Archive for August, 2009

Malta doing business with Germany – a lawyer’s perspective by Dr. Christian Pisani LL.M. (Lond)

August 25, 2009

Malta and Germany have a long standing track record of good business relations dating back as early as to the early 1960s. Whereas in the beginning German-Maltese commerce was namely in the field of textiles, today’s situation has altered substantially – Germans are using Malta as a hub for innovative technologies, for example in the IT sector, in the field of production (Geobra Brandstätter/pharma industry) or maintenance (Lufthansa Technik). At the same time, it is vital for the Maltese business community to “go international” given the limitations of their home market. The island’s accession to the European Union has indeed facilitated such international ventures as the respective legal framework has been harmonised at a European level.

 Both Maltese and German partners can hence rely on certain rules governing their relationship, namely when it comes to the applicable law or questions of enforcement of cross-border claims.

 Apart from legal issues, the awareness for cultural differences remain however vital for the success of a business relationship. In this regard, contract negotiations can be a good opportunity to learn at a rather early stage more about the future partner, its underlying interests and its approach towards communication. Astonishingly enough, partners will realise that they have more in common than they would have thought of. Namely, family run Small- and Medium-Sized Enterprises (SME) share common values across borders which can be a reliable basis for joint efforts.

Contract certainty as key to success 

As any business, cross-border trade and commerce entails risks which have to be borne in mind when going international.  Contract certainty gains accordingly vital importance – even more so in a cross-border situation.

Traditionally, Maltese private international law rules follow the English system and are hence not codified. One important exception to this general rule is the law of international contract law which has been unified within the European Union by the Rome Convention (and subsequently as of December 2009 by the Rome-I-Regulation No. 593/2008 of 17 June 2008). Accordingly, the same rules govern throughout the whole of Europe when it comes to determine what law shall apply and under what circumstances and to what extent the individual parties can opt for alternatives. Art. 3 of the Rome Convention provides in this respect that the parties to an agreement shall be entitled to choose a particular law to govern their contractual relationship.

Against this background, contracts in writing gain vital importance for the business success. The absence of such a written contract may indeed compromise the claimants’ position. From our own practice, we know of cases where Maltese businesses did not further pursue their valid claims as – in the absence of a written contract – they would have ended up before a German court which was to apply Maltese law. Under German laws of civil procedure, a judge knows the law (ius novit curia). This rule holds also true for foreign laws. In practice, a judge will however instruct a German law professor to give an expert opinion on Maltese law. Whether, if at all, such opinions will reflect Maltese legal reality is however doubtful given the substantial constraints in accessing Maltese law in Germany.

It is therefore advisable to base any cross-border business relationship on a written contract. To ensure predictability in the case of conflicts and hence to mitigate the pertaining risks, it is moreover of utmost importance that such agreements provide for a choice-of-law-clause stipulating explicitly for the applicability of one or the other legal regime. From our own practice, we are aware that parties tend to forget such clauses using their “usual” templates developed for their home business or are indeed not aware of the far-reaching consequences of such choice-of-law-clauses for their whole contractual relationship. This is not only the case for SMEs but also for big multi-nationals.

We have been involved in cases where parties had negotiated for months and ultimately agreed on longish contract wordings but forgot to determine (explicitly) the applicable law. Of course, in the case of a conflict this gives plenty of possibilities for creative lawyers to find strategies to optimise their respective clients’ position to the detriment of the counterpart. Indeed, creating legal uncertainties from the absence of a choice-of-law is rather common in negotiations. In such cases, parties will ultimately have lost a lot of money.

Against this background, any agreement with a German counterpart should include an (explicit) stipulation on the applicable law. We are aware that the choice of the governing law will reflect the respective negotiation power. One valid alternative could therefore be to determine a “neutral law”. Parties should in this regard opt for civil law regimes, such as Swiss law, rather than common law regimes as in the latter case it is rather difficult to assess at the outset what actually the law is. Whereas in theory the choice of a “neutral law” appears to be an appropriate compromise, we would strongly advise to go for the law of one of the parties. Otherwise both parties would at the end of the day not know in detail their rights and obligations; a situation which will eventually cause major problems.

Should the parties agree on German law, we would recommend to go also for the jurisdiction of German courts. Although the choice of law does not predetermine jurisdiction automatically, the approach suggested is advisable as in general courts are more at ease to apply their own law rather than a foreign law. All the problems mentioned earlier in predicting the outcome can thus be overcome. Moreover, additional expenses for legal advice on a foreign law can be saved.

Proceedings before German courts are comparatively fast and the fee structure transparent as German law provides for scale fees based on the value of the causa in dispute. Moreover, the rates of German lawyers are rather moderate in comparison to their English or French colleagues.

The niceties of cross-border litigation 

Going to court should be an option of last resort.  This holds true for domestic cases and even more so for cross-border claims.  Pursuing claims at an international level remains indeed complex.  Maltese are therefore often reluctant to pursue their rights against Germans as they feel uneasy  about their position.  Our advice in such cases is hence not confined to solving legal questions but rather to help our Maltese clients to understand German mentality and to find a viable way for all parties concerned to solve the dispute at hand.

 Should informal negotiations fail, various options are to be considered.

In principle, parties may go for arbitration or other means of alternative dispute resolution proceedings to mitigate the risks involved in legal proceedings at an international level. Both Malta and Germany are Member States to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Accordingly, such arbitral awards are easily enforceable in cross-border cases. Moreover, arbitration proceedings are in general more flexible than proceedings before state courts and can hence better accommodate the parties’ individual needs. One major advantage in this respect is the confidentiality of arbitration proceedings excluding namely competitors from access to the hearings and the final award. Whether arbitration proceedings are however faster than proceedings before state courts, is arguable and depends on the individual case.

In any event, arbitration can be an expensive exercise and it is therefore doubtful whether it is a real alternative, namely for SMEs.

Seeking justice in cross-border cases before state courts gains at the same time importance since Malta’s accession to the European Union. European law provides for effective and efficient means which facilitate in such cases to obtain a judgement to be enforced in another Member State. By establishing a set of rules governing the jurisdiction of the courts in the various Member States (the so-called Brussels regime), the EU recognises the importance of a judiciary coordinated at a Pan-European level for the functioning of the internal market.

