Doing Business In... 2022 - WH Partners
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Definitive global law guides offering comparative analysis from top-ranked lawyers Doing Business In... 2022 Malta: Law & Practice Olga Finkel, Ramona Azzopardi, Robert Zammit, Rachel Vella Baldacchino, Patrick Massa, Christina Borg Debono, Charlotte Attard and Aleksandr Belugin WH Partners Malta: Trends & Developments Davinia Cutajar, Joseph F Borg, Kelly Fenech and Galyna Podoprikhina WH Partners practiceguides.chambers.com
MALTA
Law and Practice Italy
Contributed by: Tunisia
Malta
Olga Finkel, Ramona Azzopardi, Robert Zammit, Rachel Vella Baldacchino,
Patrick Massa, Christina Borg Debono, Charlotte Attard and Aleksandr Belugin
WH Partners see p.26
CONTENTS
1. Legal System p.3 6. Competition Law p.18
1.1 Legal System p.3 6.1 Merger Control Notification p.18
6.2 Merger Control Procedure p.18
2. Restrictions to Foreign Investments p.3
6.3 Cartels p.18
2.1 Approval of Foreign Investments p.3
6.4 Abuse of Dominant Position p.19
2.2 Procedure and Sanctions in the Event of Non-
compliance p.3 7. Intellectual Property p.19
2.3 Commitments Required From Foreign Investors p.4 7.1 Patents p.19
2.4 Right to Appeal p.4 7.2 Trade Marks p.20
3. Corporate Vehicles p.4 7.3 Industrial Design p.20
3.1 Most Common Forms of Legal Entities p.4 7.4 Copyright p.21
3.2 Incorporation Process p.4 7.5 Others p.22
3.3 Ongoing Reporting and Disclosure Obligations p.4 8. Data Protection p.23
3.4 Management Structures p.5 8.1 Applicable Regulations p.23
3.5 Directors’, Officers’ and Shareholders’ Liability p.5 8.2 Geographical Scope p.24
4. Employment Law p.5 8.3 Role and Authority of the Data Protection
Agency p.24
4.1 Nature of Applicable Regulations p.5
4.2 Characteristics of Employment Contracts p.5 9. Looking Forward p.25
4.3 Working Time p.6 9.1 Upcoming Legal Reforms p.25
4.4 Termination of Employment Contracts p.6
4.5 Employee Representations p.8
5. Tax Law p.11
5.1 Taxes Applicable to Employees/Employers p.11
5.2 Taxes Applicable to Businesses p.12
5.3 Available Tax Credits/Incentives p.12
5.4 Tax Consolidation p.15
5.5 Thin Capitalisation Rules and Other Limitations p.15
5.6 Transfer Pricing p.16
5.7 Anti-evasion Rules p.17
2
MALTA LAW AND PRACTICE
Contributed by: Olga Finkel, Ramona Azzopardi, Robert Zammit, Rachel Vella Baldacchino, Patrick Massa,
Christina Borg Debono, Charlotte Attard and Aleksandr Belugin, WH Partners
1. LEGAL SYSTEM EU. A foreign investment is one made directly
by a foreign investor (being a non-EU national
1.1 Legal System or undertaking), or indirectly by any undertaking,
The Maltese legal system is mixed. For many organisation, foundation or other entity where at
centuries it was based on Roman law as codi- least 10% of its control is held by a foreign inves-
fied by Emperor Justinian, with the civilian influ- tor. Where a foreign investment (i) concerns any
ence being further strengthened during the rule of the critical activities set out in the legislation,
of the Order of St John, which resulted in a pre- including any access to sensitive information
dominantly civil law system. Years of British rule including personal data; or (ii) the foreign inves-
introduced several significant legal institutions tor either has ties with a third-country govern-
derived from the English legal system, such as ment, armed forces or a state body, or otherwise
trial by jury, the rules of evidence and the struc- affects public order or there exists a risk that
ture of the courts. In time and over the centu- the investor engages in illegal or criminal activi-
ries, Malta’s legal system therefore continued ties, then the transaction must be notified to the
to evolve into a predominantly civil law system, National Foreign Direct Investment Screening
incorporating some elements from the common Office (the “Office”).
law traditions.
2.2 Procedure and Sanctions in the
The judicial order is organised into: Event of Non-compliance
If a notification is triggered, certain informa-
• a Constitutional Court, which has limited tion on the transaction and the parties involved
competence; must be provided to the Office. The notifica-
• a Court of Appeal that is competent for all tion is submitted online, and within five work-
jurisdictions; and ing days from receipt of the notification, the
• first-instance civil and criminal inferior and Office must determine whether the transaction
superior courts. is subject to screening. Should screening be
required, a decision must be taken within 60
There are also several administrative tribunals, calendar days from the date of determination
from which an appeal can be made to the Court that screening is required. Any investment in
of Appeal in its inferior jurisdiction. default of notification where this is triggered is
automatically considered in violation of the Act,
and the Office is empowered at law to take all
2. RESTRICTIONS TO necessary measures to unwind the investment,
FOREIGN INVESTMENTS and to impose administrative penalties ranging
between EUR500 and EUR100,000, depending
2.1 Approval of Foreign Investments on the gravity and nature of the offence.
Following new legislation enacted during 2020,
foreign direct investments are subject to the Furthermore, where a person is required to
National Foreign Direct Investment Screen- implement certain conditions or commitments,
ing Office Act 2020. This act implements the failure to implement such conditions within the
provisions of Regulation (EU) 2019/452 of the time established by the Office may be liable to
European Parliament and of the Council of 19 an administrative penalty of EUR500 per day.
