Having obtained EU membership in 2004, Malta has spent the last decade repositioning itself within Europe as a financial services centre that can punch above its weight...
Having obtained EU membership in 2004, Malta has spent the last decade repositioning itself within Europe as a financial services centre that can punch above its weight.
The island nation has been successful because it has been willing to adapt to the changing needs of the global economy, while maintaining a strong standard of regulation.
John Stivala is the general manager of JLT in Malta. Asked about the effectiveness of the Financial Services Authority, he says: “The MFSA is very approachable. If we need to speak with them we can set up a meeting within two weeks. They are a firm regulator, they apply the rules, and we are able to discuss issues that might come up from time to time.”
“We have a good working relationship with them. If you try to break or bypassing the regulations you are not going to succeed, they are very concise and detailed with regards to due diligence enquiries on shareholders and new applicants for business. This safeguards the jurisdiction against any bad publicity.”
Tax refund
Apart from the robust regulation, Malta has another advantage over competing domiciles. It is a low-cost, low-tax regime, and shareholders of companies within the country are eligible for a 6/7ths tax refund.
A public company in Malta is taxed at a standard, flat rate of 35 percent. In most cases, the tax refund of a company shareholder is 6/7th of the tax paid by the company on the profits out of which the dividend is distributed.
“This applies to all companies,” says Stivala. “The tax paid by the company is paid on behalf of the shareholders, so the tax paid is imputed in full to the shareholders when they declare their own tax return. Shareholders can benefit from this 6/7ths refund.”
“Company directors will decide in advance of the end of the financial year whether they intend to recommend a dividend distribution, then approval from the regulator is required for these dividends. Once that is obtained the financial status is finalised and the tax can be paid to the authorities. Within 14 days a refund is obtained by the shareholders.”
As with the vast majority of European jurisdictions, insurers in Malta will soon be required to demonstrate compliancy with the Solvency II directive. How are companies in Malta coping with the adjustment?
Dermot Finnerty, general manager of Aon Risk in Malta, says that companies have been making strides to comply with the requirements in time for 2016.
Stivala says: “I think we are coping quite well. We have some opportunities with Solvency II because we are a relatively low cost jurisdiction. When Solvency II comes in there will be an increase in operating costs with the additional reporting and the solvency calculation, so as a lower cost jurisdiction compared to Luxembourg and Ireland, there is some opportunity to win some business from the other domiciles.”
“With regards to offshore jurisdictions, we are attractive because fronting costs would increase for European fronting insurance if the captives are located offshore reinsurance captives. Many jurisdictions are not Solvency II compliant yet, so there is an opportunity in terms of getting that business.”
“The authorities are pushing licence holders and captive managers to come up to speed, they are issuing questionnaires to see how license holders are coping, they are organising interviews and one on one meetings.”
Despite the ongoing eurozone crisis, insurers in Malta are not struggling with with reduced liquidity and capital flows, according to Stivala.
“I don’t think there is such a great exposure in Malta. The crisis seems to have peaked some years ago, although we can’t say we’re out of it yet. There hasn’t been any negative impact reported locally, so I don’t think there should be any problems going forward.”
The future
If Malta hopes to maintain its pace of growth, local investment is essential, particularly when it comes to fostering local talent for the insurance industry.
Stivala says: “There is always more that can be done, but there has been a local chartered insurance institute branch since the 1980s.”
“Many insurance practitioners sit for their ACII exams here. There is also a degree which includes banking and insurance, so there is a lot that has been done in the last two decades.”
“We have the right teachers and the right syllabus to take our jurisdiction forward in line with the business and opportunities that come to Malta. The government have recently introduced new RSVP regulations, and we need expertise in that area. A lot has been done but there is more that can be done to keep us competitive in terms of human resource expertise.”
