Over a year ago the world woke up to the famous Panama Papers, a great scoop by the International Consortium of Investigative Journalists.

All the information revealed was information held in secret, signifying that all those clients who had used Mossack Fonseca to set up their offshore structures had the clear intention of hiding these structures from their respective tax authorities. Apart from the possible tax evasion, these people may also have been using these structures to launder money.

Earlier this year, another group of journalists tried to emulate this great scoop and published the Malta Files. At that time, I wrote an article in which I described these journalists as irresponsible, and their sensationalist reporting at the expense of a nation as despicable.

Unfortunately, six months later, the same situation seems to have emerged with the ICIJ publishing the Paradise Papers. One of the jurisdictions targeted is Malta.

The sensationalism surrounding the latest scoop is harming the re­pu­tation of countries. This, again, is irresponsible in regard to Malta, because all the information on people or corporations who chose Malta to set up their structures is in the public domain, fully available not only to journalists but also to any tax authority around the world. It can be obtained by simply opening the Register of Companies website and doing a search.

But this is not stated by the journalists in question. The public has therefore been deceived.

I am absolutely nauseated by articles about the taxation system in Malta, including by Maltese journalists themselves, which insist that Malta a tax haven. Also, the use of Malta structures is not synonymous with money laundering, as is constantly implied.

There may be some crooks around but I have full trust that the controls and anti-money laundering compliance procedures adop­ted by serious and professional operators and financial institutions would highlight such abuse.

The tax system

I will explain why one cannot call Malta a tax haven. The origins of our tax system date back to 1948, when Malta was a British colony. The tax system introduced was cut and pasted from the UK tax laws and was based on two major concepts, the ‘imputation system’ and ‘progressive taxation’. Both these concepts are still the basis of our existing tax system.

The UK partially abolished the imputation system in 1999, but it existed in Germany until 2001, in Italy until 2004, in France and Finland until 2005, and in Norway until 2006. Probably, these governments wanted to further tax the shareholder on receipt of dividends, which had up to then been exempt.

‘Imputation’ means that taxes paid by the company are imputed as having been paid by the shareholder. As a result, no further tax is levied on shareholder dividends. Throughout the years, the Maltese government decided not to tax the shareholder further, irrespective of nationality. Some OECD Member States still apply the full imputation system while others apply it partially.

Therefore, a Malta holding company, as the shareholder of a foreign subsidiary, may have its dividend income from the subsidiary exempted from tax by virtue of the application of the ‘participation exemption’ rule (explained below). This is not tantamount to tax evasion, nor is it money laundering.

After Malta joined the EU, its tax laws were amended to include tax legislation that exists in major EU countries. Malta’s tax laws are built on the models that exist in the UK, The Netherlands, Spain, Luxembourg and even Germany. How can someone infer that Malta is a tax haven? I appeal for this phrase not to be used loosely.

‘Tax havens’ are jurisdictions where companies are not subject to tax and where the information about the ownership of these companies is usually kept secret, either through bearer shares or because the information is not disclosed in the jurisdiction’s public registry.

I wrote “not subject to tax”, not that the companies “do not pay tax”. The latter means the government has no right to tax them, while being subject to tax means the companies are indeed taxable. This is the official terminology used in tax treaty language. A company may be “subject to tax” but may be exempt if that company qualifies for the exemptions listed in the law.

It is obvious people of ill-repute may abuse the system. But this does not make the jurisdiction itself one of ill-repute

These exemptions are not pertinent solely to Malta but are found in most EU countries (such as the UK, Netherlands, Spain and Luxembourg) and they are in directives issued by the EU. Since joining the EU, Malta has incorporated them into its tax system. I specifically refer to the ‘participation exemption’ introduced in our tax legislation in 2007 in full consultation with the EU and with full approval of the Council of Finance Ministers.

Imputation concept

Our tax system is a very efficient one as it relates to the income stream of a Malta company. A Malta-based company has two income streams: that derived from being a holding company and that derived from exercising a trading activity.

Holding company income would normally derive from dividend income and capital gains. The tax treatment of this stream of income is different from that applied to a trading activity.

First of all, every Maltese company is subject to income tax at the rate of 35 per cent, with no exceptions. Should dividends be earned by a Maltese company from subsid­iaries that qualify as a ‘participating holding’ (adopting one of the criteria established by law) then the company has a right to apply for ‘partici­pation exemption’ on the dividend, once the anti-abuse provisions are adhered to. This means the Maltese company is exempt from tax on such dividends received.

