Transparency of the Regulatory System
Malta has transparent and effective policies and regulations to foster competition. It has revised labor, safety, health, and other laws to conform to EU standards.
International Regulatory Considerations
Malta’s regulatory system is derived from the acquis communautaire, the body of laws, rights, and obligations that are binding on all EU member states. Consequently, trade and investment relations with third countries are an EU responsibility under the Common Commercial Policy. However, with respect to investment, Malta does have some competence in certain investment areas. In particular, where the EU does not have or is not negotiating an investment protection agreement, Malta can hold or negotiate one unilaterally. Malta also maintains competence in the areas of transport and portfolio investment, as well as corporate taxation.
Malta became a WTO member on January 1, 1995. However, all draft technical regulations to the WTO Committee on Technical Barriers to Trade are now made at the EU level.
Malta ratified the Trade Facilitation Agreement on October 5, 2015 and is in full compliance with its implementation commitments.
Legal System and Judicial Independence
Malta’s Commercial Code regulates commercial activities and related legislation, such as the Banking Act, the Central Bank of Malta Act, and bankruptcy. In cases of bankruptcy, the court appoints a curator to liquidate the assets of the bankrupt company, organization, or individual, and distributes the proceeds among the creditors.
The Maltese judiciary is independent, and the courts are divided into superior courts, presided over by judges, and inferior courts, presided over by magistrates. Inferior courts have jurisdiction over minor offenses of a criminal nature and small civil matters. The judiciary traditionally functions through the Criminal, Civil, and Constitutional courts. The First Hall of the Civil Court hears commercial cases. Malta has a Criminal Court of Appeal and a second Court of Appeal for all other matters. The Constitutional Court has jurisdiction to hear and determine questions and appeals on constitutional issues. There are also a number of administrative tribunals, such as the Industrial Tribunal, the Rent Regulation Board, and the Board of Special Commissioners for income tax purposes. Malta adopted the European Convention of Human Rights as part of Malta’s domestic law in 1987.
The Maltese judiciary has a long tradition of independence. Once appointed to the bench, judges and magistrates have fixed salaries that do not require annual approval. Judges cannot be dismissed, except by a two-thirds vote in the House of Representatives for proven misbehavior or the inability to exercise properly their function. The Maltese Constitution guarantees the separation of powers between the executive and the judiciary and a fair trial.
Laws and Regulations on Foreign Direct Investment
Several laws govern foreign investment in Malta. The Income Tax Act of 1948 (as amended in 1994) establishes a single rate of taxation of 35 percent on income for limited liability companies in Malta. In certain qualifying cases, this rate falls to five percent through a system of tax refunds on dividends paid. The Business Promotion Act authorizes the Government of Malta to allocate fiscal and other incentives to companies engaged in manufacturing (including software development), repair, or maintenance activities. The Malta Enterprise Act of 2003 enables Malta Enterprise to develop and administer incentives and other forms of support to liberalize and update legislation relevant to FDI. The Companies Act of 1995 regulates the creation of limited liability companies. The Companies Act also provides for the establishment of investment companies with variable share capital (SICAVS) and companies with share capital denominated in a foreign currency. The Malta Financial Services Authority Act of 1989 established the Malta Financial Services Authority (MFSA), which is responsible for the regulation of banking and investment services in Malta. The Investment Services Act of 1994 regulates investment services in the banking and insurance sectors. In 2018, Malta enacted three new acts related to blockchain. The Malta Digital Innovation Authority Act (MDIA) establishes the Authority that oversees and regulates innovative technologies, along with the Innovative Technology Arrangement and Services Act (ITAS) that regulates Innovative Technology Arrangements and Services, such as the software and coding used in digital ledger technology (DLT), smart contract and related applications, together with the technical administration and review services. The MFSA was entrusted with the Virtual Financial Assets Act (VFA) that regulates Initial Virtual Financial Assets Offerings and delineates their licensing requirements.
Competition and Anti-Trust Laws
Malta is a free-trade, open-economy country. The government does not approve or restrict any FDI, as long as it complies with EU and national regulations. Malta Enterprise reviews FDI before granting any incentives to a private entity or business. A due diligence process is carried out prior to approving greenfield investments. The MFSA undertakes the filings and regulatory screenings on financial investments.