March 2019, establishing a framework for the
screening of foreign direct investments into the
3
LAW AND PRACTICE MALTA
Contributed by: Olga Finkel, Ramona Azzopardi, Robert Zammit, Rachel Vella Baldacchino, Patrick Massa,
Christina Borg Debono, Charlotte Attard and Aleksandr Belugin, WH Partners
2.3 Commitments Required From holding. A private limited company can have a
Foreign Investors single member and single director, provided
If the Office determines that the investment the company is an exempt company. There is a
might affect the security or public order of Mal- 50-shareholder limit for private companies, and
ta, it may require commitments or conditions to transfers of shares in such companies must be
completion of the transaction. restricted. If the number of members in a compa-
ny exceeds 50, it must convert to a public com-
2.4 Right to Appeal pany. The minimum share capital for a private
A person aggrieved by a decision taken by company is EUR1,165.69, paid up at least 20%
the Office is entitled to lodge an appeal to the on incorporation; whereas for a public company
Administrative Review Tribunal. Appeals lie on it is EUR46,597.47, at least 25% paid up.
points of law, and the right to appeal is exercis-
able within 20 days from the date of the decision 3.2 Incorporation Process
taken by the Office or on a decision to impose an The steps involved in incorporation vary depend-
administrative penalty. Decisions on an appeal ing mainly on the type of entity being incorpo-
to the Administrative Review Tribunal are subject rated. A company is formed upon subscription
to appeal on points of law only to the Court of by shareholders to a memorandum and articles
Appeal in its inferior jurisdiction. of association, and their delivery to the Malta
Business Registry together with key ancillary
documents, which include evidence of paid-up
3 . C O R P O R AT E V E H I C L E S minimum share capital and compliance docu-
mentation. Once delivered to the Malta Business
3.1 Most Common Forms of Legal Registry, the incorporation can be complete in
Entities around one working day.
The most common type of corporate vehicle in
Malta is the limited liability company, which may Other forms of corporation, such as a founda-
be private or public. Other forms of corporate tion, are set up either by means of a public deed
vehicles available under the Maltese legal sys- or through a last will, in each case published in
tem include a general partnership (partnership Malta and executed before a notary public.
en nom collectif); a limited partnership (partner-
ship en commandite), which may have its capital 3.3 Ongoing Reporting and Disclosure
divided into shares; a civil partnership; a foun- Obligations
dation; and an association. Joint ventures are Private companies are subject to at least annu-
recognised but are not usually required to be al reporting obligations to the Malta Business
registered and do not have distinct legal person- Registry, consisting of annual returns and annual
ality. Whereas limited companies are frequently financial statements, which, unless a company
used in business and trading, foundations and is registered as a private exempt company, must
associations are frequently encountered in con- be audited. Other corporate changes, such as
nection with charitable or social set-ups. Part- changes to directors and officers, changes to
nerships are more common among smaller or shareholding and to ultimate beneficial owner-
more traditional businesses. ship, amendments to the company’s memo-
randum and articles of association, and other
The liability of shareholders in both forms of lim- significant corporate events are also subject to
ited liability company is limited up to their share- disclosure to the Malta Business Registry within
4
MALTA LAW AND PRACTICE
Contributed by: Olga Finkel, Ramona Azzopardi, Robert Zammit, Rachel Vella Baldacchino, Patrick Massa,
Christina Borg Debono, Charlotte Attard and Aleksandr Belugin, WH Partners
applicable timeframes. Where a company is the member knows or has reasonable grounds
subject to licensing and regulation, it is subject for believing that it is made in contravention of
to additional reporting and disclosure obliga- the Companies Act.
tions to the relevant licensing body or authority.
3.4 Management Structures 4. EMPLOYMENT LAW
The board of directors of a company is charged
with its management and administration. 4.1 Nature of Applicable Regulations
Members of the board of directors are usually The legal situation under Maltese law in relation
appointed by the shareholders of a company, to employment is principally regulated by the
and the appointed directors are required to be Employment and Industrial Relations Act (EIRA),
stated in the company’s memorandum and arti- under which a number of subsidiary laws provide
cles of association. Although the concept is not sectoral or national norms. Furthermore, with
recognised under the Companies Act, directors respect to established conditions of employ-
may be appointed in an executive or non-exec- ment, the law prescribes individual contracts
utive role in practice. (for an indefinite or definite duration), which is
the most commonly used form; as well as col-
In certain cases, the Maltese legal system also lective contracts of employment in the form of
recognises shadow directors: these are persons industrial agreements. Industrial agreements
who, although not appointed to the board, act have the force of law between the parties. In the
as though they were directors, and liability qua case where a contract of service is not entered
directors may attach to such persons. Two-tier into in writing, the provisions of the EIRA serve
management structures are not formally rec- as the conditions of such a contract.
ognised under the Companies Act; however, a
board is free to regulate its procedure and may 4.2 Characteristics of Employment
create a de facto two-tier management struc- Contracts
ture composed of committees that report to the Subsidiary Legislation 452.83 entitled “Informa-
board. tion to Employees Regulations” establishes the
minimum conditions of employment that should
3.5 Directors’, Officers’ and be included in every employment contract,
Shareholders’ Liability namely: in the case of a fixed-term contract
Directors are generally jointly and severally liable of employment, the expected or agreed dura-
with respect to any liability arising from acts or tion of the contract period; wages; the period
omissions by any member of the board. How- of employment; the period of probation; the
ever, where a particular duty has been delegated hours of work; and leave and any other condi-
to one or more directors, only such directors are tions related to the employment, including any
liable in damages. Since Maltese corporate law benefits, terms of engagement, terms of work
has its roots in English company law, it also bor- participation, manner of termination and the
rows the concept of “piercing the corporate veil”, mode of settling any differences that may arise
although this is applicable in very limited circum- between the parties to the agreement.
stances, such as upon a finding of fraudulent or
wrongful trading, or in the event of an unlawful Although the law stipulates what the minimum
distribution to a member in breach of the Com- conditions of employment are, other conditions
panies Act, where at the time of the distribution, not in breach of the law may be negotiated. If
5
LAW AND PRACTICE MALTA
Contributed by: Olga Finkel, Ramona Azzopardi, Robert Zammit, Rachel Vella Baldacchino, Patrick Massa,
Christina Borg Debono, Charlotte Attard and Aleksandr Belugin, WH Partners
a negotiated condition is less advantageous to Various wage regulation orders (WROs) set out
the employee than those set out in the EIRA, the the minimum overtime rates of particular indus-
less advantageous condition shall not apply and tries. If the industry in which the employee works
shall be replaced ipso jure with the condition laid is not covered by a WRO, then an employee
down in the EIRA. This shows that the EIRA is shall be paid one-and-a-half times the normal
designed to protect employees and therefore, in rate for work carried out in excess of a 40-hour
such a case, the fundamental principle of pacta week averaged over a four-week period or over
sunt servanda established under Maltese law a shift cycle. Part-time workers are not entitled
of contract shall not apply in the case of less to overtime payment unless they work over 40
favourable conditions. hours per week.
