High Commissioner Zammit Tabona said this Agreement was instrumental for bilateral relations to be strengthened and demonstrated good practice in the global financial sector.

Bermuda Premier Cox said that this signing would solidify Bermuda’s relationship with the European Union and marks the 12th Tax Information Exchange Agreement with an EU member state.

Both signatories confirmed the agreement included all standard means to ensure due process was followed in tax information requests to both countries respectively, including, for example, provisions to protect confidentiality of information. The TIEA will also adhere to public policy considerations and provisions related to protecting legal privilege.

Maltatoday 5 December 2011

A digital games company has chosen Malta to develop a family oriented digital game aimed at children, that will be launched in the US.

The makers hope the game will unite children and families worldwide since it will be a massively multiplayer online game, which can be accessed by thousands of users.

The company, TRC Family Entertainment Ltd, is investing $6 million in Malta and relocating its intellectual property, which costs a further $18 million, here.

The company is based at the Domestica Complex in Valley Road, Birkirkara.”

Malta’s key attractions were the local talent pool and support by Malta Enterprise, which is taking on a 15 per cent shareholding of the company. Other areas which had been considered were San Francisco, London and Canada, CEO Paul Taylor said.

Finance Minister Tonio Fenech said this investment is a signal to the global digital games industry sending the message that Malta is a good location for the development of digital games and is serious in its efforts to increase talent and skill.

He said that Malta Enterprise will also be supporting the company with on the job training and bursaries.

The company currently has a workforce of nine people, which should go up to 20 by the end of the year and 100 within two years. Many of the employees will be Maltese.

The company has also attracted many industry heavyweights including the former CEO of Sony Computer Entertainment Europe Chris Deering, who the government has appointed Malta’s special envoy for digital games. He will be promoting Malta as an investment destination in this field.

The Times of Malta 22 November 2011

Mr Fenech said the new scheme will not attract people to come here simply to buy property but people who would also contribute to the local economy.

Under the new rules, the property bought by foreigners had to be worth a minimum of €400,000, up from the previous minimum of €116,000.

Moreover, people buying property under the new scheme had to spend a minimum of 90 days per year living in Malta.

Mario Borg, from the Inland Revenue Department, explained that there were going to be two sets of rules, one for EU nationals and one for third country nationals.

EU nationals had to spend a minimum of €400,000 on the property or €20,000 a year in rent.

They had to have health insurance recognised across Europe and pay an application fee of €6,000 to cover fees the government will be incurring through a sub-contracted international firm to do the ‘fit and proper’ test to check whether the applicant is ‘desirable’.

The application forms can only be submitted by Maltese warrant holders registered with the inland revenue department as authorised people.

They had to reside in Malta for a minimum of 90 days per year and pay 15 per cent tax on foreign income and normal tax on any local income. The minimum tax payable was €20,000 a year and €2,500 tax per dependent.

Non-EU residents also had to keep renewing their visa every three months or enter into a contract with the government with a financial bond of €500,000 and €150,000 per dependent, to effectively purchase permanent residency after five years, when the money will become the government’s.

Their minimum tax payment will be € 25,000 a year.

Existing permanent residents, Mr Borg said, will not lose their status unless they sold their property.

Applications received or copies of promises of sale signed before yesterday and which were not processed because the scheme was suspended will have the €6,000 application fee waived.

Mr Fenech said that the previous scheme was designed 25 years ago and it was being abused.

There were people who purchased property and never visited. These were not contributing to the economy. There were also situations of people, Chinese, renting property to each other. The biggest problem was that the scheme was being marketed wrongly with some even promising EU citizenship.

Its name had been creating legitimate expectations under EU laws on what it meant to be a permanent resident. It also meant that people who purchased property were entitled to other rights given to Maltese citizens.

The potential future liabilities were great and detrimental to the country. The situation had not been acceptable and although nine months to come up with a new scheme was a long time, a scheme that was in Malta’s best interests had now been drawn up.

Mr Fenech said that there is going to be a rigorous process and strict control measures to ensure that people attracted to Malta are ‘desirable’.

The Times 15 September 2011

He said the new schemes will cater for old and new sectors according to needs that had been shown up by experience. A consultation process will be launched next week.