The Office for Competition, currently housed within the Malta Competition and Consumer Affairs Authority (MCCAA), is the office tasked with protecting competition in Malta. The Maltese Competition Act is modeled on EU competition law. Latest amendments to the Competition Act in 2011 strengthened its deterrent effect by widening the decision-making powers of the Office for Competition and further aligned both the substantive and procedural rules with those existing under EU law.
In 2017, the Office for Competition reviewed plans for a merger between telecommunications companies Vodafone Malta and Melita. When the parties were unable to satisfy the MCCAA’s requirements, they terminated their plans to merge.
Expropriation and Compensation
The Government of Malta, in exceptional instances, expropriates private property for public purposes. In such cases, the government must take action in a non-discriminatory manner and in accordance with established principles of international law. Investors and lenders of expropriated property receive prompt, adequate, and effective compensation. Since 1993, the government’s Property Division had started accepting expropriation requests by public bodies only if the requests were accompanied by the compensation due to the landowners. In 2002, this was made law. As a result of this, no expropriation by presidential decree could be made at the request of the government if the decree did not also include the deposit for the compensation due. In recent years, government has appropriated land mainly for widening of roads; however, no particular sectors are at risk for expropriation or similar actions, and no laws force local ownership.
ICSID Convention and New York Convention
Malta signed the Convention on the Settlement of Investment Disputes (ICSID) in 2002. Malta is also a member of the New York Convention of 1958 on the recognition and enforcement of foreign arbitration awards (UNCITRAL).
Investor-State Dispute Settlement
There have been no significant investment disputes over the past few years involving U.S. or other foreign investors or contractors in Malta. In a limited number of cases, U.S. investors have identified difficulties in obtaining fair legal resolutions, especially in disputes with Maltese parties. Courts in Malta are reported to be slow in processing cases. Reforms to increase efficiency in the judicial system may be part of a long-rumored Constitutional reform effort. In May 2019, the Maltese government published the State Advocate Act to implement reform in the justice sector, notably to split the Attorney General’s (AG) dual government advisory and prosecutorial roles. As of June 2019, this act has not yet passed parliament.
International Commercial Arbitration and Foreign Courts
Malta honors the enforcement of foreign court judgments and foreign arbitration awards. Bilateral investment treaties, which Malta has with several countries (see section 3, Bilateral Investment Agreements), provide for the acceptable methods of settling disputes connected with citizens of those countries.
The Companies Act and the Commercial Code Bankruptcy in Malta and the Set-off and Netting on Insolvency Act of 2003 regulate bankruptcy. The latter provides for the set-off and netting due to each party with respect to mutual credits, mutual debts, or other mutual dealings that are enforceable whether before or after bankruptcy or insolvency.
The Maltese insolvency law regime distinguishes between bankruptcies of a person or a commercial partnership other than a company. When a company cannot pay its debts, it may initiate insolvency proceedings. In such a case, the court examines carefully whether the financial situation of the company justifies its winding down or whether it could remain operational and continue to pay its debts.
Any officer of a company who, in the twelve months prior to the deemed date of dissolution, concealed assets or documents, disposed of assets, or otherwise acted in a fraudulent manner may be criminally liable. Separately, courts may find any such officer civilly liable for the act and require him or her to pay back to the company any moneys due. The law also provides for proceedings in case of wrongful trading by directors and fraudulent trading by any officer of the company.
According to latest data collected by the World Bank Doing Business report, resolving insolvency in Malta generally takes three years and costs ten percent of the debtor’s estate, with the most likely outcome requiring the sale of the company as a piecemeal sale. The average recovery rate is 38.8 cents on the dollar. Globally, Malta stands at 121 in the ranking of 190 economies on the ease of resolving insolvency.
The Malta Association of Credit Management (MACM) is a members-owned, not-for-profit organization, providing a central national organization for the promotion and protection of all credit interests pertaining to Maltese businesses. More information at: https://www.macm.org.mt/ .