Once the employee engages with the employer, Under the Overtime Regulations (Subsidiary
the latter is to explain to the employee the provi- Legislation 452.110), in all sectors, whether
sions of the conditions of employment and shall these sectors are covered by a WRO or not, the
deliver to the latter a written statement or a letter employer may choose to implement schemes
of engagement about the prescribed conditions to bank hours whereby 376 of the normal
by not later than eight working days from the annual working hours in each calendar year are
start of employment. “banked”, which thus allows extra hours over
and above the normal weekly working hours to
4.3 Working Time be worked during periods of higher work activity,
Under the Information to Employees Regulations and then compensated during periods of lower
(Subsidiary Legislation 452.83), the employer activity by having working hours below the nor-
must inform the employee of the normal rates mal weekly working hours. However, the rule of
of wages payable and the normal hours of work the average weekly working time including over-
within eight working days from the commence- time not exceeding 48 hours should be adhered
ment of employment. The contract of employ- to nonetheless, unless the employee concerned
ment may, in addition, provide for the allowance has given their consent in writing to work more
payable in respect of hours worked in excess of than a weekly average of 48 hours.
the normal hours of work.
4.4 Termination of Employment
An employer may only oblige an employee to Contracts
work overtime where the employee has con- Probationary Period
sented to it in writing, and where the total hours The first six months of any employment (whether
of a week’s work, including overtime, does not for a fixed or indefinite term) is a probationary
exceed 48 hours (48 hours being the maximum period, unless the parties agreed to a shorter
stipulated under the Organisation of Work- probationary period or, in the case of employ-
ing Time Regulations (Subsidiary Legislation ees holding technical, executive, administrative
452.87)). In terms of the Protection of Maternity or managerial posts, to a longer probationary
(Employment) Regulations (Subsidiary Legisla- period.
tion 452.91), employees shall not be obliged to
work overtime during pregnancy and for a period During the probationary period, either party
of 12 months from either the date of birth of the may terminate employment without the need to
child or from the effective date of the adoption assign a reason for termination. However, if the
of a child. employee has been in employment for more than
6
MALTA LAW AND PRACTICE
Contributed by: Olga Finkel, Ramona Azzopardi, Robert Zammit, Rachel Vella Baldacchino, Patrick Massa,
Christina Borg Debono, Charlotte Attard and Aleksandr Belugin, WH Partners
one month, the party terminating the contract grounds of redundancy over a period of 30 days
must give a week’s written notice of termination of:
to the other party.
• ten or more employees in establishments
Once the probationary period lapses, an employ- normally employing 20 to 99 employees;
ee may terminate an indefinite contract of service • 10% or more of the number of employees
for any reason by giving the employer a notice in establishments employing 100 to 299
of termination, and the notice period under employees; and
the EIRA depends on the continuous length of • 30 or more in establishments employing 300
employment. The employer may choose to ter- employees or above.
minate an indefinite contract solely on grounds
of redundancy and the employee shall be enti- An employer that declares a collective redun-
tled to re-employment if the formerly occupied dancy shall not terminate the employment of the
post becomes available again within one year affected employees unless the employees’ rep-
from the date of termination of employment. resentative as well as the director of the Depart-
Both parties are excused from giving notice and ment of Industrial and Employment Relations
may proceed with immediate termination where (the “Director”) are notified in writing.
the reason for the termination of employment
amounts to a “good and sufficient cause”. In doing so, the employer must provide the
employees’ representative with the opportunity
Fixed-Term Contracts, Benefits and Injury to consult with the employer, which consulta-
In the case of termination of fixed-term contracts tion period shall commence within seven work-
after the probation period has lapsed, the par- ing days from the day on which the employees’
ties are expected to perform the contract for its representative was notified of the intended col-
entire duration. If there is no justified reason to lective redundancies. During the seven-working-
terminate employment prior to the agreed expiry day period, the employer shall also provide the
date, the party terminating shall be liable to pay employees’ representatives with certain informa-
the other party a sum equal to half of the full tion, including the reasons for the redundancy,
wages that would have accrued had the contract the number of employees affected, the proposed
of employment remained in force. criteria for the selection of the employees to be
made redundant, the period over which the lay-
Where an employee is entitled to the benefits offs will be effected and details on the redun-
of maternity regulations, any such employee dancy payments due.
may not be dismissed, nor receive notice from
the employer. Similarly, any employees who are The primary purpose of the consultation period
injured in the course of their employment may is to discuss and find means of avoiding the col-
not be dismissed from work before the lapse of lective redundancies, or, if impossible to do so,
one year from the accident. to reduce the number of employees affected and
to ensure that any consequences linked to the
Collective Redundancies collective redundancies are mitigated.
The Collective Redundancies (Protection of
Employment) Regulations (Subsidiary Legisla- Notice of Termination
tion 452.80) defines collective redundancies as The notice of termination of employment may
termination of employment by an employer on start to run from the date of the consultation
7
LAW AND PRACTICE MALTA
Contributed by: Olga Finkel, Ramona Azzopardi, Robert Zammit, Rachel Vella Baldacchino, Patrick Massa,
Christina Borg Debono, Charlotte Attard and Aleksandr Belugin, WH Partners
period. However, termination of employment of ever, if the previously non-unionised employ-
any projected collective redundancies notified to ees become represented by a recognised trade
the Director shall only take effect on the lapse of union, the term of office of the elected employee
30 days after the employer makes such notifica- representative shall be automatically terminated
tion. The employer may be granted a shorted or on the date of the granting of recognition of the
longer period at the Director’s discretion. respective category of employees to the trade
union by the employer.
