Malta Is Setting Its Sights High and Offshore

According to Edward Scicluna, chairman of the Malta Financial Services Center, adaptation has started and the center’s laws and regulations are already based on EU law.

SATURDAY, APRIL 24, 1999 By Stephanie Apap Bologna

MALTA HAS big plans for its fledgling financial center and it is not setting itself any low standards. By 2010, the small island in the Mediterranean, which is targeting investors in Italy and eventually the Middle East, would like to be mentioned in the same sentence as such regional offshore centers as the Channel Islands and Luxembourg. At the crux of Malta’s financial ambitions is a desire to attract fund managers by offering low operating costs — specifically, rents and salaries — rather than fiscal incentives.

David Franks, chief executive of Blevins Franks International, a financial advisor, recently moved a large portion of its administration operations to Malta from Guernsey. He said rental costs — annual office rental rates in Malta of about 37 liri ($100) per square meter, compared with £225 ($360) per square meter in Guernsey — were a crucial factor. Of course, there are some fiscal incentives as well. Collective investment funds licensed under Malta’s investment law are tax-free or, if the fund waives its local tax exemption and charges a 25 percent withholding tax on income, nonresidents can claim back the tax in full or in part. Nonresidents are not taxed on dividends, and listed securities, including funds, are free from capital-gains tax. Efforts to establish a regional offshore center took off in 1994 with the creation of the Malta Financial Services Center, an autonomous regulatory body. Since then, and boosted by the liberalization of financial services for Maltese nationals, many foreign investment funds have sought secondary listings on the Malta Stock Exchange. Among the 109 funds licensed in Malta are 32 Fidelity Investments mutual funds.

Malta recently introduced insurance legislation that increases the range of financial vehicles available. Middle Sea Valletta Life Insurance was the first to offer a unit-linked investment policy — an investment fund with an insurance wrapper — at the beginning of the year. The usual offshore delights — discretionary portfolio management, trust and corporate services, multicurrency checking and deposit accounts and private banking — are also available.

A breakthrough in Malta’s development as a financial center came this month, when the government sold its remaining 67.10 percent stake in Mid-Med Bank PLC, one of the island’s largest banks, to HSBC Holdings PLC, which thus became the first global bank to commit to the island.

“When considering there are centers like Dublin, it has been thought that there is little logic in adding another location,” Mr. Flight said. “But there is a pick-up of interest in Malta, and HSBC demonstrates that.” Malta is also keeping an eye on British government measures on Jersey and Guernsey, two of the largest centers for trust services in Europe.

Howard Flight, a British member of Parliament and joint chairman of the fund manager Investec Guinness Flight, is critical of London’s pressure on the Channel Islands. But he said Malta could benefit indirectly.

“If people are looking for another place, then they might consider Switzerland,” he said. “But Switzerland has no trust law, and uses the law of another country — while Malta has its own trust law.”

One of the greatest challenges to Malta’s financial center will be to adapt to the island’s ambition of becoming a member of the European Union. According to Edward Scicluna, chairman of the Malta Financial Services Center, adaptation has started and the center’s laws and regulations are already based on EU law. In his opinion, EU membership will bring the island’s center closer to emulating Dublin and Luxembourg.

It is unclear when Malta will join the EU, however. It was being considered for membership by 2002, but political dissent on the issue resulted in a change of government in 1996, with the leftist Labour Party then suspending Malta’s EU application. Another election, in September, brought the rightist Nationalist Party back to power, and with it a revival of EU membership negotiations.

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