the creditors, by means of a resolution of the creditors, have the right to nominate a liquidator. In the case of divergence between the two nominations, it is the creditors’ nomination that shall prevail. Should neither the shareholders nor the creditors nominate a liquidator, such liquidator will be appointed following an application made to the court by one of the directors of the company. Furthermore, other than in the instance where the liquidator is appointed by the court, the creditors have the ultimate power to remove the liquidator by means of a resolution. The creditors, if they think fit, may also appoint not more than five creditors to a liquidation committee that shall, among other things, sanction the exercise of the powers of the liquidator and monitor the winding-up process. The contributories may also appoint up to five of their members to represent them in such committee.

With respect to both a members’ voluntary winding up and a creditors’ voluntary winding up, as soon as the affairs of the company are fully wound up, the liquidator shall call upon the general meeting of the company to lay down the following documents before the shareholders: (i) an account of the winding up, which shall indicate the manner in which the winding up has been conducted and how the company’s property has been disposed of; (ii) a scheme of distribution, which shall indicate the amount due in respect of each share from the assets of the company; and (iii) an auditor’s report, drafted in relation to the account of winding up mentioned above. In the case of a creditors’ voluntary winding up, such documents must also be laid before a creditors’ meeting.

Within seven days from the date of such meeting copies of such documents are to be registered with the Registrar, who shall, in turn, within three months from the publication of a notice in the government gazette or a website maintained by the Registrar, strike off the name of the company from the register of companies.

In the case of a voluntary winding-up process, the liquidator shall carry out similar functions to those previously mentioned with respect to a winding up by the court. The property of the company shall, on its winding up, be applied in satisfaction of its liabilities pari passu, and subject to such application, shall, unless the articles of the company provide otherwise, be distributed among the members according to their rights and interests in the company.

Reconstruction

The second insolvency regime that exists under Maltese law is the company reconstruction regime, whereby an insolvent company may benefit from entering into a compromise or arrangement with its creditors. The compromise or arrangement could take the form of a moratorium or a reduced payment to creditors in full and final settlement of any debt due. However, in order for the compromise or arrangement to be binding on all creditors, members, contributories, the liquidator and the company itself, it must be sanctioned by the court and approved by a majority in number, representing two-thirds in value, of the creditors present and voting at the relevant creditors’ meeting Alternatively, the Act provides for the ability of the company or creditors, with the sanction of not less than two-thirds of the creditors or class of creditors, to appoint a mediator, who shall organise a meeting of the creditors or class of creditors, in order for a compromise or arrangement to be reached between the company and the creditors. Such a compromise or arrangement shall be binding on the company and the creditors, should all the creditors, following the mediation process, execute a written agreement containing such compromise or arrangement. Furthermore, the court’s order, compromise or arrangement reached during mediation shall have no effect unless it has been registered with the Registrar of Companies, and a copy thereof has been annexed to the company’s memorandum and articles of association.

Recovery

In the event that the directors of a company become aware that the company cannot pay its debts or is imminently likely to become unable to do so, they are obliged to convene a general meeting of the company within 30 days of becoming aware. The purpose of the general meeting is to review the company’s position and to determine what steps should be taken to address the situation, including considering whether the company should be wound up and dissolved or whether the company should be recovered in terms of the company recovery procedure (CRP). This is largely akin to the UK 1986 administration regime.

The CRP is a rescue regime that provides temporary respite to a company in financial difficulties and seeks to free that company from creditor pressure so as to enable it to have the space to rectify its current financial status and seize the chance to continue trading if a reasonable prospect of recovery exists.

In order to initiate the process of the CRP, an application is to be made to the court, requesting the court to place the company under the CRP and to appoint a special controller to take over, manage and administer the business of the company for a period not exceeding four months, which may be renewed by the court for a further four months. No application may be submitted if the company has already been dissolved voluntarily or if a winding-up order has already been made. The application for the CRP, which can be brought either by the company itself, the directors following a decision of the board of directors, or by the creditors of the company representing more than half in value of its total or classes of creditors (where secured and unsecured creditors exist, they are treated as separate classes of creditors), shall contain the full facts, circumstances and reasons that have led to the company’s inability to pay its debts. Furthermore it shall contain a statement by the applicant as to how the financial and economic situation of the company can be improved, in the interests of the creditors, employees and the company, as a viable going concern. Case law has indicated that, when determining whether to accept an application, the court shall take into consideration whether the company’s creditors will be repaid to a greater extent if the company is recovered by means of the CRP rather than being liquidated and wound up. The company recovery application must indicate specifically how the implementation of the plan will be in the creditors’ best interests, based on realistic and achievable plans.