An indefinite High Net Worth Individual Scheme, which would be the closest to the old PRS, would specifically apply for EU, Swiss and EEA citizens.

Another scheme would be more expensive for non-EU residents but effectively give participants freedom of movement and eventually EU residence status.

The Global Mobile Permanent Scheme would be for non-EU citizens, for four years and non-renewable. It would cover foreigners working in North Africa on three-year contracts who would want to bring their families to nearby Malta. It would be cheaper but participants would know they would not get the benefits of EU citizenship, although it should have beneficiary effects on the sale of property.

Another scheme would be indefinite and would give Schengen Area benefits.

Two other schemes, for EU and non-EU citizens, would be intended to incentivise artistes, singers and professionals who were also high-network individuals but would not participate in another scheme.

Mr Fenech said he would like to have the necessary legislative amendments to financial legislation pass through all stages before the House rose for the summer recess, even though the workload had suddenly become rather heavy, so that the new schemes would quickly come into effect.

He acknowledged that the sector had had to wait for the PRS or kindred schemes to be given life, but Malta would now be able to boast a much more comprehensive package compared to those of competing states.

At the start of his speech the minister sought to dispel any notion that real estate business was in any way dependent on the PRS. The number of properties that had been sold under the scheme was only a small percentage of the total, he said.

The PRS had been established in 1998 to attract high-network residents who would come to Malta, buy property and live here with all the beneficial spin-off effects on the economy. But it had not achieved the desired results because it had in-built weaknesses, such as not obliging participants to reside in Malta and therefore not leaving the benefits.

The criteria establishing the old scheme 25 years ago had not been updated. Participants had been expected to remit to Malta more than €23,000 a year, buy a permanent residence of more than €69,000 for an apartment or €116,000 for a house, or rent for €4,000 a year. Even Maltese families could fit into such brackets.

It was true that a number of people in Malta used to depend on the scheme, but Malta had been selling itself too cheaply. This had been sending a negative image of the country, with the effect that the desired high-network individuals stayed away because it was too cheap.

Mr Fenech said that before deciding to suspend the PRS, necessarily abruptly, the government had considered raising thresholds and reviewing the scheme, but wider-ranging problems had stopped it doing so. In accepting participants under the old scheme the government would have had to incur much greater expenses than revenue, effectively subsidising the high-network individuals.

Analysis showed that the government would have been obliged to give what it had never intended to through liabilities that would have to be paid.

Especially in 2010 advertising had done a lot of damage because it had been sold for ulterior motives, such as according EU or Maltese citizenship. Some properties had actually been sold under these false pretences. This gave participants legitimate expectations which the government would not have been able to change without facing expensive lawsuits.

Other schemes had been creating confusion which the government wanted to avoid. One of the main issues was that any person working in Malta for more than four years, such as nurses, would be eligible for residence. Even if sustainable, this could not be considered in the first five years.

There had also been conflict with other schemes, such as when a foreigner registered a work contract in Malta, paid taxes and therefore acquired certain rights. All this had had to be addressed so that the state would be clear on what it was giving for what. It had never been intended that participants buying into the scheme would think they were also buying to the EU and Schengen.

Mr Fenech said it was true that the construction industry was important for the economy, but not that it had been shaken by the suspension of the PRS.

The old scheme’s main intended benefit, fiscal, had dropped drastically because most participants were yielding an annual revenue of just €4,000 when they should be bringing significant remittances into the country and paying 15 per cent thereon. Additionally, all their importation for their residences was certified duty-free.

He said he agreed with comments made earlier by Jesmond  Mugliett that the administration should have done better monitoring to ascertain that participants were really physically coming to Malta.

With Malta’s access to the EU a substantial number of benefits had become applicable. Direct taxation from the scheme in 2010 had amounted to €5.6 million, but these had come mainly from a small number of high network individuals.

The scheme’s much bigger potential had had to be drastically reviewed.

Mr Fenech said that some countries sold their citizenship very expensively, such as €4 million in Switzerland. Even at EU level there were a number of important thresholds.

In 2010, 313 non-EU and 90 EU people had applied for the scheme, as against 86 non-EU and 344 EU in 2005. The 2010 applicants came predominantly from China, South Africa and Russia, with some buying property in Malta as insurance against having to leave their countries. They had no real intention to reside and spend.