In this respect, the Brussels-I-Regulation No. 44/2001 of 22 December 2000 establishes basic rules in determining the competent court in a German-Maltese dispute. Pursuant to Art. 23 of the Brussels-I-Regulation business partners are in principle free to provide for the jurisdiction of a certain (named) court. In order to be valid, such choices have to conform with certain obligations set out by the Regulation. Namely, they have to be in writing or evidenced in writing or in any other form as established between the parties concerned. In the absence of an explicit jurisdiction clause in a written contract, parties in subsequent disputes often try to challenge any implicit or subsequent choice of jurisdiction on the grounds that the required formalities are not met. Namely, respective references only made in an invoice might not be sufficient to establish jurisdiction.

In the absence of a valid jurisdiction clause, it remains with the general rules as set out by the Brussels-I-Regulation. Accordingly, it will be for the claimant to sue its counterpart at its seat or at the place of performance. Against this background, in general cases will be heard before the domestic courts of the respective counterpart. Hence, Maltese will have to go for German courts, whereas Germans will face proceedings before a Maltese court. Such cross-border litigation may naturally cause headaches for the party which is forced to seize the foreign court.

 Enforcing claims at an international level  

Enforcement of claims at an international level has become easier. European law provides for various options to bring a claim against a counterpart having its seat in another Member State.

 Prior to the accession of Malta to the EU, a Maltese judgement was not recognised in Germany and could therefore not be enforced. The reason was that reciprocity as required under German law of civil procedure was not given. This situation has now changed under the Brussels-I-Regulation No. 44/2001. Unifying jurisdiction at an European level, the Regulation ensures that decisions rendered in its accordance are recognised within and enforceable throughout the Community. We have used this argumentation in various negotiations pointing out that the German counterpart may eventually have to defend a claim before Maltese courts. For obvious reasons, none of the Germans wanted to go for this option and were hence willing to compromise. In using the mentioned strategy, one has to be very prudent however as the German counterpart may file an action for a declaration of non-infringement (negative Feststellungsklage) in Germany establishing the respective jurisdiction.

In principle, judgments by default are also enforceable under the Brussels-I-Regulation. This requires however that the document commencing the legal proceedings has been properly served upon the German counterpart. Again the respective legal provisions have been unified at a European level by Council Regulation No. 1393/2007. The aim of said Regulation is to improve and expedite the transmission of judicial and extra-judicial documents in civil or commercial matters for service between the Member States while at the same time providing safeguards in the interest of the recipient. Namely, the recipient is entitled to refuse the document served, if it is not written in a language that he or she understands nor in the official language of the Member State where service takes place. It is therefore advisable to include language clauses in contracts to speed up (potential) legal proceedings and to reduce translation costs.

Furthermore, Council Regulation No. 1896/2006 of 12 December 2006 creates a European order for payment procedures. The Regulation permits the free circulation of European orders for payment throughout the European Union by laying down minimum standards, compliance with which renders unnecessary any intermediate proceedings in the Member State of enforcement prior to recognition and enforcement. In this manner, the procedure simplifies, speeds up and reduces costs of litigation in cross-border cases. With the introduction of this new instrument, creditors can recover their uncontested civil and commercial claims according to a uniform procedure that operates on the basis of standard forms which are available on the internet. The claimant only has to submit its application, after which the procedure will lead its own life. No further formalities or interventions on the part of the claimant are required. Namely, the claimant does not need to appear before a court seized.

Since 1 January of this year, Council Regulation No. 861/2007 of 11 July 2007 provides for a European small claims procedure. It is aimed to improve access to justice by simplifying cross-border small claims litigation in civil and commercial matters and reducing costs. The procedure is optional, offered as an alternative to the possibilities already existing under the domestic laws of Malta and Germany. “Small claims” pursuant to the Regulation are cases concerning sums under EUR 2,000, excluding interest, expenses and disbursements (at the time when the claim form is received by the competent court). Judgments delivered under this procedure are recognised and enforceable in Germany without the need for a declaration of enforceability.

Conclusion

The accession to the EU has reshaped the legal landscape for Maltese business with Germany. Indeed, harmonisation at a European level leads to legal certainty and hence predictability minimising the pertaining risks. At the same time, the various Freedoms under European Law, namely the Freedom to provide Services, make Malta an interesting jurisdiction within the EU for a business which wants to go for the European market at large and Germany in particular.

For further information, kindly contact 77 Great Estates on (00356) 2125 2455; (00356) 9944 7444; skype: info.77GreatEstates or info@77GreatEstates.com.

Formation of a Maltese Company – Article by Hugh Peralta & Associates – Advocates

August 10, 2009

The Law

Principal legislation is the Companies Act of 1995 which is principally based on English Company law.  Shipping companies are regulated by the Merchant Shipping Act.

Types                        Limited liability company

The limited company can be of either a private nature (Limited or Ltd.) or of a public nature (plc).  The minimum number of subscribers or shareholders for public and private companies is two, but a private limited liability company may also be formed as a single member as long as the sole shareholder and sole director are not themselves corporate entities, and the objects clause restricted to one main activity.

The limited liability company is the preferred vehicle due to the separate legal personality and limited liability it offers.

Partnerships

Maltese company law also offers the possibility of having a partnership, with either the “Partnership en commandite” being a partnership with at least one unlimited parter and other limited partners (designated as LP) and the “Partnerships en com Collectif”, being an unlimited partnership where all partners have unlimited liability.

Capital

The minimum authorized and issued share capital under Maltese law is as follows :

Private companies – Lm500 (approx. €1,170) with at least 20% thereof paid up upon subscription;

Public companies – Lm20,000 (approx. €46,600) with at least 25% thereof paid upon subscription.

Currency

The company’s share capital may be denominated in any currency. This, coupled with the fact that Malta does not impose any exchange control residencies, facilitates the use of a Maltese corporate vehicle for international business.  Exchange risk is further minimized by the fact that the company’s income tax is paid in the same currency of the share capital.  Any tax refunds are also given in the same currency.

 Registration

The registration of a company is done by submitting the necessary documentation to the Registry of Companies.  The documentation includes the Memorandum and Articles of Association (M&A) together with an identification document of the subscribers, and proof that initial share capital has been paid up.  The M&A must be signed by the subscribers or their attorneys, but does not need to be executed in front of a notary public.

Once all the documentation is submitted to the Registry of Companies the company incorporation or registration is done within 24 hours.

