Malta to attract foreign CEOs with 15% tax on salary contracts up to €5 million

Offshore companies lured with 15% tax rate for CEOs earning up to €5 million.

Malta is working to attract the highest-paid executives in the world with a 15% fixed tax rate for chief executives who earn not less than €75,000 in a year, or up to €5 million over the course of their employment in Malta.

Additionally, there will be a zero-rate tax on any additional income above the taxable €5 million received over the duration of their contracts.

The ‘highly qualified persons rules’ were published this week in yet another new move by the government to attract high-profile industries, hedge funds and financial services practitioners, seeking cheaper tax bases.

The eligible offices for the 15% tax rate will be foreign-domiciled chief executives, investment traders and analysts, actuarial professionals, and marketing and investor relations heads.

But the law includes a vague ‘safety clause’ that allows the government to withdraw the tax rate if the beneficiary’s stay in Malta is “not in the public interest” – which apart from public safety and national security also includes ‘morals’.

It will be the minister responsible for justice – in this case, Carm Mifsud Bonnici – to determine whether a beneficiary’s stay in Malta is not in the public interest.

Malta has a favourable tax regime for foreign companies but is often criticised for acting as a tax haven.

The island levies a 35% corporate tax on the income of Maltese companies, but the tax paid to the inland revenue department is allowed to be marked down as a credit to the shareholders who receive dividends. So when dividends are paid to shareholders, they can claim as much as 85% in refund from that tax.

For example, if a company’s subsidiary in Malta makes €100 million in profits and is taxed at 35%, leaving €65 million, shareholders get six-sevenths of the tax – €30 million – refunded: effectively leaving €95 million for the parent company.

But finance minister Tonio Fenech has in the past vehemently dismissed press reports in Der Spiegel that Malta was used as a tax haven by major German corporations like Lufthansa and BASF.

Fenech says Malta’s tax regime is EU-compliant but Der Spiegel has claimed Malta is one of German industry’s preferred tax locations ever since it joined the EU in 2004. In addition to BASF, Lufthansa and Puma, who already have Maltese branches, Deutsche Bank was also said to be considering opening a subsidiary on the island.

Der Spiegel's infographic on how Malta's offshore tax regime works.

Malta’s tax haven image

Malta’s ongoing struggle with its “tax haven” image was also featured in a report carried by The Australian, which said the Commonwealth Bank of Australia (CBA) had clawed back €38.9 million from its offshore tax rate in Malta.

Using its Malta-based subsidiary Newport, which controls CommBank Europe, CBA employed just six members of staff and recorded a net profit of €181 million after a tax credit of almost €12 million.

Additionally, the financial services authority (MFSA) had employed American lobbyists SNR Denton to “polish Malta’s image” with the US government because the island risks blacklisting in an as-yet-unratified Senate bill on tax haven abuse.

Malta is listed in the bill as one of 34 tax jurisdictions. In 2009, the US lobbyists were paid €69,875 in consultancy fees.

The ‘Stop Tax Haven Abuse Act’ seeks to authorise the US government to use “special measures against foreign jurisdictions, financial institutions, and others that impede US tax enforcement”.

Carl Levin, the co-sponsor of the proposed law, claims the 34 countries, including Malta, peddle “secrecy in the way other countries advertise high-quality services… That secrecy is used to cloak tax evasion and other misconduct.”

Malta feared the proposed legislation could jeopardise ratification by the Senate of a tax treaty with the US, which was signed last year. SNR Denton director Ron Platt was quoted as saying: “The country also believed it should not be on the blacklist anyway… If it was a straight-out vote on Levin, I think it would be tight, but if there’s an alternative that the Treasury Department doesn’t object to, then that would prevail.”

The Financial Times says Malta held as much as €28 billion in foreign assets in 2010 according to Central Bank statistics. “Maltese private bankers claim the pick-up in interest in their country’s banking system stems in part from an exodus of money leaving Switzerland where banking secrecy laws are under threat due to UK and US authorities’ scrutiny of offshore accounts.

“The wealthy are coming out of Switzerland. They’re worried about appearing on a list somewhere,” Mediterranean Bank chief executive Mark Watson was quoted as saying.

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I assume that none of these schemes apply to Maltese citizens - which continues to make Maltese second class European citizens in the EU. Then there is the fact that the people in parliament from both PL and PN are the ones that benefit mostly from the laws that allow Maltese firms to attract foreign tax schemes - they literally own these firms. This is one of the main reasons why it pays so much to be in politics in Malta - you then get to legalize activities for the benefit of your firm that would otherwise be illegal. And finally - if any of you readers had to use any scheme to reduce your tax - you will be labelled as criminals and they will destroy you and your familiy - throw you in prison and confiscate your property. Well we seem to be getting away with murder at the moment. Let's see how long this will continue.
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I would eagerly entrust Minister Carm Mifsud Bonnici to decide on public safety and national security. A big question mark exists, however, when it comes to the vague term "morals". We should explain to prospective beneficiaries of this tax scheme that by morals we mean Catholic morals ! And following the said Minister's intervention in the divorce debate, this does not bode well for liberal minded foreigners. When the Permanent Residence Scheme was still in operation, I found it very hard to explain to foreigners that when the law spoke about a dependent, it was speaking solely of a married wife. Even if the chap in question had been with his female partner for over forty years. Not to mention that married meant only heterosexual couples. So I hope we explain things in their perceived moral perspective. Unless the authorities are ready to turn a blind eye to morals, the same way that they find no qualms in earning millions from the payment services offered by Malta to porno websites!!! That is the state of affairs in this country run by the mock Christians.
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Mossa tajba hafna ghal pajjizna imma, sakemm ma nreghxuhomx wisq
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A N D what is Malta getting for all this largesse and 'tax haven" status? Nothing much it appears!!! If CBA employs six people only to make such high "paper" profits after such low taxation - what is Malta's purpose for such low tax?? Certainly not even employment. It's Ok to have nice big international names and billboards in Malta - it allows the Government propoganda machine to talk about what they bring to Malta. BUT at the end of the day - what is actually going into "inland" revenue is as shallow as the (maltese) land itself! No wonder the Maltese haven't been able to see any real benefits accruing for Malta in terms of infrastructure(by and large it's of third world status- apart from some ad hoc projects here and there that cannot be sustained and fall into disrepair after a few years- one exception is the privatised airport) and employment - who knows what the real rate of employment is in Malta with most of the population working in two or three jobs- mostly cottage industry stuff- then there is the rate of unemployment-most are not even registered - what's available for women? etc etc Malta needs some real policy in these areas the likes of which have not been seen - probably ever! The employment in Lufthansa is a good sign - is it sustainable if it weren't for such taxation arrangements. And are the wages paid comparable with those in other EU countries? Or is the Government ready to accept anything so it can claim that work has been created? AND what are the policies of the Opposition on such matters? Who knows?