So long as the government certified participants for tax reasons without them staying and spending, but only buying, Malta had been giving them permanent status after five years, placing unsustainable burdens on the government. Another shortcoming was that the certification was being given without the physical presence being checked.

Permanent residence allowed foreign resident equal treatment for employment and conditions of work, grants for education, social assistance and insurance and any other public service, including health. If a 50-year-old foreigner came to Malta with wife and two children, normal health care cost an estimated €100,000 – nowhere near the contribution the country was receiving. The participant could be obliged to get health insurance cover, but this would no longer be compulsory after five years.

Mr Fenech said the government appreciated the scheme’s importance, but must be careful that incentives for positive discrimination did not get out of hand. Foreigners were desired to buy, stay and spend, but not at the cost of the Maltese taxpayer.

One possibility would have been to insist on an up-front contribution that would be kept by the state if the individual stayed on longer than five years, but would be reimbursed if they left before five years.

Up to 2010 there had been 1,042 permanent residents, of whom more than 50 per cent paid less than €4,000 and 90 per cent paid less than €10,000. And only 14 had bought residences in that year.

It had also been found out that some buyers of real estate achieved permanent residence status and then sub-let to others when they moved on.

A relatively-new but very welcome phenomenon was the majority of foreigners among the 6,000 employed in online gaming, who needed to rent or buy property. All EU citizens could buy their first property without restriction, while non-EU citizens could be given a permit to buy.

The Times 16 June 2011

The treaty applies to persons who are residents of Malta or the USA, or both. A person is a resident of a state if liable to tax therein by reason of domicile, residence, citizenship, place of management, place of incorporation or any similar criterion. Pension funds and certain other organisations, such as philanthropic ones established and maintained in one of the states, also qualify as residents.

Despite the above, a citizen or a long-term resident of a state may, for 10 years following the loss of such status, be taxed by that state.

The treaty identifies categories of income and determines which state is entitled to tax each category. Generally, such entitlement is either conferred on the state of residence (SR) or the state of source (SS) of the income. Where both states claim jurisdiction to tax, the tax paid in one of the states is credited against the tax payable in the other.

The most important income categories identified are:

Income derived by an enterprise is taxed in the SR, except for that income derived from a permanent establishment (PE) situated in the other state. A PE is a fixed place of business through which the business of an enterprise is carried on;

Dividends are taxed in the SR of the shareholder.

However, dividends may also be taxed in the SR of the company which pays them. Where the company is resident in the USA, dividends are taxed at a rate not exceeding five per cent if the shareholders beneficially own 10 per cent of the voting stock. Where the shareholders own less than 10 per cent, dividends are taxed at a rate not exceeding 15 per cent. Where the company is resident in Malta, the only tax paid is the company tax levied on the profits out of which the dividends are distributed.

Specific rules apply to dividends paid to pension funds and by US Regulated Investment Companies and US Real Estate Investment Trusts, in which case the tax claimed in the USA is generally 15 per cent.

Interest and royalties are taxed in the SR of the recipient. However, such income may also be taxed in the SS, but the tax rate shall not exceed 10 per cent of such income, except in the case of interest which arises in the USA and is contingent in that it does not qualify as portfolio interest under United States law, in which case tax charged is 15 per cent of the gross amount of the interest.

Gains from the alienation of real estate including shares in companies owning real estate are generally taxed according to the law of the situs.

Employment income derived by a resident of a state from the other is taxable in the former if the employee is present in the other state for a period which does not exceed 183 days in the year and the remuneration is paid by an employer who is not a resident of that other state and the remuneration is not born by a PE of the employer in the other state.

The above will apply if residents of Malta and USA are “qualified” persons. In general, qualified persons are resident individuals, pension funds, certain tax exempt organisations and companies, generally where the shares are listed, and regularly and primarily traded on a stock exchange in the SR, and less than 25 per cent of the companies’ income accrues to persons who are not qualified persons.

The treaty will clearly cause US investors to consider Malta as a feasible gateway into Europe, particularly because on repatriation of funds into the USA, Malta will not withhold any tax.

The Times 24th March 2011

Details were unveiled by Malta Enterprise executive chairman Alan Camilleri at a seminar on industrial research and innovation funding.

The event outlined information on existing funding mechanisms and other support for companies conducting research, development or innovative projects.