Malta adopts a strong stance against money laundering hence service providers are legally bound to conduct due diligence checks on prospective shareholders, beneficial owners and officers of the company.

Fiduciary services

Malta has a fully fledged trustee regime and hence shares in Maltese companies may be held by licensed trustees in a fiduciary capacity for and on behalf the subscribers.

Registration Fee

A registration fee is payable to the Registry of Companies and depends on the amount of authorized share capital.  The fee ranges between a minimum of Lm150 (approx. €350) and a maximum of Lm750 (approx. €1,750).

Annual Fee

An annual registration fee is also payable to the Registry of Companies with the minimum fee being Lm70 (approx. €163) for companies having a share capital not exceeding Lm5,000 (approx. €11,647) and the maximum fee being Lm420 (approx. €978) for companies with a share capital of Lm500,000 (approx. €1.165 million).

Directors and Company Secretary

Companies must appoint at least one director and one company secretary.  A director may be a corporate entity but the company secretary must be an individual. Furthermore, a sole director cannot occupy the post of company secretary as well unless the company is a single member company.

 General Meetings

The general meetings need not be held in Malta and may be done via a telephone or video conference.  Moreover, a company may opt not to convene a general meeting if all the shareholders are in unanimous agreement and sign a resolution to such effect.

Annual Return

Companies must submit an annual return upon each anniversary of the company’s registration date.

Annual Accounts

After the financial year end, audited financial statements must be laid before and approved by the general meeting of the company and eventually submitted to the Registry of Companies.  A company may opt for a financial year end other than 31st December as long as the first period is not less than six months and not more than 18 months. The time allowed for the submission of accounts before the general meeting is ten months after the financial year end for private companies and seven months after the financial year end for public companies.

Form of Accounts

Audited financial statements must be prepared in accordance with the Companies Act and with IFRSs.  Small companies are allowed to submit abridged accounts.

Continuation of Companies

Maltese law allows companies to change their domicile in and out  of Malta. Companies moving their domicile to Malta must come from a jurisdiction which allows such redomiciliation.  This possibility enables companies to freely move from one jurisdiction to another without the need of going through a liquidation process.

Upon an application to redomicile to Malta the Maltese Registrar will issue a provisional certificate, which will eventually be converted into a “Certificate of Continuation” upon the presentation of evidence that the company has ceased to exist in the foreign jurisdiction.

For further information, kindly contact 77 Great Estates on (00356) 2125 2455; (00356) 9944 7444; skype: info.77greatestates or info@77GreatEstates.com.

Trusts – Article by Hugh Peralta & Associates – Advocates

August 7, 2009

Malta has a fully-fledged trust legislation, even though Malta’s legal tradition has been predominantly of a civil law nature. Trusts are regulated by the Trusts and Trustees Act which enables both residents and non-residents to set up various types of trusts in Malta. Maltese trust legislation places great responsibility on trustees resident or operating in Malta. An individual or a corporate entity acting as a professional trustee and which is resident or operating in Malta, must be approved and licensed by the Malta Financial Services Authority.

 This licensing requirement means that licensed trustees have a high degree of responsibility especially in ensuring that trusts under their administration are fully compliant with the law, including all disclosure requirements in terms of anti- money laundering laws. Due to this approach, Maltese trusts are not registered in a centralised trust register. The great onus placed on trustees emanates also from the fact that trustees must not only act with diligence and attention but must act with the utmost good faith.

 What is a trust?

 A trust is a legal relationship created by a person, the settlor, who places assets under the control of a trustee, who undertakes an obligation to administer that property for the benefit of a beneficiary/ies or for a particular purpose.

 Trust assets are offered protection by law as the property held in trust constitutes a separate patrimony from the assets of the trustee, ascertaining that the personal creditors of the trustee shall have no recourse against the trust property.  Furthermore, the property of a particular trust is also segregate from property of another trust held by the same trustee. Importantly, the trust property shall not form part of the trustee’s personal estate upon his insolvency or bankruptcy and the trust property shall not form part of the matrimonial property of the trustee or his spouse nor part of the trustee’s estate upon his death.

 Formation of trusts

 In terms of Maltese law, a trust can come into existence in any manner.  However, a unit trust must be set up in writing. However it is always recommendable to have a written trust deed or declaration so that this clearly delineates the parameters of the trust and the functions and discretions of the trustee. A trust shall continue until the 100th anniversary of the date of its creation and unless already terminated shall terminate then.  This limit does not apply to trusts set up for charitable purposes or unit trusts.

 Under Maltese law, the beneficiary or beneficiaries must be identifiable by name or ascertainable by reference to a class or to a relationship to some person.  The settlor of a trust may also be a beneficiary under the trust. A trustee is normally precluded from being a beneficiary of a trust apart from specific trusts utilised in a financial services context and known as commercial trusts.  A trustee may benefit under a trust where he is not the sole trustee and in those cases where he is, he may still benefit if he has prior approval of the MFSA or the court.

 Maltese law also provides for the possibility of having a protector in a trust relationship. Such a protector is designated by the settlor so as to supervise the operation of the trustees in terms of the trust deed.

 Applicable law

 The terms of the trust may identity the law applicable to the trust. Furthermore through the adoption of the Hague Convention on the Law Applicable to Trusts and on their Recognition, Malta recognises trusts having a foreign proper law.

 Where the proper law of a trust is foreign law, the validity of the trust, its construction, its effects and the administration of the trust shall be governed  by such foreign law and shall be recognized and given effect to in Malta in accordance with the Hague Convention on the law applicable to trusts and on their recognition.

 Types of trusts

 There are three types of trusts, namely, an express trust, an implied trust and a constructive trust.

 An express trust is one in which the intention of the settlor to create the trust relationship is clearly and openly expressed.  

An implied trust arises from the unexpressed but presumed intention.  A constructive trust arises by operation of law and is not dependent on the intention of the settlor. 

 Trusts can be tailor-made for a number of uses. Trusts may be used for such purposes as asset protection, wealth management, investment purposes, to provide a life annuity for a surviving spouse or a child with special needs. Maltese law allows such a flexible use of the trust concept and details out specific safeguards to ensure the protection of settlers, beneficiaries and the trust property.