Any employer who does not abide by the col-
lective redundancy process shall be guilty of an Procedure When a Ballot Is Called
offence and liable to a fine for every employee When a ballot is called by the employer for the
who is declared redundant. election of an employee representative, the
employer must not only ensure that the ballot
In the eventuality that an undertaking or busi- procedure is fair but must also supply the direc-
ness is transferred, the employment contracts tor general responsible for the Department of
of workers affected by such transfer are to be Industrial and Employment Relations with the
preserved and respected by the business or election process at least one month before the
undertaking taking over, in whole or in part, from projected date of the ballot. Employees who
the previous employer. have passed their probationary period shall be
entitled to stand as candidates in the ballot. The
4.5 Employee Representations appointed representative shall not hold office for
Consultation and information are compulsory in more than a period of three years from the date
specific areas, such as the applicable conditions of appointment.
of employment and disciplinary rules. Represen-
tation is indispensable in collective bargaining as Once an employee representative is appointed,
well as in circumstances giving rise to collective the employer is obliged to inform the employees
redundancies and transfer of undertakings. in writing of the identity of the employee repre-
sentative and shall hold an information and con-
An employee has a right to join a trade union sultation meeting within two months from the
and equally to choose not to do so. Therefore, date of appointment. At least one meeting must
employee representation must be seen in the be held every six months after the date of each
context of freedom of association of employees preceding meeting. An employer must provide
and is regulated by specific norms in the Rec- information to the trade union and/or employee
ognition of Trade Unions Regulations (Subsidiary representative(s) on:
Legislation 452.112).
• the development of the undertaking’s activi-
The appointment of an employee representative ties and economic situation;
is a requirement in cases of collective redundan- • the situation, structure and probable develop-
cies and transfer of businesses or undertakings, ment of employment within the undertaking,
for those businesses or undertakings employ- including any anticipatory measures envis-
ing at least 50 employees. In those cases where aged where there is a threat to employment;
there exists no recognised union, the non- and
unionised employees may select from among • decisions likely to lead to substantial changes
themselves a representative elected by means in the work organisation or contractual rela-
of a secret ballot called by the employer. How- tions.
8
MALTA LAW AND PRACTICE
Contributed by: Olga Finkel, Ramona Azzopardi, Robert Zammit, Rachel Vella Baldacchino, Patrick Massa,
Christina Borg Debono, Charlotte Attard and Aleksandr Belugin, WH Partners
Ultimately, an employee representative or trade Procedure When a Ballot Is Called
union is there to protect employees and their When a ballot is called by the employer for the
rights and interests, and to interfere, where nec- election of an employee representative, the
essary, in the relationship between the employer employer must not only ensure that the ballot
and the employees. It is imperative for employ- procedure is fair but must also supply the direc-
ers subject to compulsory election of employee tor general responsible for the Department of
representatives to ensure that employees can Industrial and Employment Relations with the
effectively exercise their right to information and election process at least one month before the
consultation. projected date of the ballot. Employees who
have passed their probationary period shall be
Consultation and information are compulsory in entitled to stand as candidates in the ballot. The
specific areas, such as the applicable conditions appointed representative shall not hold office for
of employment and disciplinary rules. Represen- more than a period of three years from the date
tation is indispensable in collective bargaining as of appointment.
well as in circumstances giving rise to collective
redundancies and transfer of undertakings. Once an employee representative is appointed,
the employer is obliged to inform the employees
An employee has a right to join a trade union in writing of the identity of the employee repre-
and equally to choose not to do so. Therefore, sentative and shall hold an information and con-
employee representation must be seen in the sultation meeting within two months from the
context of freedom of association of employees date of appointment. At least one meeting must
and is regulated by specific norms in the Rec- be held every six months after the date of each
ognition of Trade Unions Regulations (Subsidiary preceding meeting. An employer must provide
Legislation 452.112). information to the trade union and/or employee
representative(s) on:
The appointment of an employee representative
is a requirement in cases of collective redundan- • the development of the undertaking’s activi-
cies and transfer of businesses or undertakings, ties and economic situation;
for those businesses or undertakings employ- • the situation, structure and probable develop-
ing at least 50 employees. In those cases where ment of employment within the undertaking,
there exists no recognised union, the non- including any anticipatory measures envis-
unionised employees may select from amongst aged where there is a threat to employment;
themselves a representative elected by means and
of a secret ballot called by the employer. How- • decisions likely to lead to substantial changes
ever, if the previously non-unionised employ- in the work organisation or contractual rela-
ees become represented by a recognised trade tions.
union, the term of office of the elected employee
representative shall be automatically terminated Ultimately, an employee representative or trade
on the date of the granting of recognition of the union is there to protect employees and their
respective category of employees to the trade rights and interests, and to interfere, where nec-
union by the employer. essary, in the relationship between the employer
and the employees. It is imperative for employ-
ers subject to compulsory election of employee
representatives to ensure that employees can
9
LAW AND PRACTICE MALTA
Contributed by: Olga Finkel, Ramona Azzopardi, Robert Zammit, Rachel Vella Baldacchino, Patrick Massa,
Christina Borg Debono, Charlotte Attard and Aleksandr Belugin, WH Partners
effectively exercise their right to information and participate in training and career development
consultation. programmes provided by the employer in the
same manner as comparable employees at the
Teleworking employer’s premises.
Subsidiary Legislation 452.104 entitled “Tel-
ework National Standard Order” regulates the Subsidiary Legislation 452.104 entitled “Tel-
possibility for any employee to carry out tele- ework National Standard Order” regulates the
working. Telework may be required as a condi- possibility for any employee to carry out tele-
tion of employment in an employment contract, working. Telework may be required as a condi-
or where there is no specific reference to tel- tion of employment in an employment contract,
eworking in the employment contract, by agree- or where there is no specific reference to tel-
ment, in the course of the employment relation- eworking in the employment contract, by agree-
ship. If the employer proposes to the employee ment, in the course of the employment relation-
to telework during the course of the employment ship. If the employer proposes to the employee
relationship, the employee is free to accept or to telework during the course of the employment
refuse the offer. If the employee refuses, the relationship, the employee is free to accept or
refusal shall neither constitute a good and suf- refuse the offer. If the employee refuses, the
ficient cause for terminating employment, nor refusal shall neither constitute a good and suf-
shall it lead to a change in the conditions of ficient cause for terminating employment, nor
employment of the employee. shall it lead to a change in the conditions of
employment of the employee.
A telework agreement should be in writing, and,
among other matters, it should contain written A telework agreement should be in writing, and,
information in relation to the location where tel- amongst other matters, it should contain writ-
ework is to be carried out; equipment to be used ten information in relation to the location where
for telework, including its ownership, mainte- telework is to be carried out; equipment to be
nance, liability and costs; the amount of working used for telework, including its ownership, main-
time to be spent at the place of telework and at tenance, liability and costs; the amount of work-
the workplace; provisions related to monitoring; ing time to be spent at the place of telework and
and notice of termination of agreement. at the workplace; provisions related to monitor-
ing; and notice of termination of agreement.
