The tax regime for corporate businesses is set to change, following pressures from the European Union, Minister for Finance Clyde Caruana said Wednesday.
During the launch of the National Strategy for financial services, he said that the challenges created by the Covid-19 pandemic together with the Ukrainian war are an important factor that is adding to the burdens.
He said that the governmental entities responsible for the financial sector have gone through radical changes in a matter of a few months in order to satisfy EU requirements related to money laundering.
The minister said that the EU is moving ahead with revising the minimum level of taxation for corporate businesses.
He said that as a result of this, Malta also needs to reflect the changes in its current tax system with a total reform.
The minister explained that this reform will take place over the span of around three years with a gradual implementation “because I don’t want to be the man that sends the government into bankruptcy”.
Caruana said that the government will discuss its plans with the European commission and, if approved, the changes will be submitted to the financial industry “to get more feelers”.
He said that currently only 30 percent of businesses are paying corporate tax; however, “we can no longer entertain the situation” with the other 70 percent.
He added that the government will also be seeking the opposition’s position on this matter.
The strategy launched by the government is a comprehensive national strategy for its financial services industry, aimed at strengthening the country’s position as a reputable and innovative international financial centre.
The strategy was developed by the Malta Financial Services Advisory Council (MFSAC), a group consisting of over 100 professionals from the industry, government, and regulators. The MFSAC analysed the financial services industry in Malta and identified key opportunities and weaknesses to address through concrete actions.
It focuses on five vertical pillars, including banking and payments, insurance and pensions, capital markets, wealth management, and fintech and AI. It also includes horizontal enablers such as taxation, HR and education, and sustainable finance.
While presenting the strategy, Pier Massa, the Managing Partner at M2 and consultant to the MFSAC, acted as a moderator and described the ultimate goal as positioning Malta as a reputable jurisdiction for financial services, known for its competitiveness, security, and credibility. Massa emphasised the importance of innovation and responsiveness, and highlighted the need for a regulatory framework that is both flexible and comprehensive, supported by a strong technology foundation.
The strategy for Malta is to improve its service delivery and brand experience in the financial services industry by leveraging its foundation as a destination for innovative fintech applications. This will be achieved through speed, standards, simplification, specialisation, and sustainability. Speed will be achieved by improving efficiency in all aspects of service, regulation, and support, as well as upgrading technology systems and infrastructure. Standards will be established through innovative legislation, defined standards, consistency, and transparency. Simplification will be achieved through technology-enabled standardised business processes for ease of use and seamless workflow. Specialisation will focus on identifying competitive advantages and developing an ecosystem to fully service these areas. Finally, sustainability will ensure the strategy is realistic, recognising today’s realities and challenges, while also committing to addressing issues and opportunities in an agile and focused manner.
Key strategic thrusts were also identified, with the aim of supporting an effort to change Malta’s regulatory, financial, and legal systems. The thrusts include streamlining regulations across multiple sectors, standardizing payments, consolidating identity systems, modernizing taxation, reforming financial law, and building talent. These initiatives aim to create a more efficient, consistent, and compliant system, with a focus on leveraging technology and talent to drive participation and compliance.
The strategy involves over 175 initiatives that vary in scope, scale, and complexity. Around 10% of these initiatives are considered vital and will require significant capital investment over multiple years, anchored by digitalization in key areas. The majority of initiatives require talent, focus, and persistence, along with collaboration and coordination across multiple entities for consistent and effective implementation. The MFSAC will ensure alignment and consistency in implementation and remain a forum for open discussion, while separate Steering Committees will handle implementation of initiatives or groups of initiatives due to their complex nature.
The local market for financial services in Malta needs to become more competitive by driving innovation with the objective of providing citizens and businesses with better, cheaper, and more affordable financial services. There is a need to work with incumbent industry players and potentially require policy re-orientation, funding, incentives, and market intervention by regulators. Initiatives could include the promotion of open architecture and the use of APIs in financial services, as well as the development of shared platforms among market participants. The adoption of these initiatives may break down barriers to competition and remove fragmentation in standards, similar to the UK’s Open Finance.
As an example of how this can work Massa turned to the potential for Malta to enter the aircraft leasing market, given its existing aviation cluster and favorable business environment. The Ministry of Finance and Employment would need to develop a specialized legal and taxation framework around aircraft leasing, including a ‘leasing act’ to combine relevant regulations and expanded double-taxation relief. Additionally, there is a suggestion to set up a ‘one-stop’ National Leasing Agency to develop the aircraft leasing industry in Malta. This opportunity is in early stages of development but has the potential to progress quickly, with the aim of establishing Malta as a new player in the aircraft leasing market.
The MFSAC worked closely with the Financial Intelligence Analysis Unit (FIAU), the Malta Financial Services Authority (MFSA), the Malta Business Registry (MBR), and private bodies such as the Malta Bankers Association, the Malta Institute of Accountants, and the Institute of Financial Services Practitioners.
Joseph Zammit Tabona, Chair of the Malta Financial Services Advisory Council, said: “This strategy is the fruit of all stakeholders working together towards a common objective. While not an easy change to implement, it will transform the industry and fully leverage the sector’s potential on the island.”
Malta’s financial services industry has faced challenges in recent years, including being grey-listed by the Financial Action Task Force in July 2021. However, the MFSAC sees the opportunity to target a new era of digitally enabled financial services and reassert Malta’s presence in a globally competitive marketplace.
The public can access the National Strategy for Financial Services on the FinanceMalta website.
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