The court should only accede to a company recovery application if it is satisfied that the company is or is imminently likely to become unable to pay its debts and that the CRP will likely achieve the survival of the company as a viable going concern or the sanctioning of a compromise or arrangement between the company and any of its creditors, as detailed above.
At the end of his original period of appointment and at the end of each extension, if any, the special controller is required to submit to the court a comprehensive report on its administration and proposals for the prospects of the recovery of the company as a viable going concern in whole or in part. If at any time during the CRP it results that it would not serve any useful purpose to continue with this procedure or that the affairs of the company have improved to the extent that it is in a position to pay its debts, the special controller shall, after consultation with the creditors and members, request that the court terminate the CRP. The directors of the company or the members may similarly make an application to the court for the termination of the CRP should they consider that the affairs of the company have significantly improved. If, following an application by the special controller, the court is of the view that the company has no reasonable prospect of recovery, the court will order its dissolution and winding up.

At the end of the period of his or her appointment, the special controller must submit a written final report to the court providing his or her detailed and comprehensive opinion as to whether or not the company has a reasonable prospect of continuing as a viable going concern. Should the special controller be of the view that the company has a reasonable prospect of continuing as a viable going concern, he is to provide the court with a final recovery plan for the company. This shall contain proposals on how the company may continue as a viable going concern, including proposals in relation to its financial resources, retention of employees, suggestions as to future management of the company, the proposed manner of paying creditors and whether a voluntary compromise will be reached with creditors. Should the court approve the recovery plan, it shall become effective and binding on all interested parties.

One of the core attractions underpinning the CRP is the wide-ranging stay on creditor action conferred by the court-imposed moratorium, which kicks in upon the filing of the CRP application. This affords the company some leeway within which to restructure its liabilities as it prevents creditors from ‘racing to court’ to enforce their claims. The effects of the moratorium include the following: (i) any new or pending winding-up application against the company is stayed; (ii) no resolution for the dissolution and consequential winding up may be made against the company; (iii) the execution of claims of a monetary nature against the company are stayed; (iv) no precautionary or executive warrants may be enforced against the company; and (v) no proceedings may be instituted or continued against the company.

Apart from the above formal insolvency regimes, a number of mechanisms are also available to enable a more private and informal solution for a company in financial difficulties. These include debt-to-equity swaps, bond exchange offers and the restructuring of syndicated loans. These afford the company enhanced flexibility, lower costs, the retention of management and less negative publicity. However, they require a higher degree of coordination between competing creditor or shareholder classes, whose conflicting positions may turn out to be irreconcilable.

Employment

27    How easy is it to enter into and terminate employment contracts?

Entering into an employment contract

Indefinite and fixed-term (definite) contracts of employment

The first port of call when entering into an employment relationship is whether to regulate it under a fixed-term contract or indefinite-term contract. Although the two are regulated differently, they do share a number of similarities. Deciding which type of employment contract to go for would largely depend on the nature of the role – that is whether it is of a permanent or temporary nature.

The two key differences between fixed-term and indefinite-term contracts are in terms of their renewal and termination. Fixed-term contracts can be successively renewed for up to a maximum period of four years after which (albeit subject to certain exceptions) they are automatically converted to indefinite-term contracts. If a fixed-term contract is not renewed after its definite term expires (even before the expiry of the four-year period) and the employee remains in employment without being given another fixed-term contract within 12 working days, the contract is also automatically converted to one for an indefinite period. With respect to termination, the most notable difference between the two is that if a definite-term contract is terminated without a ‘good and sufficient cause’, the ‘penalty’ payable by the terminating party is fixed by law, whereas in case of an indefinite contract, termination by the employer without a ‘good and sufficient cause’ would attract compensation to be established by the Industrial Tribunal.

Full-time and part-time employment

The second consideration to make is whether the role is full-time or part-time. A full-time employee is customarily required to work for an average of 40 hours over a seven-day period. Normal days of work are Monday to Friday excluding public holidays, however, these are subject to specific provisions in applicable wage regulation orders (WROs), depending on the sector and the role. Generally speaking, different rules would apply to the wholesale and retail sectors. In fact, recent amendments to legislation under the Business Hours Regulations – allowing retail departments to open on Sundays and public holidays – now require employers to acquire consent from employees to work on Sundays.

A part-time employee is one whose normal hours of work, when calculated on a weekly basis or on an average over a period of one year, are less than the normal hours of work of a comparable full-time employee and who is not a full-time employee with reduced hours (article 2(1) ‘Part-time employee’ of Chapter 452). A part-time employee would generally work an average of 20 hours a week (or less) whereas an employee on reduced hours would generally work less than a full-time employee but more than a part-time employee.