Unless a definite period is agreed between the
parties in the telework agreement, then both par- Unless a definite period is agreed between the
ties may decide to terminate the said agreement parties in the telework agreement, then both par-
either in the first two months from the telework ties may decide to terminate the said agreement
agreement provided three days’ notice in writing either in the first two months from the telework
is given to the other party or after the first two agreement provided three days’ notice in writing
months from the telework agreement provided is given to the other party or after the first two
two weeks’ notice in writing is given to the other months from the telework agreement provided
party. two weeks’ notice in writing is given to the other
party.
Teleworkers shall enjoy the same rights laid
down in the EIRA and the regulations issued Teleworkers shall enjoy the same rights laid
thereunder, and they shall also have the right to down in the EIRA and the regulations issued
10MALTA LAW AND PRACTICE
Contributed by: Olga Finkel, Ramona Azzopardi, Robert Zammit, Rachel Vella Baldacchino, Patrick Massa,
Christina Borg Debono, Charlotte Attard and Aleksandr Belugin, WH Partners
thereunder, and they shall also have the right to the Final Settlement System (FSS), where the
participate in training and career development employer withholds the tax at source.
programmes provided by the employer in the
same manner as comparable employees at the Benefits
employer’s premises. Under Maltese legislation, employment income
includes fringe benefits, bonuses, gifts and other
gains or profits provided in the context of the
5 . TA X L A W employee-employer relationship. These, there-
fore, are to be taken into account when calcu-
5.1 Taxes Applicable to Employees/ lating the gross amount for tax purposes. It is
Employers important to highlight that certain fringe ben-
Income Tax efits, such as share options and share award
Employees are subject to tax in Malta where the schemes, are deemed distinct and separate
income-earning activity is performed in Malta from the employees’ other income, and while
(source state), irrespective of their nationality, tax on the gains is deducted at source, the tax
domicile and residence. Where the employ- rate may vary from the progressive one. In the
ees are either resident in Malta or domiciled in case of share options and share award schemes,
Malta, but not both resident and domiciled in tax is charged at a flat rate of 15% on the tax-
Malta, tax would be due on income generated in able value.
Malta and, where applicable, on foreign-sourced
income remitted to Malta. Maltese resident and Additionally, employees who are ordinarily resi-
domiciled employees are subject to tax on their dents but not domiciled, and who are not ben-
worldwide income and capital gains irrespective efiting from a special tax status under a Maltese
of whether it is remitted to Malta or not. tax programme, are subject to a minimum tax
of EUR5,000 per year where the foreign income
Employees and other work permit holders, indi- exceeds EUR35,000 and is not received or not
viduals working in Malta on short-term engage- fully received in Malta.
ments (ie, holding a work permit for up to six
months) and holders of a temporary visa who are Social Security
either retired or based temporarily in Malta and Both the employee and the employer have the
working abroad are considered as expatriates in obligation to make weekly social contributions.
Malta and are subject to tax on any employment These are split equally between the employer
income arising in Malta, subject to double taxa- and the employee. Depending on the condi-
tion treaty relief. tions of the employment and the type of person
employed, whether the employment is part-
Tax on employment income is levied at progres- time or full-time, social contributions will vary
sive rates, starting from 0% to 35% (unless ben- between EUR6.62 and EUR72.08 weekly.
efiting from a special tax programme in Malta, in
which case a 15% flat rate may apply). It varies There are also maternity fund contributions that
depending on the gross chargeable income of the employer is obliged to pay.
the employees and their status, whether they are
married, single, a parent, a resident or a non-res- Maternity Fund Contributions
ident. Tax payments are mainly affected through Private sector employers are obliged to pay
a monthly contribution to the maternity fund
11LAW AND PRACTICE MALTA
Contributed by: Olga Finkel, Ramona Azzopardi, Robert Zammit, Rachel Vella Baldacchino, Patrick Massa,
Christina Borg Debono, Charlotte Attard and Aleksandr Belugin, WH Partners
through the FSS system for each employee. resident persons (including companies) who are
The amount of contribution to be paid depends directly or indirectly owned and controlled by, or
on the category under which the employee falls act on behalf of, a Maltese-domiciled and ordi-
and ranges from EUR0.20 to EUR1.44 weekly for narily resident individual. Such withholding tax
basis year 2020. would be of 15%.
5.2 Taxes Applicable to Businesses Interest and royalties
Corporate Income Tax No withholding tax is due on the payment of
Companies that are incorporated in Malta are interests or royalties by a Maltese company pro-
automatically considered as ordinarily resident vided that the recipients are not directly or indi-
and domiciled in Malta and therefore liable to rectly owned nor controlled by, or act on behalf
corporate income tax on their worldwide income of, a Maltese domiciled and ordinarily resident
at a standard rate of 35%. Foreign companies individual and do not carry trade or business
may also be subject to tax in Malta upon migrat- through a permanent establishment in Malta
ing their tax residency to Malta or if they have a that the interest or royalty income is effectively
place of business in Malta as per a double tax connected to.
treaty.
Other withholding tax
Malta operates a full imputation system of taxa- Maltese financial institutions are under an obli-
tion, whereby when dividends are distributed to gation to withhold 15% of the income derived
shareholders out of the taxed profits of the com- from interest to resident individuals. For invest-
pany, the dividends carry an imputation credit of ment income of collective investment schemes,
the tax paid by the company on the profits so the withholding tax is set in the range of 10% to
distributed. This effectively eliminated the dou- 15% where the payees are resident in Malta for
ble taxation of profits of the company. tax purposes.