The range of funding options available to local firms include support provided through the Eurostars Joint Programme, a pan-European initiative through which companies from over 30 participating states are brought together to work on collaborative projects that comprise market-driven research and development. Malta is a recent member.

Eurostars call coordinator Peter Chisnall explained how Maltese companies could benefit from the availability of funding and the collaborative aspect of the projects which lead to technology transfer and resource sharing.

Project evaluation was generally completed within 14 weeks – one of the shortest timeframes for European projects.

Dr Chisnall said participants in Eurostars projects generally stated the projects led to increased turnover and employment.

Malta Enterprise executive chairman Alan Camilleri stressed the importance of research, development and innovation for businesses and industries to ensure their competitiveness and long-term sustainability, whether this leads to a new product or service, or even to the development of a new process that enables the company to become more efficient.

Other speakers at the seminar, which was attended by over 80 stakeholders in the industry, included representatives from the Chamber of Commerce, Enterprise and Industry, the Malta Council for Science and Technology, the Competitiveness and Innovation Programme, the University of Malta and the Industrial Property Registrations Directorate.

The Sunday Times 23^rd January 2011

The study by three assessors, led by the International Monetary Fund’s former assistant director Piero Ugolini, revealed “strong progress” over a similar test last carried out in 2003.

The Basel principles are issued by the Basel Committee on Banking Supervision, which provides an international forum for regular cooperation on banking supervisory matters. It aims to enhance understanding of key supervisory issues and improve the quality of banking supervision worldwide.

Presenting the findings to Prime Minister Lawrence Gonzi, Mr Ugolini said the assessment showed significant improvement in the MFSA’s overall compliance, mostly due to transposition of EU Directives when Malta joined in 2004.

He said the report also highlighted the resilience of Malta’s financial sector, especially in these times of shocks.

The assessment, carried out last year, covered the MFSA’s sections on banking, insurance and securities. Mr Ugolini said that although Malta’s overall rating was positive, there were some issues which the authority still had to address, primarily the problem of recruitment of staff.

He said MFSA’s recruitment was being hindered by an administrative circular issued by the Office of the Prime Minister in 2005. As a result of this circular, with imposes a “cumbersome process”, the authority’s recruitment process takes several months, with the obvious effect this has on the workload for the authority’s staff.

The report also recommended changes to its legislation in the case of dismissal of a board member whereby the reason is publicly disclosed.

Mr Ugolini’s report said the MFSA was compliant in 21 of 26 principles and largely compliant in the rest. The principles range from independence and transparency to capital adequacy; from liquidity risk to supervisory approach.

In 2003, the authority was compliant in 11 principles and largely complied in 12. Then, there was only one sector in which the MFSA was materially non-compliant.

The MFSA’s banking area saw the most substantial progress since the last report, Mr Ugolini said.

He criticised the fact that the law did not specifically state the MFSA was the competent authority in the supervision of the Maltese financial sector.

The Convention guarantees full transparency and exchange of information on tax issues and reaffirms Malta’s commitment to adopt recognised international standards where transparency and exchange of information is concerned. In fact, the negotiations took into account the OECD Model Tax Convention on Income and on Capital, recent tax treaties concluded by Malta and the USA and the tax treaty policies of both countries.

Minister Tonio Fenech stated that “The Convention serves both Malta and the US as a vehicle to encourage genuine business and trade between the two countries, while eliminating the risk of treaty shopping. As a member of the European Union, Malta offers a unique advantage to US companies looking to set up or expand operations in Europe, the Middle East and Africa. The Convention provides businesses from both countries with a platform for growth, both for their own business operations and for the deepening relationship between the two countries.”

“Malta has been developing and reforming its economic, legislative (including tax legislation) and regulatory structures to take advantage of the opportunities afforded by European Union membership. In the process the country has adopted world best practice standards as demonstrated by its highly successful financial services model for supervision. This has enabled Malta to widen and deepen its economic base and exploit its position as a highly regarded business hub in the region. This agreement should help Malta to attract a higher level of American investment thus incentivising job creation further.”

Minister Fenech concluded that “this agreement, this DTA, will be another important milestone in the relations between Malta and the USA and will contribute to deepen and strengthen the already very good relations between the two countries.”

(as published by the Department of Information)