Specific regulations apply to part-time employees (the Part-time Employees Regulations) the underlying principles being (i) that such employees enjoy all the entitlements of full-time employees (working in comparable roles) on a pro rata basis calculated on the weekly hours worked (pro rata entitlements include statutory bonus and weekly allowance, all public holidays, vacation leave, sick leave and any other leave in terms of law); and (ii) compensation for overtime (generally paid at one and a half times the basic wage) applies to those hours worked in excess of 40 hours in a given week (article 4(2)(a) of the Part-Time Employees Regulations).
In cases where the working hours of a part-time employee are based on irregular weekly working hours, the pro rata entitlements are calculated over the average of hours worked over a reference period of 13 weeks (ie, on a quarterly basis), subject to other reference periods applicable in certain sectors of employment.

Conditions common to definite and indefinite-term contracts

General

The Employment and Industrial Relations Act (EIRA) is the principal Act regulating the conditions of employment. It lays down the minimum requirements of every employment relationship. The overlying rule is that any conditions of employment that are more beneficial to the employee than those laid down in the Act will usually apply whereas those that are less advantageous to the employee would not be considered valid.

By default, law states that the first six months of every employment under a contract of service are probationary, but the parties may agree on a shorter period. However, in the case of a contract of service of an employee holding a technical, executive, administrative or managerial post (provided it carries a wage equivalent to at least double the minimum wage (the minimum wage for 2017 for individuals who are 18 years old and over is €169.76 per week)), the probation period is increased to one year unless specified otherwise.

An employment contract need not be written. The Information to Employees Regulations requires that within eight days from the commencement of employment, the employer must either provide a written contract or, where there is no written contract, a letter of engagement or a signed statement which must include information relating to the conditions of employment (article 4).

The employer must inform an employee of any change to the terms and conditions of employment after the commencement of such employment. This is done by means of a signed statement to be delivered by the employer not later than eight days from the date when the changes come into effect. The employer is not obliged to notify the employee of any changes resulting from a change in the laws, regulations or collective agreement regulating the place of work. In addition, case law has confirmed that contracts of employment cannot be changed unilaterally.

Any person hiring employees must be registered as an employer with the Commissioner of Inland Revenue. An employer also has an obligation to inform Jobsplus when a person is employed with the company and at every interval where such employment is changed or terminated. Registration is also required when employees are being hired through an agency or a third party, as long as the relationship is an employment relationship.

Working hours, wages and overtime

Working hours are regulated under the Organisation of Working Time Regulations. Save for the exceptions contained therein, the average working time for each seven-day period, including overtime, should not exceed 48 hours calculated over a reference period of 17 weeks (subject to exceptions).

Minimum wages are sometimes set by a WRO, however, this largely depends on the sector they address – in fact, these are referred to as ‘sectoral minimum wages’. If the role of the employee is not covered by a WRO, then it is the statutory minimum wage that would apply. Most WROs would also dictate the rate payable for overtime and arrangements for work carried out over public holidays and weekends.

If not covered by a WRO, overtime is calculated in accordance with the Overtime Regulations. An employer is allowed to request an employee to work an average of eight hours of overtime per week. Extra hours worked in excess of such hours requires the employee’s consent, subject to certain minimum rest periods to which employees are entitled. Unless regulated otherwise by a WRO, overtime is payable at 1.5 times the rate payable for normal working hours.

As stated above, employees are entitled to minimum rest periods, including daily and weekly rest period. Employees working more than six hours in a day are also entitled to a minimum 15-minute rest period which is unpaid by the employer since it is not considered to be working time. The general practice is that employees working eight hours a day would get a rest period of 30–45 minutes per day. With respect to the weekly rest period, the law states that every employee shall be entitled to at least one day of rest per week.

Terminating an employment contract

During the probationary period, either party may terminate the contract of employment without having to assign a reason and without liability (specific rules apply where the employee is pregnant). This mostly benefits the employer because an employee would generally not be required to give a reason when resigning from employment and is only obliged to give the prescribed period of notice or payment in lieu thereof. In either case, however, if the contract is terminated during the probationary period and the employee would have been in employment for more than one month, then the requirement to give notice is triggered.