Upon receipt of the dividends, the shareholders Value Added Tax (VAT)
may claim a refund of the tax paid at the level of The standard VAT rate in Malta on taxable sup-
the Maltese company. The refund depends on plies is 18%. However, a reduced rate applies
the type of income of the Maltese company, with on certain goods or services. For instance, a 7%
the most common being that of six-sevenths, rate applies on holiday accommodations and the
which brings the effective tax rate down to 5% use of sport facilities, while a 5% rate applies on
upon certain conditions being satisfied. Other essentials such as electricity, printing materials
refunds are the five-sevenths refunds and the and medical accessories. Maltese VAT law also
two-thirds refund. provides for an exhaustive list of supplies that
are zero-rated, including food for human con-
Withholding Tax sumption and pharmaceutical produces. Other
Dividends supplies are exempt from VAT, such as the let-
Distributions of dividends by a Maltese company ting of immovable property (not being holiday
are exempt from withholding taxes in Malta. The accommodations).
general rule is subject to an exception where the
dividends represent a distribution of untaxed 5.3 Available Tax Credits/Incentives
income and they are paid to shareholders who Malta operates a vast number of tax incentives,
are either Maltese resident individuals or non- which are updated and renewed from time to
12MALTA LAW AND PRACTICE
Contributed by: Olga Finkel, Ramona Azzopardi, Robert Zammit, Rachel Vella Baldacchino, Patrick Massa,
Christina Borg Debono, Charlotte Attard and Aleksandr Belugin, WH Partners
time, as well as regimes that make it a compel- expenditures that the undertakings can benefit
ling jurisdiction in which to set up and conduct from as tax credits depends on the size of the
business. Malta has regimes that encourage the beneficiary undertaking, with small undertakings
opening of new businesses as well as support benefiting from up to 30% of qualified expendi-
existing ones. Examples of tax incentives oper- tures, 20% for medium undertakings and 10%
ating in Malta are detailed below. for large undertakings.
Research and Development (R&D) Tax Credit Business Development Tax Credits Scheme
Schemes The aim of this scheme is to support businesses
Aid for R&D projects that are establishing their base of operations in
Companies may claim qualifying expenditures Malta, or to help existing businesses to expand
associated with R&D as tax credits to offset their or to restructure their operations. Tax credits
income tax liabilities. The eligible R&D projects based on the percentage of the qualified costs
must seek to achieve advances in science or are the usual aid measure, but at the discretion
technology. It is not a requirement for the R&D of the Maltese authorities, direct cash grants
to actually be successful to be able to claim the may also be available.
expenditures.
Companies that work in manufacturing, R&D,
The standard tax credit is set at 25% of the eli- international market services, waste manage-
gible expenses for large undertakings, which is ment, industrial solutions or aircraft maintenance
increased to 35% if the beneficiary is a medi- may benefit from up to EUR200,000 over any
um-sized enterprise and to 45% for small enter- period of three consecutive years.
prises. The total support awarded is capped at
EUR15 million per project. The eligible costs that are covered by the
scheme include payroll, relocation, rent, services
Investment Aid Tax Credits provided to the business, licensing and utilities.
This is a comprehensive tax credit incentive
regime that aims to help establish, expand and Patent box regime
develop businesses. Malta has a special tax scheme that is a sys-
tem of tax deductions for qualifying intellectual
Small to medium-sized enterprises and (in property expenditures. In essence, a taxpayer is
certain circumstances) large enterprises may entitled to a tax deduction that is calculated by
benefit from tax credits as the percentage of considering the income that is derived from intel-
qualified expenditures in qualified economic lectual property and the expenditures incurred
activities. Qualified economic activities include for developing the intellectual property.
manufacturing, repair, maintenance, software,
R&D, pharmaceuticals, provision of education, Skills Development Tax Credits
healthcare, hotel services and cultural activities. Malta encourages employers to invest in the
personal development of their employees using
Qualifying expenditure covers both tangible a special tax incentive programme. Companies
assets (expenditures on land, buildings, plant, that invest in their employees’ training are able
machinery and equipment) and intangible assets to benefit from a set of tax credits that are based
(expenditures for patents, know-how and other on a percentage of the costs that the taxpayers
types of intellectual property). The percentage of have incurred when providing training or educa-
13LAW AND PRACTICE MALTA
Contributed by: Olga Finkel, Ramona Azzopardi, Robert Zammit, Rachel Vella Baldacchino, Patrick Massa,
Christina Borg Debono, Charlotte Attard and Aleksandr Belugin, WH Partners
tion to their employees. The maximum tax credit Participation Exemption
allowed per undertaking is EUR1 million. Maltese holding companies that have an equity
holding of 5% or more in either local or foreign
On the other hand, there is also a scheme for companies may benefit from what is known as
individuals called “Get Qualified”, which pro- the participation exemption. This regime allows
vides those following educational, vocational the Maltese holding company to benefit from
or training courses that lead to certification or an exemption on capital gains and income tax
a diploma with a tax credit on their personal liabilities when receiving dividends from the
income tax. Thus, individuals who are paying equity holding, provided that certain conditions
out of their pocket can still recoup some of the are met. The participating holding regime does
costs. not apply on dividends received by a Maltese
holding company from a Maltese subsidiary.
Personal Income Tax Incentives for Highly
Qualified Employees In light of the recent developments in inter-
One of the goals of Maltese fiscal policy is to national tax law and EU measures, Malta has
bring in and retain foreign talent in certain indus- also introduced a new anti-abuse provision
tries; ie, aviation, financial services and assist- conditioning the enjoyment of its participating
ed reproductive technology and gaming. One holding regime. Companies cannot apply for
of the incentive programmes that Malta oper- this regime for income derived from holdings in
ates for this purpose is easement of income tax entities that are located in jurisdictions that the
liability for certain highly sought-after workers European Union has defined as “non-coopera-
that cannot be found other than through hiring tive” for tax purposes. This list is updated twice
from abroad. Non-domiciled persons who are a year and represents the list of jurisdictions
employed by Maltese companies and who have that are deemed to not be fully compliant with
positions in R&D, analytics or innovation, or who the international tax compliance practices and
are managers in these sectors, are able to enjoy measures. As of June 2021, the non-cooperative
a reduced income tax rate of 15% for up to five jurisdictions for tax purposes are:
consecutive years for EU/EEA individuals and
up to four consecutive years for non-EU/EEA • American Samoa;
individuals, and which can, upon application, • Anguilla;
be extended. • Dominica (new);
• Fiji;
Double Taxation Treaties • Guam;
Malta is well known for its highly attractive • Palau;
refund system, which allows the effective utili- • Panama;
sation of capital and reduction of the tax burden • Samoa;
on holding companies. Additionally, Malta has • Trinidad and Tobago;
over 70 double taxation treaties with the majority • US Virgin Islands;
of developed jurisdictions. • Vanuatu; and
• Seychelles.