 Commercial trust

 The trust legislation also envisages the use of trusts for commercial purposes or commercial transactions. The law identifies a number of scenarios qualifying as commercial transactions such as the use of trusts for:

  • Collective Investment Schemes,
  • Securitisation of assets,
  • Granting of real or personal security,  
  • Securities offerings, whether to the public or for private placement,  
  • Portfolio management,  
  • Custody of investment instruments, 
  • Syndicated loan agreements and other multi-creditor banking facilities; and  
  • Insurance policies and the payment of proceeds thereunder.

 Commercial trusts are afforded a greater flexibility than normal trusts, making these a suitable tool in the financial industry.

 Taxation

 Trusts are considered to be transparent for tax purposes if the income of the trust is distributed to the beneficiaries.  In that case the income of the trust is not charged to tax in the hands of the trustee but is taxed in the hands of the beneficiaries.  Where all the beneficiaries of a trust are not resident in Malta and where all the income attributable to the trust does not arise in Malta, there is no tax impact in terms of Maltese law.  Income attributable to a trust which is not distributed to the beneficiaries is taxed in the hands of the trustees at a rate of 35%.

 How we can help

 Peralta Custodian Limited is the service company within Hugh Peralta & Associates Advocates, which is licensed by the Malta Financial Services Authority to act as a trustee.  Apart from offering Professional Trustee services, we may also help you with any matters related to trusts, including trust advice, drafting of the trust deeds and ancillary documentation such as the letter of wishes, and the setting up of the trust.

 Disclaimer: These notes are intended only as initial general information. They reflect our views and not necessarily those of any court, authority or government. They are not exhaustive, and further advice should be sought for each particular situation before any decisions are taken.

For further information, kindly contact 77 Great Estates on (00356) 2125 2455; (00356) 9944 7444; skype: info.77greatestates or info@77GreatEstates.com.

Taxation of Companies registered in Malta – Article by Hugh Peralta & Associates – Advocates

August 7, 2009

Malta, an independent democracy since 1964 and an EU Member State since May 2004, has developed into a reputable financial centre of choice and offers an attractive and competitive environment for international business and investment. A favourable tax system compounded with excellent infrastructure, state of the art telecommunications, an extensive treaty network, highly qualified professionals, and an English speaking and business friendly atmosphere have raised Malta’s reputation beyond its relative small size.

 Companies, registered or resident in Malta, are subject to income tax on chargeable income at a standard rate of 35% – known as Advanced Company Income Tax (ACIT). However, in view of Malta’s full imputation system of taxation any income tax paid by the company is credited in full to the shareholder upon a distribution of profits, so as to avoid any double taxation of corporate profits. The full imputation system, which has been utilised since 1948 and which is fully compliant with EU directives and ECJ case law, ensures that both resident and non-resident shareholders are entitled for a refund of any tax paid by the company which is in excess of the shareholder’s income tax liability.

 Income tax is paid in the same currency as the company’s share capital, which is also the currency in which the company prepares and submits its audited financial statements.  The tax refund is also paid in the same currency, thus eliminating any currency exchange risks.  In terms of the provisions of the income tax legislation, a tax refund must be paid by the Inland Revenue Department within 14 days from the end of the month in which it falls due.

 Tax accounting

 The income tax system utilizes different tax accounts for different sources of income namely the Final Tax Account (FTA), the Immovable Property Account (IPA), the Foreign Income Account (FIA), the Maltese Taxed Account (MTA) and the Untaxed Account (UA).

 The attribution of chargeable income to the different tax accounts is an important aspect of the Maltese tax system as this determines the possibility of tax refunds upon a distribution of profits. Distributions from the FTA, the IPA and the UA do not give rise to any tax refunds in the hands of the shareholders, however, a distribution from the FIA and MTA entitles the shareholder to claim a refund which is equivalent to either 2/3rds, 5/7ths, 6/7ths, or 100% of the company income tax.

 Profits attributed to the FTA include income that has been subject to a final withholding tax, profits arising from capital gains on immovable property which has suffered the property transfers tax, certain investment income and certain tax free profits. Profits attributed to the IPA are those profits resulting from the use of immovable property situated in Malta and which have not suffered the final withholding tax, profits from the rent, accommodation revenue by hotels and similar establishments, management fees and annual rental value of immovable property in Malta.

 A company’s trading or passive income which is not attributable to the FTA and IPA, is attributed to the FIA or the MTA depending on the source of such income. A distribution from the FIA or MTA enables the shareholder to apply for a tax refund of the company tax.

Tax refunds

  A tax refund is considered to fall due when the company’s audited financial statements (showing the dividend distribution) and a complete and correct income tax return are submitted to the tax authorities, the tax liability is paid in full and an application for refund on a prescribed form, together with the dividend certificate is submitted by the shareholder of his attorney or representative.

 Holding companies and the participating exemption

 Holding companies that derive dividend income or capital gains from a ‘participating holding’ may apply for a participation exemption.  Alternatively, the Maltese holding company may elect to be subject and pay income tax and upon a distribution of profits the shareholder is entitled to claim a full refund of the company income tax. This means that the shareholders may achieve an effective tax rate of up to 0%.

A shareholding in a non-resident company qualifies as a ‘participating holding’ if the Maltese company holds equity shares in a non-resident company or a qualifying body of persons and it:

 i)       has a least 10% of the equity shares in the non-resident company; or

ii)      is an equity shareholder in the non-resident company and is entitled to purchase the balance of the equity shares of the non-resident company, or it has the right of first refusal to purchase such shares; or

iii)    is an equity shareholder in the non-resident company and is entitled to either sit on the Board or appoint a person on the Board of that subsidiary as a director; or

iv)     is an equity shareholder which invests a minimum in the non-resident company of Lm500,000 (or the equivalent in a foreign currency) and such investment is held for a minimum uninterrupted period of 183 days; or

v)      holds the shares in the non-resident company for the furtherance of its own business and the holding is not held as trading stock for the purpose of a trade.

 Furthermore the non resident company in question must either satisfy any one of the following three conditions:

 –          it is resident or incorporated in the EU,

–          it is subject to foreign tax of a minimum of 15%,

–          it does not derive more than 50% of its income from passive interest and royalties,

 or must satisfy both of the following conditions:

 a)      the shares in the non-resident company must not be held as a portfolio investment; and

b)      the non-resident company or its passive interest or royalties have been subject to tax at a rate which is not less than 5%.