Apart from during the probationary period, in the case of indefinite term contracts, there are two specific instances where an employer may terminate a contract of service without liability: one is in cases of redundancy (in cases of redundancy, the employer has additional obligations); and the other where there exists a good and sufficient cause. Definite-term contracts may only be terminated prematurely and without liability for good and sufficient cause. In practice, the employer must provide a very compelling reason for the dismissal of an employee on the basis of ‘good and sufficient cause’ and, in the event that it is contested, it would generally need to be substantiated with proof including written warnings or repeated poor performance reviews, showing that the employee was made well aware of the situation (and its consequences) prior to termination.

If a role is made redundant or if the employee tenders resignation, then notice periods set out by law apply. When an employee tenders his or her resignation, the general rule is that an employer may either allow the employee to work the notice period or to pay the employee a sum equivalent to those wages that the employee would otherwise be entitled to during such period (other amounts such as that relating to unused vacation leave entitlement and pro-rated government bonus are also due to the employee). When the termination is a result of redundancy, then it is the employee who may choose to work the notice period or receive an equivalent payment instead (subject to certain conditions). Where an employee either fails to give notice or abandons the service of the employer, he or she is liable to pay the employer a sum equivalent to half the wages that would have been payable during the applicable notice period.

Notice periods are regulated under the EIRA and correspond to the length of service of the employee. The shortest notice period is that given after the lapse of one month from the date of employment where the applicable notice period is one week. The longest is 12 weeks’ notice after the lapse of 10 years.

28    What are the key rights of local employees?

Apart from those rights contained elsewhere in this review, other specific rights include the following.

Wages

The rule is that employees in the same class of employment are entitled to the same rate of remuneration for work of equal value. The rule, however, has exceptions. An employer and employee may agree on different salary scales, annual increments and other conditions of employment that are different for those workers who are employed at different times or where such salary scales have a maximum that is achieved within a specified period of time.
Employees are entitled to a minimum wage. While some wages are sector specific and are dealt with in WROs, of notable importance is the fact that if there is a conflict between a WRO and any other regulation, the more favourable condition will apply to the employee. If no WRO applies to a sector, then the general minimum wage applies.

Cost of living adjustments are obligatory (the adjustment in 2017 for full-time employees was of €1.75 per week). These adjustments happen once a year when the budget is presented before Parliament. A full-time employee is entitled to the full increase, while a part-time employee is entitled to part of the cost of living increase in proportion to the hours worked.

Deductions from wages are only allowed in specific circumstances set out under the EIRA, including where the employee fails without just cause to give his employer the number of hours he is bound to; where these are required by any other law or where ordered by or in virtue of an order of a competent court. Other than in those circumstances allowed by law, wage deductions are illegal.

Distinct from deductions, fines on employees are not allowed unless the terms under which such fines are imposed are written in detail in a contract of service or a statement to employees and such terms have been approved by the Director for Industrial and Employment Relations.
Employees are entitled to be paid their wages at regular intervals that cannot exceed four weeks in arrears.

Every employee is entitled to statutory bonuses and weekly allowances. Statutory bonuses are payable every six months once at the end of June and once at the end of December (statutory bonuses are paid at €135.10 per instance). Weekly allowances are also paid every six months but these are at the end of March and at the end of September (weekly allowances are paid at €121.16 per instance). While statutory bonuses accrue on a day-to-day basis, the weekly allowance accrues weekly.

Upon termination, employees have a right to be paid all that is due to them on a proportionate basis including, wages, statutory bonus, notice money and compensation for unused vacation leave.

Leave

Employees working 40 hours per week, based on an eight-hour working day, are entitled to 192 hours (equivalent to four weeks and 32 hours (article 8 of the Organisation of Working Time Regulations) of paid vacation leave in one year. If normal working hours (excluding overtime) exceed or are less than 40 hours per week, then the leave entitlement is adjusted accordingly (vacation leave is awarded and calculated in terms of the Organisation of Working Time Regulations). Public holidays are in addition to vacation leave. There are 14 public holidays in Malta.

Vacation leave accrues from the start of employment and, therefore, employees commencing or terminating during a year of employment are entitled to their pro-rated portion of vacation leave. Vacation leave is generally availed of in full days, however, this is subject to agreement between the parties. Similarly, the taking of leave is also subject to the agreement between the parties. Having said this, the law specifies that 160 hours of vacation leave cannot be replaced by any allowance (except when the employment is terminated) and it is only possible (but not obligatory) to carry forward up to 50 per cent of the total vacation leave entitlement to the following year.

A pregnant employee is entitled to maternity leave (maternity leave is awarded under the Protection of Maternity (Employment) Regulations) for an uninterrupted period of 18 weeks with full pay. On termination of maternity leave, the employee has the right to resume work in the post formerly occupied on the commencement of the maternity leave and if such post is no longer available, to a related or similar post. There are certain obligations on the employee with respect to notifying the employee of the intended dates on which the employee intends to avail herself of maternity leave; as well as a minimum period of service once maternity leave expires.
Recent legislative amendments now allow both parents to take up to 18 weeks of paid adoption leave whenever a child is adopted (adoption leave is awarded under the Adoption Leave National Standard Order). The 18-week period is cumulative and granted to the parents together, it is therefore up to them to decide how to split the adoption leave period between them and in what proportion, if at all.

With respect to other forms of leave (leave entitlements (except for vacation leave, maternity leave, adoption leave and urgent family leave) are awarded under the Minimum Special Leave Entitlement Regulations), male employees are allowed one day of birth leave on full pay on the occasion of the birth of their child. There is also an entitlement of up to four months of parental leave (available in one-month periods) until the child has attained eight years. Employees are also entitled to paid marriage leave equivalent to two working days (this may vary depending on any applicable WRO).

Employees are entitled to sick leave. This varies according to the specific sector or industry depending on the applicable WRO, however, in those sectors that are not regulated, an employee is entitled to the equivalent of two working weeks of paid sick leave per year. In occasions of sickness, the employer may require that the employee presents a medical certificate to the employer and the employer also has a right to request a medical practitioner of their choice to examine the employee.

Apart from the above, employees injured during the discharge of their duties are entitled to a maximum period of one year’s injury leave on full pay, less the amount of any injury benefit (if it results that the employee was negligent in the discharge of his or her duties or contravened the safety rules laid down by the employer, then the entitlement is affected depending on the circumstances) to which such employee may be entitled under the terms of the Social Security Act.

All employees are allowed paid bereavement leave on the occasion of the death of a close family member. The general rule is that one day of bereavement leave applies, however, this entitlement may also vary depending on any applicable WRO.

Employees also have a right to 15 hours with pay per year as time off for urgent family reasons (this is awarded in terms of the Urgent Family Leave Regulations). These hours are to be deducted from the annual leave entitlement of the employee. Furthermore, employees are entitled to jury service leave for the necessary time off on full pay for as long as the employee is serving as a juror.

Termination certificate

Upon termination (provided that the employee had been engaged for at least one month), the employee may request the employer to provide a certificate with information on the duration of the employment, the nature of the work or services carried out, the rate of pay and the reason for termination, unless the employment is terminated during probation.

29    What are the main restrictions on engaging foreign employees?

The main restrictions relate to the requirement for an employment license for certain foreign employees. Generally, citizens from the EEA or Switzerland do not require authorisation or an employment licence to work in Malta and, as with Maltese nationals, the main requirement is for the employee to be registered with Jobsplus by the employer. All other foreign nationals (referred to as third-country nationals (TCNs), that is, citizens from outside the EEA or Switzerland) require an employment licence to work in Malta. Licences are subject to labour market considerations and authorisations are not automatic, although there are limited cases where the aforementioned considerations would not apply or would vary depending on specific occupational or sectoral considerations. Employment licences would typically be issued for a maximum duration of one year and can be renewed.

In addition to the above, any person (whether TCN or citizen of the EEA or Switzerland) residing in Malta for longer than 90 days must obtain a residence permit. The residence permit is granted on the basis of a specific purpose, such as employment, health, study or self-sufficiency. As of 2014, TCNs wishing to both reside and take up employment in Malta have the facility of applying through what is called the single permit application – this largely replaces the previous two-tiered approach (which still applies in limited circumstances) which required the TCN to apply first for an employment licence and subsequently for a residence permit on the basis of the aforementioned employment licence. Such permits are required to be endorsed by the employer and would therefore cease in the event that the employment is terminated (more information is available on https://identitymalta.com/citizenships-expatriates/).

Certain categories of employees, such as workers who are usually based in another country (EEA or Switzerland) and who have an employment relationship with an employer in that country, but who are being ‘posted’ for a stipulated period to Malta, do not need an employment licence; however, the Department of Industrial and Employment Relations must be notified of the posting within 24 hours of commencement of work.

30    What are the other key employment law factors that foreign counsel, investors and businesses should be aware of?

Income and taxation

The employer is responsible for the deduction of tax to be paid by the relevant employee. The tax is deducted directly from the employee’s emoluments being paid for the relevant period. The rates of income tax for an individual are between zero and 35 per cent. The taxation of an individual’s income increases with progressive income brackets - the higher the income, the higher the tax rate. Corporate tax is fixed at 35 per cent. The law stipulates that an employer is obliged to deduct at source, each month, the amount of tax payable on a wage.