Tax Refund System
See 5.2 Taxes Applicable to Businesses. This provision does, however, include an excep-
tion, whereby if it can be proven to Malta’s Com-
missioner for Revenue that these entities hold
14MALTA LAW AND PRACTICE
Contributed by: Olga Finkel, Ramona Azzopardi, Robert Zammit, Rachel Vella Baldacchino, Patrick Massa,
Christina Borg Debono, Charlotte Attard and Aleksandr Belugin, WH Partners
sufficient significant people functions in those members of the fiscal unit are not distributing
jurisdictions, then the Maltese holding compa- profits. The lower effective tax rate will be appli-
ny can still benefit from the participating hold- cable immediately, hence resulting in better cash
ing exemption. This ensures that the element flow for the group, as the holding company will
of “substance” is respected when utilising the not have to wait for tax refunds.
Maltese tax system.
Tax-Paying Responsibilities
Full Imputation System The principal taxpayer will be the one responsi-
Malta also operates a full imputation system ble for income tax and thus all the income and
that ensures that dividends are not subject to gains of the members of the fiscal unit will be
economic double taxation. This means that if a allocated to the principal taxpayer. Consequent-
shareholder, whether foreign or local, receives ly, all the deductions, tax credits, refunds, etc,
dividends from a Maltese company, on the prof- will also be allocated to the principal taxpayer.
its that were already taxed, the shareholder will This also includes any rights claimed under dou-
not have to pay income tax again on the receipt ble taxation treaties for subsidiaries located out-
of those dividends. side Malta.
5.4 Tax Consolidation The principal taxpayer will also onboard all the
Malta has recently introduced tax consolidation income tax rights and obligations of the other
rules that are applicable as of year of assess- members of the fiscal unit. Hence it will be the
ment 2020. only one required to file income tax returns,
reducing compliance costs.
Under these rules, groups of companies can
elect to be treated as a single fiscal tax unit, In 2018, Malta also introduced a VAT Grouping
with the principal taxpayer being the holding for Financial Services and Gambling Industries,
company. Both subsidiaries resident in Malta whereby companies forming a group of com-
and outside can form part of the tax unit. Only panies may be considered as one fiscal unit for
subsidiaries in which the parent company holds VAT purposes.
at least 95% of the shares will be eligible to form
part of the fiscal unit. 5.5 Thin Capitalisation Rules and Other
Limitations
All the entities in the group must have the same Maltese legislation does not contain provisions
financial year dates. Additionally, the holding regarding thin capitalisation rules.
company must be either incorporated in Malta,
be resident in Malta, or perform some activities In terms of the Income Tax Act, expenses are
in Malta. It can also be a Maltese trust or founda- only allowed as deductions against charge-
tion if it has elected to be treated as a company able income if such expenses are incurred
for the purposes of income tax. wholly and exclusively in the production of the
income. Accordingly, interest paid by a person
The fiscal unit will benefit from a streamlined and on any borrowed money may be deducted as an
simplified income tax determination and will be expense against chargeable income as long as
able to use the refund system. In addition, the the amount borrowed by a person is used in its
reduced income tax rate stemming from the business activities to generate trading income.
refund system is allowed even if some of the
15LAW AND PRACTICE MALTA
Contributed by: Olga Finkel, Ramona Azzopardi, Robert Zammit, Rachel Vella Baldacchino, Patrick Massa,
Christina Borg Debono, Charlotte Attard and Aleksandr Belugin, WH Partners
Through the transposition of the EU Anti-Tax tion Act recently passed into Maltese law. This
Avoidance Directive (the “EU ATAD Directive”) act explicitly states that Malta’s Commissioner
in 2018, Malta introduced new interest limitation for Revenue has the power to pass subsidiary
rules, which entered into force in January 2019. items of legislation regulating the applicability
The new interest limitation rules implemented of transfer pricing and advance pricing agree-
the maximum limitation on the amount of deduc- ments in Malta. Thus, Malta has formally initi-
tions that a company can claim in relation to ated the incorporation of transfer pricing rules
borrowing costs: either 30% of the taxpayer’s into its domestic tax system. However, as of the
earnings before interest, taxes, depreciation and time of writing, there have not been any subsidi-
amortisation (EBITDA) or EUR3 million, which- ary pieces of legislation promulgated regulating
ever is higher. transfer pricing in Malta.
Exemptions The Maltese Income Tax Act provides that
Exemptions apply to the above-mentioned limi- income derived by a Maltese company and
tations of 30% where taxpayers are allowed to attributable to a permanent establishment out-
deduct exceeding borrowing costs up to EUR3 side of Malta shall be calculated in accordance
million. Standalone entities may fully deduct with the arm’s-length principle. The Act also pro-
exceeding borrowing costs when they are vides that any artificial or fictitious scheme with
not part of a consolidated group for financial the purpose of reducing the amount of tax due
accounting purposes and have no associated by the taxpayer shall be cancelled or modified
enterprises or permanent establishment; as well by the Commissioner in order to eliminate the
as members of a consolidated group, when the tax advantage obtained.
taxpayer can demonstrate that the ratio of its
equity over its total assets is equal to or higher The provisions in the Income Tax Management
than the equivalent ratio of the group. Act refer to the situation where a non-resident
person carries on business with a resident per-
Borrowing costs are described as interest son and the transactions are not made in accord-
expenses on all forms of debt, payments under ance with the arm’s-length principle, producing
profit participating loans, imputed interest, the a different amount of profit for the non-resident
finance cost element of finance lease payments person. In these situations, the Commissioner
and other costs economically equivalent to inter- for Revenue will impose taxation based on the
ests. ordinary profits that might be expected to arise
from the business.