 Companies having trading & certain types of passive income

 Shareholders in receipt of dividend income emanating from companies having trading activities and certain types of passive income and whose profits are allocated to the FIA or MTA may apply for a tax refund equivalent of 6/7ths of the company tax paid, except where the income is deemed to be ‘Passive interest or royalties’, or double taxation relief has been claimed on such income.  This means that the effective tax rate can be reduced to 5%.

 “Passive interest or royalties” refers to interest or royalty income which is not derived, directly or indirectly, from a trade or business, where such interest or royalties have not suffered or suffered any foreign tax, directly, by way of withholding, or otherwise, at a rate of tax which is less than five per cent (5%);

 Passive interest & royalties

 When the income is deemed to be passive interest or royalties the rate of refund possible is of 5/7ths of the Malta tax paid – resulting in an effective tax rate of 10%. Alternatively companies receiving passive interest and royalties may reduce such 10% by applying the Flat Rate Foreign Tax Credit (FRFTC).  The FRFTC is a deemed foreign tax of up to 25%.  When the FRFTC is applied a refund of 2/3rds of the Malta tax paid on distributions from the FIA is possible hence resulting in an ultimate tax rate of 6.25%.

 Advance Revenue Rulings

 Certainty can be sought on important aspects through the request of an Advance Revenue Ruling from the International Tax Unit of Inland Revenue Department.  Such ruling is valid for a period of five years and is renewable for a further five-year period.  The ruling is not mandatory however it not only confirms the tax authorities’ interpretation but also serves to preserve the same tax treatment for two years should there be a change in legislation which may affect the company or its tax treatment.

 Other important considerations

 –        Malta does not levy any withholding taxes;

–        Malta has no thin capitalization rules or debt-to-equity ratios;

–        Malta has no specific transfer pricing rules;

–        Malta has no capital duty and wealth taxes;

–        No stamp duties on share transfers in companies owned by non-residents;

–        Non residents are exempt from any capital gains on certain share transfers;

–        Malta has no extensive treaty network with 44 treaties in force and 12 initialed but not yet ratified;

–        As an EU Member State Malta has adopted the EU’s Parent-Subsidiary Directive and the Interest and Royalties Directive;

–        Under the re-domiciliation provisions it is possible to migrate companies into and out of Malta;

–        No exchange control regulations and business may be conducted freely in any currency;

–        Malta’s financial services legislation and tax laws are complaint with EU directives;

–        Malta’s has strong and effective Money Laundering Laws and Regulations

–        Malta’s legislation offers regulated professional trustees which may provide fiduciary and trust services.

For further information, kindly contact 77 Great Estates on (00356) 2125 2455; (00356) 9944 7444; skype: info.77greatestates or info@77GreatEstates.com.

Residence in Malta – Article by Hugh Peralta & Associates – Advocates

August 7, 2009

 

Malta Residence Scheme

The Maltese Islands form part of an archipelago strategically situated at the centre of the Mediterranean – 100 kilometres south of Sicily and 300 kilometres east of Tunis.  This has probably been one of the factors that led Malta to be occupied by various empires for a long period of time.

  The Phoenicians, Carthaginians, Romans, Arabs, Normans and Knights of St John along with the French and the British all realised the potential of the Maltese Islands.  They have also left their mark on the Maltese culture which is a mix of cultures.  The language is of Semitic origin, however, it has assimilated a number of words from Italian and English.  Maltese and English are the two official languages and other languages are widely spoken.

 Malta enjoys good weather with mild winters and a rather long summer period.  It is a popular tourist destination and the Maltese are renowned for their hospitality and friendly disposition.

 Why Malta?

 Apart from the favourable Mediterranean climate and its geographical location Malta has a good standard of living.  It is a safe country with low crime rate and has a very good health and education systems.  Malta is also an ideal location to combine business and pleasure due to its excellent telecommunications infrastructure.  It is easily reached from all European countries and is served by a number of airlines.

 Malta encourages foreigners to take up residence within its shores.  The policy is supported by the ‘Permanent Residents Scheme’ which has existed in some shape or form since early 1970s.  The Residents Scheme Regulations of 2004 outline the various benefits under the scheme as well as a number of fiscal incentives available to certificate holders. 

 Residents Scheme Regulations

 An individual may take up residence in Malta under the Residents Scheme by obtaining a certificate from the Inland Revenue.  The certificate is issued for an indefinite period as long as certain conditions are satisfied on an annual basis.  Holders of such a certificate and their dependants may thus enter and leave Malta as and when required without any formalities.

 Fiscal Incentives

 The following is a list of fiscal incentives and advantages applicable to holders of a certificate issued in terms of the Residents Scheme Regulations, 2004:

 · A flat rate of income tax of 15% on income remitted to Malta with a minimum tax liability of  €4,200 per annum.  Income arising abroad which is not remitted to Malta is not subject to any Malta tax;

 · Worldwide basis of taxation is not applicable to persons who are resident but not domiciled in Malta;

 · Capital gains remitted to Malta are not subject to any tax whatsoever;

  · Access to Malta’s wide treaty network as well as unilateral relief provisions.  Certain income (such as dividends, interest and royalties) remitted to Malta may qualify for reduced withholding tax rates whereas other income (such as pensions and capital gains) may be exempt from foreign tax.

 · No net worth or wealth taxes;

 · No inheritance tax.  However upon the transfer or transmission (upon death) of real estate or shares in a company owning mainly real estate a duty of  €11.65 on every €233 or part thereof is payable.  Other shares and securities attract a duty on documents of €4.65  on every €233 or part thereof;

 · No real estate tax.  Any capital gains realised on the transfer of one’s own residence is exempt from tax if the property has been owned and occupied for at least three consecutive years and the property is transferred within one year of being vacated;

 · No customs duties or VAT on household effects.  Non EU residents may be required to put a deposit or a bank guarantee for the VAT / duty in question.  Upon the expiry of 183 cumulative days stay in Malta such deposits or bank guarantees are refunded or cancelled provided the duration of stay can be proved.

 Duty on documents (stamp duty) is however chargeable upon the purchase of real estate in Malta at the rate of €11.65 on every €233 or part thereof .

  Who may apply

 Any foreigner, of whatever nationality, may submit an application under the scheme provided that the specific conditions are satisfied.

 Conditions for Application

 An individual is eligible for the Residents Scheme if:

 · He/she has an annual income of at least €23,300 or capital of at least €350,000;

 · He/she remits annually to Malta an income equivalent to €14,000 in his / her respect and €2,330 in respect of each dependant.

