Small island... big investment

Reuben Buttigieg describes how Malta has much to offer prospective investors in the Mediterranean region

Situated in the centre of the Mediterranean, Malta is seen by certain corporate strategists as the gateway to the European and North African markets.

Malta has a stable economy which has been constantly evolving during the years. Unemployment in Malta is approximately 5% and the inflation rate is normally around 2%. The stable economy, together with a good infrastructure and a healthy business environment, is generating a considerable amount of investment in Malta, particularly in the financial services sector. In order to continue the evolving process and to maintain the economy at European standards, in recent years the Maltese Government and its agencies have set up various programmes which encourage and assist investment in Malta.

The application of Malta to join the EU and the bringing in line of Maltese legislation with the 'acquis communitaire' has contributed to the increasing interest in Malta as an investment location.

A considerable amount of resources are being directed towards the manufacturing sector. Currently, Malta has over 250 foreign manufacturing companies and some 400 Maltese owned manufacturing companies. Despite the interesting substantial investment made by large multi-nationals such as ST Electronics and Baxter, Malta mainly targets and attracts investment from SMEs.

Investment interest in Malta usually kicks off when investors gain knowledge of the incentives that Malta offers to encourage investment. For example, the Business Promotion Act provides incentives for those industries demonstrating growth and employment potential that are engaged in manufacture, repair, improvement or maintenance activities. The provisions of the act also provide fiscal incentives to qualifying companies. For example, certain qualifying companies can have tax rates as low as 5% for a number of years.

Moreover, there are various investment tax credits as well as tax incentives to the manufacturing and related service companies. Proper and efficient tax planning could lead to minimal taxes being paid for a number of years. Malta has also a number of tax treaties with various countries (including the UK) which ensure that profits generated in Malta are either exempt from tax in the country of residence of the investor, or that country will provide a tax credit for the Malta tax spared as a result of the incentives Malta provides.

Malta also offers a number of non-tax incentives to certain manufacturing and related service companies. For example, the Malta Development Corporation (MDC) provides industrial buildings at competitive rates of rent. Companies through the MDC may also benefit from financial incentives such as loans at subsidised rates. The MDC is empowered to determine and decide on the entitlement of such incentives.

Competitive advantage

Companies in Malta have a competitive advantage over competitors in other Mediterranean countries. Many companies are using Malta's geo-strategic location to generate business in the Mediterranean basin. This is further facilitated by the excellent communications infrastructure and the efficient air and sea connections. One of the large companies that recently decided to benefit from the so-called hub concept is Lufthansa Technik.

Malta has also established an excellent international reputation in the financial services sector, through the highly proficient services and the tax incentives offered. This is demonstrated by the investments made by HSBC, Barclays and Volksbank amongst other banks and financial institutions. