Setting up an office in Malta? Here’s the hiring data you need to know

Aside from the many lifestyle benefits that come with living and working in Malta (the Mediterranean climate, the food, the high standard of living, to name but a few), the country has gained an enviable reputation as being a jurisdiction that creates a positive environment for business across a range of sectors. 

From its membership of the EU to low rates of taxation and company costs, to fair and manageable employment laws, setting up operations in Malta can deliver a range of benefits to your business.

For instance, Malta currently has managed to keep inflation relatively low at around 4.1%, compared to 7.5% across the rest of the Euro area (as at March 2022). In addition, the country is a republic based on a stable, democratic system of government, with the governing Labour party being returned to power with an increased majority in March 2022 in what was widely regarded as a fairly non-eventful general election.

The fact that English is one of Malta’s two official languages (many people speak Italian and/or French as well) makes it an easy place to do run and do business (most businesses use English primarily), as do the country’s high educational standards, meaning that Malta has a well-educated, skilled workforce, particular in the technology, information and communications sectors. 

The physical location of Malta is also beneficial for business, as it is easily accessible from Europe, the Middle East and North Africa, while being part of the Schengen Area means that it is straightforward to travel to and from Malta. 

What are your obligations if you operate a business in Malta?

For anyone considering opening an office or a business in Malta, it is important to have an understanding of the legislation concerning the rights of employees and employer obligations (see: https://papayaglobal.com/countrypedia/country/malta/ for more info).

A key element is the obtaining of a PE Number (Permission to Employ), which is required in order to be able to hire workers and deduct tax and social security contributions from employees’ wages. It is a relatively straightforward process to be issued with a PE number, although the precise documentation that is required will vary depending on the type of business and the sector in which you operate. 

Benefits

Malta has a social security system that is funded through contributions by employers and employees (including people who are self-employed). The range of benefits that these contributions help to pay for include: maternity leave and benefits; sickness benefits and medical assistance; injury benefits and pensions; and more.

In addition, Malta has a minimum wage, which of 1 January 2022 is set at €182.83 per week (€9507.16 per annum) for people 18 years of age and over. 

Payroll contributions

In Malta, both employers and employees are required to make Social Security contributions, with the rate being determined by the age of the employee and the annual wage paid.

As of January 2022, employer payroll contributions are 10% on annual salaries up to €25,986, or a flat rate of €49.97 per week for annual salaries exceeding €25,986 per year (provided the employee is born after 1.1.1962). Employees also pay Social Security contributions at the same rate.

This is significantly lower than the world’s highest rate jurisdictions (Mexico 43.72%, Russia 38.5% and South Korea 24.84%), but higher than the lowest rated countries South Africa, Georgia and Macedonia (2%, 2% and 0% respectively).

Leave

There is legislation in place regarding all aspects of employee leave in Malta. 

Employees who work full-time 40 hours a week and are entitled to receive 216 hours of paid annual leave. This does not include public holidays (there are 14 a year in Malta) and is adjusted on a pro-rata basis for employees who work less than 40 hours weekly. Unless employment is terminated, the minimum leave period of four weeks cannot be replaced by other allowances. 

The Wage Regulation Order (WRO) regulates employee sick leave, but where this isn’t the case, all employees are entitled to two weeks’ sick leave per year. At the end of two weeks, additional sickness benefits may be provided through Social Security.

Maternity leave in Malta is set at 18 weeks, commencing 4 weeks before the due date, with employees being required to take a minimum of 6 weeks’ leave after a child’s birth. The initial 14 weeks of maternity leave is paid by employers at 100% of regular salary; after this, leave is paid by Social Security.

There is no statutory paternity leave in Malta, but there is an entitlement of 4 months’ parental leave until a child reaches the age of 8 (provided the employee has been employed for 12 months consecutively).

Other forms of statutory leave to which employees are entitled in Malta include marriage leave, bereavement leave, jury service leave and court witness leave.

Termination process

Malta has in place a series of regulations regarding the termination of employees. How these are to be carried out depend on the employee’s status and length of service.

A fixed-term contract can be terminated by an employer for business or personal reasons, or as a result of worker misconduct (in which case a warning needs to be given in advance). 

An employee can be terminated for just cause, redundancy, or due to reaching the age of retirement. The amount of notice that is required to be provided depends on the length of the employee’s service, with the maximum being 12 weeks (however, it is possible that an employee receives payment in lieu of notice). 

Malta has no statutory laws in place about severance pay.

Other benefits to doing business in Malta

Setting up a business in Malta is relatively simple and there are low incorporation costs. In addition, the country has many double taxation treaties in place, meaning foreign-owned and operated entities are not taxed twice on the same income.

A further benefit to setting up an office in Malta is the tax refund system, which refunds a proportion of the tax paid on profits (after dividends have been distributed) if the owner of a company set up in Malta is not resident and domiciled in the country.

Depending on whether the company’s profits are based on trading or are passive, this refund scheme essentially creates a highly competitive net effective tax rate of 5% or 10%.

This article is brought to you by Alexander Robertson