 Documentation

 The application form must be accompanied by the following documents:

 · A certificate from the applicant’s bankers showing either that he / she has an annual income of at least €23,300 or capital of at least €350,000.  The certificate must also certify that the applicant will be able to remit to Malta a minimum annual income equivalent to €14,000 in his/her respect and €2,330 in respect of each dependant in Malta;

 · A police conduct certificate in respect of each adult (18 years or over) whose name appears on the application form.  The certificate should indicate whether  there are any ongoing criminal proceedings.  If the certificate issued by the police authorities does not contain such information, the applicant should make a declaration on oath before a Commissioner of Oaths attesting whether he and his dependants have ever had any criminal convictions or have any ongoing criminal proceedings.

 · If a police conduct certificate is not available applicant should provide three character references from a banker, a solicitor, a medical practitioner, employer or previous employer, accountant or any person of a similar standing.

 · A copy of the marriage certificate in the case of a married couple or else full birth certificates;

 · Three passport size photographs and photocopies of the relevant pages of passport of each person whose name appears on the application form;

 · A copy of the deed of purchase or the lease/rent agreement if the applicant already owns or leases/rents property in Malta.  If the applicant does not own or lease property in Malta a copy of the deed or agreement is required to be produced at the point when one takes up residence in Malta.

 The above documents and their translation into English, if they are in a foreign language, must be certified by a Notary in the applicant’s country of residence. The Notary’s signature must be authenticated by the Ministry of Foreign Affairs in the applicant’s country of residence, and the documents must then be stamped by the Maltese Embassy or Consulate in that country.

 Timing

 The processing of applications takes around three months.

 The minimum amount of tax  €4,200 must be paid within 30 days from approval of the application and and this amount is credited against the tax due by the permanent resident for the first year of assessment.

 If the applicant does not take up residence within 12 months from the certificate’s date of issue, and such certificate is withdrawn, a refund of €3,030 is given.

 Once in possession of a certificate the holder:

 · Will be required to take up residence by not later than one year from the issue date of the certificate.  The holder should complete a prescribed document which must be presented together with identification documents to the Department of Inland Revenue, Expatriates Division within 15 days of arriving in Malta.

 · Must purchase a house valued at not less than €116,500 or an apartment of at least €70,000.  Alternatively he / she may lease or rent property for not less than €4,200 per annum.  The acquisition or lease should take place within one year from the issue date of the certificate.

 Other Residents

 An individual may take up residence in Malta by declaring his intention within three months of arrival in Malta.  For tax purposes, an individual is considered to be resident in Malta for a particular year if, during that year, his stay in Malta exceeds 6 months.  Foreigners residing in Malta are taxed on income and capital gains arising in Malta (unless exempt) and on income remitted to Malta.  Foreign source income which is not remitted to Malta is not subject to Malta tax and capital gains are not taxable even if they are remitted to Malta.

 The income tax rates applicable to foreign residents are the standard rates of income tax applicable to residents which are as follows:

Married   Single
              € %     %
0 to 10,482 0   0 to 7,570 0
10,485 to 18,635 15   7,573 to 12,811 15
10,637 to 23,294 25   12,814 to 15,723 25
23,296 and over 35   15,725 and over 35

For further information, kindly contact 77 Great Estates on (00356) 2125 2455; (00356) 9944 7444; skype: info.77greatestates or info@77GreatEstates.com.

Remote Gaming – Article by Hugh Peralta & Associates – Advocates

August 7, 2009

Malta is fast becoming one of the major hubs for the licensing and setting up of online gaming and betting companies. Apart from the favorable legal conditions, Malta ’s success is also attributable to state of the art infrastructure including good Internet connectivity and capacity, competitive hosting service providers and a sizeable skilled workforce trained in game risk management, odds compilation and call centre support, and a multitude of professional services companies which now specialise in remote gaming.

 Gaming and Betting Legislation

 The Lotteries and Gaming Authority (www.lga.org.mt) established under the Lotteries and other Games Act is responsible for issuing gaming licences, ascertaining that licensees are fit and that proper persons are carrying out the functions relative to gaming. The LGA also ensures that licensees comply with all of their licence conditions and that games and gaming are kept free of criminal activity.

 The Remote Gaming Regulations, issued under the said Act, apply to all types of technologies and games and focus on regulating the means and control the procedures of remote gaming such that the fundamental principles of gaming are preserved.

 Licensing of Remote Gaming Operations

 All operators of remote gaming in or from Malta must possess a valid licence of the relevant class. Applicants must satisfy relevant criteria amongst other things they must be  limited liability companies registered in Malta, must satisfy the fit and proper persons test, demonstrate business and technical ability to carry out the operation and demonstrate that the operation is covered by sufficient reserves or securities and is solvent to ensure player winnings and deposit returns.

 There are four classes of gaming licence, issued for a period of 5 year and renewable thereafter:

 Class 1:  For operators managing their own risk on repetitive games.  This class includes casino type games, and online lotteries;

 Class 2:  For operators managing their own risk on events based on a matchbook.  This class includes fixed odds betting, pool betting and spread betting;

 Class 3:  For operators taking a commission from promoting and /or betting games. This class includes Poker networks, P2P, skill games, betting exchange and game portals;

 Class 4:  To host and manage remote gaming operators, excluding the licensee himself.  This class includes software vendors that want to provide management and hosting facilities on their platform.

 Licensing Fees include a one-time non-refundable application fee of €2,300 and an annual fee of €7,000 in the case of classes one to three.  In the case of class four the license fee is NIL for the first 6 months,  €2,300 per month for the second 6 months and €4,600 per month thereafter.

Main conditions for the granting of a License include the following:

· Licensee must be actively operational

· Adherence to the provisions for the protection of players

· Conformity to anti-money laundering practices

· Appointment of a key official to supervise all the operations and ensure that licensee complies with all applicable laws and conditions of the licence.  The key official must be a director of the company and resident in Malta.

 Licence Application Procedures

 Phase 1: Assessment of the financial ability of the applicant to carry out the business and a due diligence check of the applicant are performed by the Gaming Authority. A probity check on all stakeholders with more than 5% shareholding interest is carried out. A business plan must be submitted for review by the Authority.