The exemption system is identical to that found in Dutch, Spanish and Luxembourgese tax laws, as well as those of other countries. So why are certain journalists pointing a finger at Malta when we have the same tax treatment for dividend income as exists in other OECD member countries? Is there an ulterior motive here?

With regard to the income stream derived from a trading activity, as mentioned above, all Maltese companies are subject to tax at 35 per cent. Here, the ‘imputation system’ and ‘progressive taxation’ concepts apply. The income earned from a trading activity is not only subject to the tax but the Maltese company is also ‘charged’ – it actually pays in 35 per cent of its chargeable net profit. The shareholder is then entitled to a partial refund of tax through the ‘imputation’ concept. All information is disclosed.

Foreign jurisdictions

Let me now look at these structures from the point of view of the tax authorities of the jurisdiction where the ultimate shareholder is resident. Malta’s tax system was scrutinised by the EU during its membership application process and, after we made amendments to our legislation, was approved by the EU when we joined the bloc. Furthermore, the European Parliament’s PANA committee has just confirmed in its report that Malta is not a tax haven.

A foreign tax authority should see to it that shareholders of Maltese companies declare dividend income in their jurisdiction so as to be taxed accordingly. The partial tax refund should also be declared. In some EU jurisdictions, this refund is charged tax at a normal rate and in others it is charged at the rate that applies to dividend income.

This means the tax authorities in the foreign jurisdiction have the right to claim far more tax from these individuals or companies in their own country than would otherwise be paid if they were taxed at 35 per cent in Malta, with no refund of tax.

Furthermore, Malta, by virtue of its domestic law, does not charge withholding tax on the payment of dividends and interest to a non-resi­dent of Malta. This means the foreign tax authority would have more income to tax in its jurisdiction.

With the Exchange of Information clause found in the treaties, and with all the information about the company and its shareholders being made public, how dare some journalists call Malta a tax haven and a source of money laundering? This is terribly irresponsible.

It must also be understood that the countries with which Malta has signed a tax treaty have thoroughly analysed our tax system and are fully aware of the imputation system as well of the partial tax refund. This means there is more to tax at their end. If they were not comfortable with our system, they would not have signed the treaty.

High-net-worth individuals or international corporations have a choice of where to set up their international holding companies in the EU. Some have chosen Malta primarily because they do not want their structure to be in a tax haven jurisdiction – they want it to be in a serious onshore jurisdiction.


Corporate structures in Malta are totally transparent in that all information is in the public domain.

The cost of setting up a Maltese structure is far below the cost of doing so in other jurisdictions that are in direct competition with Malta. But had these individuals or companies wanted to hide such structures, they would never have chosen Malta.

Malta has over 70 double taxation treaties, the majority of them with the most important countries of the OECD, such as the US, Germany and all other EU countries. All these treaties contain the Exchange of Information clause as required by the OECD, which obliges the Maltese authorities to disclose all information about any company and its shareholders to the other jurisdictions when asked.

In addition, all companies incorporated in Malta must present all their documentation to the Register of Companies, including the full identity of the shareholders and directors. All this information is immediately uploaded to the regis­try’s website and is available to the public at large for download.

Malta further adheres to the Common Reporting Standard established by the OECD. This means all practitioners, including banks, ser­vice providers, trust companies, etc, have to submit to the Maltese tax authorities the ultimate shareholding of the Maltese structures that they manage or deal with.

I repeat, therefore: it is completely irresponsible of journalists to call Malta a tax haven. By naming important individuals who have set up Maltese companies, and whose names were obtained from the public domain, the sensation is created that these individuals are evading tax or laundering money. This is absolutely not the case. All the people or corporations that I know who have set up such structures have either declared them or live in another jurisdiction and are not subject to tax in the first place.

All Maltese service providers and financial institutions have an obligation at law to report all information about the shareholders, directors and even related parties in all transactions carried out by Maltese companies. Why would someone who wants to evade tax, who does not want the tax authority of his jurisdiction to know about his Maltese structure, choose Malta when all the information about his structure is completely available in the public domain? It just does not make sense.

I appeal to journalists not to write sensationalist articles. It is obvious that people of ill-repute may abuse the system, in the same way as they do in Italy, the US or Switzerland. But this does not make the jurisdiction itself one of ill-repute. I just wonder what the ulterior motive is.

Francis J. Vassallo is a financial service practitioner and the former Governor of the Central Bank of Malta.

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