The Malta Income Tax Act charges to tax gains or profits from any employment or office, including the value of any benefit provided by reason of any employment or office. A benefit is primarily considered to be provided by one person to another person by virtue of an employment or office where provided by an employer to his employee. Benefits are attributed an annual value, which is added to the cash salary, and the employee is charged tax on the aggregate amount.

Fringe benefits are governed by the Fringe Benefit Rules, which, in addition to regulating the benefits themselves, also sets out a presumption when a benefit is awarded where a strict employer-employee relationship does not necessarily exist, for example, where the benefit is provided to the holder of an office by a person who is responsible for the payment of remuneration for duties performed under the terms of appointment to that office. Furthermore, benefits need not be directly received by the employee, but rather by other persons who are close to the employee and who thus benefit from the employment or office occupied by the employee.

The above presumptions may be rebutted if: it results that the benefit is a donation made by an individual on purely personal considerations; if it can be proved that the benefit is provided in settlement of a debt that is not related to any services rendered in the course of an employment or office; or the benefit is a distribution of profits by a company or partnership to a person in his capacity as shareholder or partner of that company or partnership and is accounted for as such in the records of that company or partnership.

The Rules classify fringe benefits under three categories, being those relating to motor vehicles, to property and other benefits. Each of these categories is then further sub-divided.
Since fringe benefits are taxable in the same manner as normal wages and salaries, an employer who incurs a cost in providing a fringe benefit may claim that cost as a deduction from his or her income.

Social security

Social security contributions and benefits are the backbone of social welfare, aimed at reducing the financial hardships of sickness, disability, injury, old age and unemployment. Malta’s social welfare is carried out and largely regulated by the Department of Social Security. Contribution payments are collected by the Income Tax Department, but the funds are administered by the social security authorities.

The Social Security Act caters for two schemes. The non-contributory scheme and the contributory scheme. The original purpose of the non-contributory scheme was to meet the needs of persons living beneath the ‘at risk of poverty’ stage, but has evolved over time into a comprehensive scheme, providing simultaneous benefits where more than one contingency is present. An example of such a benefit is aimed at providing social and medical assistance to unemployed heads of household that are job searching or are unable to work due to illness, provided that the financial resources fall below a certain level. Additional assistance is provided to persons with disability, single parents, and families as a single unit.

The contributory scheme requires specific contribution conditions to be met and, as opposed to the former scheme, requires contributions on a ‘pay-as-you-go’ basis covering all areas of Maltese society. With the contributory scheme, weekly contributions are paid by persons who are employed, self-occupied or self-employed, wherein these people are contributing during the period that they are gainfully active in order for them to provide for themselves when later contingencies (such as illness, unemployment or retirement) occur.

All employed and self-employed persons, as well as the unemployed, may be insured. Moreover, under certain conditions, the scheme acknowledges the non-payment (crediting) of contributions in exceptional cases, and provides for contributions not paid to be credited to the insured person. Contributions are required in respect of any person between the age of 16 and retirement age (currently ranging from 60 to 65), depending on the date on which the person chooses to stop working on an employed or self-employed basis in accordance with the Social Security Act, and claims a retirement pension.

Health insurance

Depending on the reason for their stay in Malta, persons must seek insurance either through private means or through public means by payment of national insurance or ‘N.I.’ (with a combination of the two also possible). The Immigration Act provides that TCNs planning on residing in Malta may be expected to have a measure of health insurance in Malta.

An employer is required to take out a private health insurance for a TCN covering the full duration of employment. The employer is to provide a copy of the receipt for the insurance premium within three months from the date of issue of the employment licence, failing which, the licence will be revoked. Such health insurance is not required for home-based carers, for persons working with persons with disability and persons needing constant care; or for TCNs working in the public service.

Guarantee Fund

The Guarantee Fund is intended to guarantee payment of unpaid wages due by an employer to those employees whose employment is terminated because of the employer’s proved insolvency. The Guarantee Fund is regulated under the Guarantee Fund Regulations and is administered by the Guarantee Fund Administration Board. Save for a few specific sectors, all employees whose employer is in a state of insolvency are entitled to present a claim to the Guarantee Fund. The amounts paid from the Guarantee Fund cannot in any case exceed a sum that is equivalent to 13 weeks’ national minimum wage payable at the time of the termination of employment of such employee. Payment made to employees from the Guarantee Fund do not absolve an insolvent employer from his obligation to affect payment, as the Guarantee Fund Administration Board would be subrogated into the employee’s rights for the unpaid amounts due up to the amount reimbursed to the employee by the said Board (more information is available on https://dier.gov.mt/en/Employment-Conditions/Termination%20of%20Employment/Pages/Guarantee-Fund.aspx).