Taxpayers may also carry forward exceeding
borrowing costs without time limitation, and Patent Box Regime
carry forward unused interests for a maximum In 2019, Malta announced a patent box regime
period of five years. and references are made to the transfer pric-
ing method in order to determine the income
5.6 Transfer Pricing or gains, providing that the transfer pricing
Maltese legislation does not contain detailed method in terms of the OECD’s Transfer Pricing
provisions regarding transfer pricing rules yet. Guidelines for Multinational Enterprises and Tax
However, mentions of the arm’s-length prin- Administrations is to be used.
ciple can be found in the income tax legisla-
tion. Additionally, a new Budget Implementa-
16MALTA LAW AND PRACTICE
Contributed by: Olga Finkel, Ramona Azzopardi, Robert Zammit, Rachel Vella Baldacchino, Patrick Massa,
Christina Borg Debono, Charlotte Attard and Aleksandr Belugin, WH Partners
Reference to the arm’s-length principle is also from entities resident in jurisdictions that are on
made in many of the double tax treaties entered the list of EU non-cooperative jurisdictions will
into by Malta with other countries, which often not be able to benefit from the exemption.
includes in the provisions on associated enter-
prises that both countries that are parties to the CFC Rules
treaty have the right to adjust the amount of the Through the EU ATAD Directive, Malta intro-
tax charged in transactions involving related par- duced controlled foreign company (CFC) rules,
ties, when the profits are different from those providing that where an entity or a permanent
that would be made between independent establishment does not have its profits subject
enterprises. to tax or is exempt from tax, it shall be treated as
a CFC if the taxpayer holds, directly or indirectly,
5.7 Anti-evasion Rules more than 50% of the voting rights, or 50% of
A general anti-abuse provision exists under the capital, or is entitled to receive more than 50%
Income Tax Act that disregards any artificial or of the profits; and the corporate tax paid on its
non-genuine schemes that aim to obtain a tax profits by the entity or the permanent establish-
advantage by avoiding, reducing or postponing ment is lower than the difference between the
the tax liability of the taxpayer. tax that would have been charged on the entity
or permanent establishment under the Income
The Income Tax Act also provides for anti-tax Tax Act and the tax paid on its profits by the
avoidance provisions with respect to the par- entity or permanent establishment.
ticipation exemption regime, whereby dividends
received from a foreign entity would fall within An entity or a permanent establishment con-
the exemption only if the foreign entity is resi- sidered as a CFC shall have its non-distributed
dent or incorporated in an EU member state, if income included in the tax base of the Maltese
it is subject to foreign tax of at least 15%, or if company, when an arrangement or a series of
it does not derive more than 50% of its income arrangements are considered non-genuine.
from passive interest or royalties. Some exemptions may be applied.
Where none of the conditions mentioned are Exit Taxes
satisfied, the exemption would apply only if the Exit taxes were also introduced in Malta and the
equity holding in the foreign entity is not a port- taxpayer may be subject to tax on capital gains
folio investment and the foreign entity or its pas- when assets are transferred:
sive interest or royalties are subject to at least
5% foreign tax. Other general anti-abuse pro- • from the head office or permanent establish-
visions are found in the EU ATAD Directive as ment in Malta to another permanent estab-
implemented in Malta. lishment in an EU member state or a third
country and where Malta no longer has the
In 2021, the Maltese Parliament has introduced right to tax capital gains from the transfer of
a bill amending the participation exemption by such assets due to be transferred;
including an additional anti-abuse/limitation • when a taxpayer transfers its tax residence
rule. The bill is currently in its third reading and from Malta to another EU member state or
is expected to be introduced into law in the com- third country and the assets do not remain
ing months. The exemption will be amended to effectively connected with a permanent
include a clause whereby dividends received establishment in Malta; or
17LAW AND PRACTICE MALTA
Contributed by: Olga Finkel, Ramona Azzopardi, Robert Zammit, Rachel Vella Baldacchino, Patrick Massa,
Christina Borg Debono, Charlotte Attard and Aleksandr Belugin, WH Partners
• where the business carried out from Malta the aggregate turnover in Malta of the under-
through a permanent establishment is trans- takings concerned exceeded EUR2.3 million,
ferred to another EU member state or to a and each of the undertakings concerned had a
third country and Malta has no right to tax turnover in Malta equivalent to at least 10% of
capital gains from the transfer of such assets. the combined aggregate turnover.
Additionally, the Multilateral Convention to 6.2 Merger Control Procedure
Implement Tax Treaty Related Measures to Pre- The Office for Competition in Malta, being the
vent BEPS came into force in Malta in April 2019, competent body for competition law in Malta,
with the main purpose to modify double tax invites parties that believe a transaction might be
treaties and establish measures to combat tax subject to notification to pre-notification meet-
avoidance. The changes made by the Multilat- ings at the outset. Such meetings are not man-
eral Instrument, to be applied, need to consider datory, but are usually helpful to determine the
when the instrument came into force for both nature and quality of data available and required.
states part of the double tax treaty. The notification process is mandatory, and must
be notified within 15 working days of conclusion
of the agreement, announcement of the public
6. COMPETITION LAW bid or acquisition of a controlling interest.
6.1 Merger Control Notification The notification form largely corresponds to
Mergers and acquisitions become subject to European Commission Form CO. The form is
notification in Malta when they qualify as a “con- annexed to the relevant regulations. Unless a
centration” and when the two turnover thresh- notification qualifies for the simplified, shorter
olds set out in the applicable regulations are procedure, a Phase I decision must be issued
met. A concentration encompasses the follow- within six weeks, unless the authority has made
ing transactions: a request for information or for submission of
remedies. If, following the end of the Phase I
• mergers between two or more previously period, a decision is taken to launch Phase II
independent undertakings; proceedings, such a decision must be reached
• the acquisition by one or more undertakings within four months of the initiation of the inves-
of direct or indirect control of the whole or tigation.
part of one or more other undertakings; and
• full-function joint ventures. 6.3 Cartels
There are rules to govern anti-competitive agree-
A concentration must meet the “control” crite- ments and practices under the Competition Act
rion. This is met where the concentration leads (Chapter 379 of the Laws of Malta). To a large
to a lasting change of control, or where rights extent, these reproduce the rules found in Arti-
or contracts confer decisive influence on com- cles 101 and 102 of the Treaty on the Functioning
position, voting or decisions of the organs of an of the European Union (TFEU), with applicability
undertaking. to anti-competitive agreements and practices
that have an effect on Maltese markets. Such
Once the presence of a concentration is estab- agreements and practices are prohibited where
lished, this is notifiable to the competition they have the object or effect of preventing,
authorities where, in the preceding financial year,
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