 Phase 2:  The Gaming Authority will review the System Architecture and Application Architecture, rules of the games, playing procedures and operator’s procedure. At the end of phase two a letter of intent is issued which is in essence  a provisional license for 6 months.

 Phase 3:  In this phase the licensee is expected  to go live.  The Authority will closely inspect the gaming office’s control system, which must be located in Malta and related administrative and accounting procedures to ensure compliance with the Act and the Regulations.  Control systems must be certified as being compliant. Certification shall be based on ISO/IEC17799 standard and there is no need to test source-code. Certified RNGs having a certificate detailing their level of randomness shall not be retested. Certification must be carried in Malta on the live system and shall be carried under the direct supervision and co-ordination of the Authority’s Remote Gaming Inspectors.  Certification must be carried within six months from date of issue of letter of intent.

 Information for players

 The licensee is obliged to make available to the players all rules relating to the authorised games offered by the licensee and processing fees, if any, incurred by the player.  Furthermore, the licensee’s web site home page should amongst other things specify the licensee’s details, including the fact that the licensee is licensed in Malta and include a link to the Authority’s website.

 Registration of players

 Prior to allowing a player to participate in a game, the licensee must register the player.  Registration details must include the player’s identity, age and place of residence.  A licensee is prohibited from providing loans or giving any credit to players in order to enable them to participate in any games offered by the licensee.

 Protection of players’ money

 In accordance with the regulations, players’ money must be kept in a client account held with a credit institution approved by the Authority and separate from the funds of the licensee. The licensee must ensure that funds in the clients’ accounts, including funds in transit or in the process of clearance are equivalent to the aggregate amount standing to the credit of players’ accounts held by the licensee.

 The licensee should allow a player the option to place a limit on the amount that may be wagered over a specific period of time or the amount of losses that may be incurred.  The licensee must have the necessary security features in place for ascertaining player’s credit card details and payment patterns.  These features will also serve to protect the licensee from fraud.

 Accounting records

 The licensee shall keep proper accounts and records which show a true and fair view of the financial position and state of affairs of the licensee and shall within 60 days from the end of its financial year file with the Authority an audited set of financial statements. Interim financial statements shall also be submitted to the Authority within thirty days from the end of the half yearly period.

 Gaming Tax

 The Regulations propose a gaming tax which varies depending on the type of licence held as follows: 

 Class One: €7,000 per month;

Class Two:  fixed odd bettings: 0.5% on the gross amount of bets accepted; pool betting: 0.5% on the aggregate of stakes paid.  Approved by LGA to certify the licensee according to remote gaming regulations;

Class Three:  tax is 5% of real income. Real Income is defined as net revenue less direct costs (bonuses, affiliate commissions and payment provider fees);

Class Four:  NIL tax.

Class One under class Four: the gaming tax payable by the Class 1 is €1,200 per month. The gaming tax payable by the host platform is NIL. However the host platform (Class 4) pays a licence fee which after the first twelve months of operation is €4,600 per month (see licensing fees).

 There is a tax capping mechanism which limits the gaming tax payable annually by any one licensee to a maximum of €466,000.

 Corporate Vehicle for Remote Gaming Operations

 Apart from the beneficial tax rates for the gaming operation itself, utilising a Maltese registered corporate entity ensures a favourable tax position for the shareholders. Utilising the full imputation system with the refund mechanism available under the Malta’s taxation regime, shareholders of a Malta

Licensed Gaming Company can obtain significant refunds of tax paid at company level. Such refunds can provide an effective corporate tax rate of approximately 5%.

For further information, kindly contact 77 Great Estates on (00356) 2125 2455; (00356) 9944 7444; skype: info.77GreatEstates or info@77GreatEstates.com.

Professional Investor Funds – Article by Hugh Peralta & Associates – Advocates

August 7, 2009

 Malta is rapidly developing into an efficient and attractive non-retail fund jurisdiction after it was one of the first European jurisdictions to introduce a specialised regime for professional investor funds (PIFs). Low set-up costs, efficient regulation, a beneficial tax treatment and Malta’s specialised professionals give the Maltese domicile a competitive edge.

 Furthermore, the Maltese single regulator, the Malta Financial Services Authority (MFSA) is renowned for its efficiency and flexibility, thus ensuring a smooth and unbureaucratic licensing process.

 A number of vehicles may be used to set up a Malta registered fund such as open-ended and closed-ended corporate entities, trusts and limited partnerships. However a form of corporate entity is usually preferred due to the separate legal personality and the flexibility it offers.

 A Prospectus is not needed as long as the fund issues an Offering Document.

 The PIF regime provides for three types of funds: those targeting Extraordinary Investors, those targeting Qualifying Investors and those targeting Experienced Investors.

 Extraordinary Investor Funds are suitable vehicles for hedge funds, with no investment or borrowing restrictions and a minimum entry level of € 750,000 or equivalent (for each fund member or joint fund members). Qualifying Investors Funds similarly have a minimum initial investment of € 75,000 or equivalent. A benefit of both these types of funds is that there is no requirement to appoint a Custodian/Prime Broker as long as the Directors ensure that there are adequate safekeeping arrangements which must be described in the Offering Document.

 On the other hand, Experienced Investor Funds , must appoint a custodian and the minimum investment (per member) is of € 15,000 or equivalent .

 Since professional investor funds are not intended for the general public, they are not burdened with the kind of restrictions usually imposed on retail funds thus offering greater flexibility.

 There are no residence requirements for any of the fund’s service providers other than the need for a local judicial representative. Funds may also be re-domiciled from other jurisdictions under the re-domiciliation of companies’ legislation.

 Tax treatment

 A Malta domiciled fund enjoys an exemption from income tax and capital gains tax at both the fund level and at a non-resident investor level. Any Malta fund or sub-fund can be classified as either prescribed or non-prescribed. A prescribed fund is one in which more than 85% of the value of its assets are situated in Malta, whilst all other funds are classified as non-prescribed.

 No tax is withheld on investment income received by non-prescribed funds. Non-residents receiving dividends out of a locally based, non-prescribed fund suffer no withholding tax on such income. Furthermore no tax is payable by non-resident investors when they dispose of their investment.

 There is also no stamp duty charged on share issues or transfers and no tax on the net asset value of the scheme.

 Uses of a Professional Investor Fund

 A PIF can be used as a fully-fledged Hedge Fund for a variety of assets such as securities, bonds, derivatives, money instruments, debt instruments, other funds, tangible movables and immovable property.