Information to employees

Apart from the information referred to elsewhere in this review, in terms of the Employee (Information and Consultation) Regulations, where more than 50 employees are engaged by a single employer, an information and consultation representative must be appointed. The employer is bound to communicate matters relating to, among other information, developments of the employment and any decisions that are likely to lead to substantial changes to the workforce or to contractual relations. It is incumbent upon the employer to ensure that the employees can effectively exercise their right to information and consultation. In particular, they are obliged to inform employees of their right to have a representative, and also to make arrangements for the election of an employee representative in the event that there is no recognised trade union representing the relevant employees. Failure to abide by the obligations imposed by these Regulations renders the employer guilty of an offence and liable to a substantial fine.

In addition, there are particular obligations placed on the employer in cases of collective redundancies (collective redundancies are regulated under the Collective Redundancies (Protection of Employment) Regulations). Here, an employer is required to notify the Director responsible for Employment and Industrial Relations and the employees’ representatives of the contemplated termination of employment, and provide the representatives with an opportunity to consult with the employer. In this scenario, the employer is also obliged to provide the employees’ representative with a written statement containing all relevant information, including but not limited to the reasons for the redundancies and details regarding any redundancy payments.

Data protection

Data protection is currently regulated under the Data Protection Act. When processing an employee’s personal data as a data controller, the employer must, among a number of obligations, ensure that such data is only collected for specific, explicitly stated and legitimate purposes. Personal data that is processed must be correct and updated if necessary. An employer should refrain from retaining personal data for a period longer than is necessary. Furthermore, no more personal data than is necessary should be processed. The law is subject to change by May 2018 once the EU General Data Protection Regulation 2016/679 (GDPR) comes into force. The GDPR does not itself provide employment-specific provisions but obliges the member states to do so.

Health and safety

The Occupational Health and Safety Authority Act and the regulations issued thereunder form part of the recognised conditions of employment, being applicable to all sectors and all work activities, excluding activities carried out by members of the armed forces, the police force or the civil protection services. An employer has an ongoing obligation to ensure the health and safety of all persons who may be affected by the work carried out for such employer. An employer is also obliged to take measures to prevent physical and psychological occupational ill health, injury or death. This includes taking the necessary measures to ensure that work equipment is suitable for the work to be carried out and does not impair the employees’ health and safety (Regulation 3(1)(a) of the Work Equipment (Minimum Safety and Health Requirements) Regulations).

Specific regulations exist with respect to the health and safety of young persons (Protection of Young Persons at Work Places) and pregnant or breastfeeding workers and mothers (Protection of Maternity at Work Places Regulations), imposing more onerous obligations on the employer. Prior to engaging or offering work to a young person (a young person is defined as a person under 18, and includes a child and an adolescent), an employer is required to perform a risk assessment of the occupational health and safety hazards that may be present in the workplace.

Prior to assigning work to a pregnant or breastfeeding worker or to a mother, an employer must assess the nature and degree of hazards present at the workplace including the potential exposure of the employee to such hazards.

Special maternity leave

In terms of the Protection of Maternity (Employment) Regulations, special maternity leave is defined as leave of absence from work granted by the employer to an employee who is pregnant, breastfeeding or has recently given birth, if there exists or would still exist a risk that could jeopardise the health or safety of the employee. Such leave is to be granted for as long as the said risk exists and is granted in addition to the 18 weeks of maternity leave that an employee is normally entitled to. During the special maternity leave, the employee has a right to a ‘special allowance’. During this period, the employee is also entitled to benefits that accrue to other employees of the same class – this means that the employee will also be entitled to all leave and other payments that other employees in the same class are awarded.

Intellectual property

31    Describe the intellectual property environment. How effective is enforcement and what are the key current issues?

Malta intellectual property environment

Malta has long been an advocate of the importance of intellectual property (IP). Indeed, IP laws have been in place in Malta even before its independence in 1964. Nowadays, Malta is a member of numerous IP international treaties and conventions. Malta is a signatory to the upcoming Unitary Patent Package (Council Regulation 1257/2012/EU of 17 December 2012 implementing enhanced cooperation in the area of the creation of the unitary patent protection (2012) OJ L 361/1, in conjunction with the Agreement on a Unified Patent Court (2013) OJ C 175/01) and, as a member of the EU, is also covered by Council Regulation (EC) No. 207/2009 on the European Union trademark.

From a national law perspective, Malta’s IP laws may be primarily (but not exclusively) found in three legal instruments, namely the Copyright Act, the Trademarks Act and the Patents and Designs Act. Malta’s national laws are in line with the EU acquis.

