Malta’s tax system and tax amnesty: ideal for both inbound and outbound EU investors

Source: Katarina Krempova¸ PKF Malta¸ 14 December 2011

In the past decade¸ Maltese government has been trying to utilise effectively the opportunities affiliated with development of both financial services and manufacturing in order to boost Malta’s competitive position as well as its reputation. Various incentives such as excellent infrastructure¸ skilled workforce of English-speaking locals¸ a good tax system with a network of double taxation agreements with almost 60 countries in place and many others should help Malta to attract new businesses and to become one of the major European financial centres.

Malta has become a very attractive target for mainly UK companies moving away from that of national jurisdictions to more desirable jurisdictions. Above all¸ the reason for this is the UK’s high business taxes and also the aggressive approach of HMRC to tax collection. In Malta they can benefit from tax-friendly rules set out by the Maltese government.

Even Cypriot banks are increasingly considering their relocation to Malta. Cyprus as a member of the Eurozone is facing the debt burden extending 3 per cent of GDP. As a consequence of this¸ the country will need to adopt new forms of austerity measures in the interest of the European Union. Therefore¸ it may be a reason to start looking for a favourable business environment in Malta.

In order to offer a number of tax benefits to locating a holding company in Malta¸ the tax amnesty scheme was launched in September 2009 and extended several times. This has allowed any remaining taxpayers to regularise their tax position¸ as well as benefit from a hefty reduction on interest and penalties.

In July 2010¸ the terms of the tax amnesty scheme were updated with the intention to offer it to both individuals and companies. Moreover¸ the penalty rates were reduced¸ as well as new payment methods were set up. This scheme allowed tax payers with outstanding tax balances until year of assessment 1998 a 25 % reduction of the penalties. [1] In addition¸ for the years of assessment 1999-2010¸ taxpayers can benefit from an 85 % reduction in penalties if they settle to the entire amount of their balances. [2] This includes the payment of the whole amount of tax due¸ as well as remaining 15 % of the penalties.

On the 5th December 2011¸ the Inland Revenue Department announced the last extension of the deadline for applications on the tax amnesty by “a few weeks” that was previously set at 30th November 2011. The reason to extend further the closing date for this Reduction in Tax Penalties Scheme is according to the Ministry of Finance “considerable demand”.

According to the Maltese Ministry of Finance¸ those who wish to participate in this latest updated scheme must:

  • deliver any missing returns to the Inland Revenue Department by the 10th January 2012¸
  • deliver the payment and signed agreement to the Department by the 30th January 2012.[3]

[1] Chetchuti Cauchi

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