 A Maltese PIF offers great potential for fund managers who want to set up a hedge fund within a reputable, modern and efficient EU jurisdiction which also offers a number of tax advantages. Promoters of a fund have the option to utilise a self-managed corporate fund wherein there would be no need for the Fund Manager to have actual presence in Malta. A self-managed fund also offers the benefit of retaining full control (through the Board), whilst appointing skilled individuals to the advisory committee according to the particular array of underlying assets. Maltese PIFS are also ideal for umbrella or multi-class funds through the utilisation and protection afforded by segregated cell companies which enjoy distinct legal personality.      

 The Players 

 In a corporate PIF the Board of Directors plays an essential role.  This has actual control over the fund and the fund’s strategy and is the point of reference between the fund, the regulator, the fund members and the fund’s players.  It is important that the majority of board meetings are actually held in Malta.

 In a self-managed fund scenario, the Board assumes an even broader function by assuming the role of the Fund Manager. The use of self-managed funds, especially in the non-retail market, has been on the increase in recent years. The Fund Manager is the person entrusted with managing the assets of the Fund. The relationship between the fund and the manager is regulated by a management agreement. In self-managed funds the Board may still opt to seek aid in its management role through the use of delegation agreements with established Fund Managers. The initial, paid up share capital for such a self-managed fund should not be less than EUR 125,000, or the equivalent in any other currency and the NAV of the Scheme is expected to exceed this amount on an on-going basis.

 The advisory committee has an important role. This is answerable to the board and comprises technical people who have expertise in the underlying assets of the fund. In the absence of such an advisory committee expertise related to the investment strategy of the fund must be shown at Board level and hence, although not compulsory, appointing such a committee is recommended. Such advisors offer specialised research on specific markets or instruments.

 The appointment of an administrator is not compulsory, however, an administrator should ideally be appointed so as to assume responsibility for the day to day running of the fund, accounting, calculation of Net Asset Value (NAV) and the retention of the necessary documentation of the member’s unit allocation and investments.

 The Custodian, also at times referred to as the Depositary, is an independent player entrusted with the actual physical holding of the assets of the fund. The appointment of this player is compulsory for retail funds and Experienced Investor Funds, but not for Extraordinary and Qualifying Investor Funds, as long as sufficient arrangements are made for the safe keeping of the fund’s assets. When such a Custodian is appointed, it takes instructions on the disposal of assets from the Manager within the parameters of the prospectus/offering document. The Custodian also assumes the duty of ensuring that the Manager is complying with the law, and the duty of safeguarding assets under its custody, the interests of the scheme and of the holders of units or participants in the scheme.

 Furthermore the custodian is to carry out such functions and duties in accordance with the terms and conditions of the agreement appointing it as custodian, the deed or other instrument establishing or regulating the scheme, the conditions of the collective investment scheme licence and such other requirement as may be laid down by the competent authority.

 The Manager may also appoint a Registrar of the scheme, who is responsible for maintaining a register of the units/shares of the fund and the respective allotment of the members and to update it with any transfers, acquisitions, redemptions or switching of units.

 Requirements for the different classes of Investors

 ‘Extraordinary investors’ include corporate or non-corporate entities, groups, trusts  or individuals having net assets in excess of € 7.5 million (or equivalent); Senior employees or Directors of the fund, are also recognised as Extraordinary

Investors. Other Extraordinary PIFs are deemed to be Extraordinary investors together with any Special deemed Special Purpose Vehicle owned by person qualifying themselves as ‘Extraordinary investors’.

 Qualifying investors’ include corporate or non-corporate entities, groups, trusts  or individuals having net assets in excess of € 750,000 (or equivalent); or persons who have reasonable experience in the acquisition and/or disposal of funds of a similar nature or risk profile or property similar to the underlying assets of the PIF in question. Relatives and close friends of the promoters (up to ten), and senior employees or Directors of the fund, are also recognised as Qualifying Investors. Furthermore entities having more then € 3.75 million under their discretionary management, other PIFs promoted to Qualifying or Extraordinary investors and any Special Purpose Vehicle owned by person qualifying themselves, all qualify as ‘Qualifying investors’.

 ‘Experienced investors’ are persons who have the expertise, experience and knowledge to be in a position to make their own investment decisions and understand the risks involved. These include persons who have at least one year’s relevant work experience in a professional position in the financial sector; persons who have reasonable experience in the acquisition and/or disposal of funds of a similar nature or risk profile as the assets to which the PIF in question is related, or persons who have in the past years carried out investment transactions of a significant size and frequency (for example a person who within the past 2 years carried out transactions amounting to at least €50,000 at an average frequency of 3 per quarter).

 How we can help

 Given the specialised nature of a PIF, preparatory work needs to be done before a licence application is submitted. Hugh Peralta & Associates offers assistance in the planning (especially in devising a flexible yet secure structure), the setting up process and obtaining a licence.

 The planning includes assistance in the decisions as to the appointment or otherwise of a custodian, manager, administrator and the appointment of the advisory committee. The role of these functionaries must be identified and included in the offering document submitted with the application.

 Our input may be necessary in relation to the formation of the vehicle itself and the eventual drafting of all necessary applications, offering document, Personal Questionnaires, delegation agreements etc.

 Hugh Peralta & Associates may propose suitable personnel to act as Director/s on the Board of Directors of corporate funds. Such Director/s can also act as the local representative. Furthermore we will provide the necessary registered office and company secretary for the company.

 Hugh Peralta & Associates may help the promoters in their selection of and dealings with local Fund Managers. Alternatively the Board of Directors may assume the Management function of the fund according to the terms of the licence. In such a scenario Hugh Peralta & Associates can offer qualified personnel to aid the Board in assuming such a Management function.

 Hugh Peralta & Associates may offer external administration to the fund according to the delegation arrangement between itself and the Board (or Manager) of the fund. Through our expertise and organisational setup Hugh Peralta & Associates may carry out the fund’s accounting requirements, daily calculation of Net Asset Values, reconciliations, pricing of the investment portfolio, preparation of financial statements, performance and compliance reporting, and preparation of contract notes.

For further information, kindly contact 77 Great Estates on (00356) 2125 2455; (00356) 9944 7444; skype: info.77GreatEstates or info@77GreatEstates.com.