Malta’s IP landscape is very attractive, especially for foreigners who may wish to hold their IP assets in a favourable jurisdiction. Income and royalties derived from IP rights are generally tax exempt. Further, Maltese companies may benefit from a net effective tax rate of only 5 per cent as a result of Malta’s tax credit refund system. As a result, Malta is increasingly becoming the jurisdiction of choice to hold and litigate IP rights. In this regard, it should be noted that Malta is being very proactive in establishing itself as a jurisdiction of choice for IP matters.

In order to position Malta as the jurisdiction of excellence in IP matters, a number of laws have been revisited, with the major recent amendments relating to the Patents and Designs Act. In this respect, it is worth noting that the Patents Tribunal has been established, a court specialising exclusively in patent matters, having jurisdiction to determine claims relating to the revocation of a patent, civil claims for infringement of a patent, applications for declarations of non-infringement and precautionary actions related thereto. Other important amendments in this regard include granting the Malta IP office the power to request a search report when a patent application is filed, a change in the definition of ‘prior art’ and the introduction of the concept of ‘scheduled inventions’.

Effectiveness of enforcement

Enforcement of IP rights is increasingly becoming more effective in Malta. Specific rules on forced disclosure of evidence, preservation of evidence and a right of information throughout proceedings have been enacted (articles 5, 6 and 7 of the Enforcement of Intellectual Property Rights (Regulation) Act, are particularly relevant in this regard). Provisional and precautionary measures are also in place, including decrees intended to prevent any imminent infringement of an IP right and orders requiring the seizure or delivery of goods suspected to infringe an IP right (article 8). Wherein the infringement of an IP right has been committed on what is deemed by the court to be on a commercial scale and a plaintiff succeeds in demonstrating the existence of circumstances likely to endanger the recovery of damages, it is even possible for a court to order the precautionary seizure of moveable and immoveable property belonging to the alleged infringer, including the blocking of the infringer’s bank accounts (article 8). Further, the courts are also increasingly recognising and granting moral damages (and not just material damages) in instances of infringement. One of the first judgments granting moral damages in IP infringement, in this case in relation to trademark infringement, was the case of Air Malta PLC (C-2685) v Efly Company Limited (C-46370), 30 March 2010, First Hall, Civil Court.)
It should be noted that enforcement against counterfeit goods has become crucial in Malta, given that as a result of its geographical location a considerable number of goods transit into Malta. In this regard, to keep up with the increasing demand and to even further the effectiveness of enforcement, the Maltese Customs Authority (https://customs.gov.mt/) is currently undergoing a drive to further increase its human resources together with plans to relocate into a bigger and more advanced establishment. (For further information in this regard, one may refer to the news item ‘Customs Department to get a drastic shake up’, Times of Malta, 7 January 2017, www.timesofmalta.com/articles/view/20170107/local/customs-department-to-get-a-drastic-shake-up.635852.)

Key current issues

Arguably, the major current issues revolve around the reforms that will be brought into Maltese law as a result of Directive (EU) 2015/2436 (16 December 2015), which amends the previous Trademark Directive 2008/95/EC (22 October 2008). In this regard, while more than one change needs to occur, the most topical issues consist in the introduction of administrative remedies for revocation and invalidity and the registration of security interests in the IP register. Said changes are to enter into force by no later than the 14th January 2019.

Further, the ‘Making Malta an IP Hub’ initiative was launched in 2014 by the Maltese government and private contributors specialised in IP, with the goal of making Malta an IP centre of excellence to attract the major IP industry players to Malta.

Legal reform and policy

32    What are the key issues in legal reform, government policy and the economy?

Not applicable.

33    Are there any significant legal developments ongoing or pending? What are their effects on the business environment?

Not applicable.

Resources and references

34    Please cite helpful references, for example sources of law, websites of major regulators and government agencies.

Dispute resolution

Laws

  • the Code of Organisation and Civil Procedure;
  • the Consumer Affairs Act;
  • the Consumer Alternative Dispute Resolution Regulations 2015;
  • the Arbitration Act;
  • the Consumer Claims Tribunal Rules;
  • the Collective Proceedings Act; and
  • Regulation 1215/2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters.

Other

  • Study carried out by the Directorate General for Internal Policies for the JURI Committee entitled ‘Legal Instruments and Practice of Arbitration in the EU’ (November 2014).

Websites

Employment

Websites

Foreign investment and trade

Websites

Business operations

Websites

Published November 2017




Follow Getting the Deal Through for the latest updates on law and regulation worldwide

Follow us on LinkedIn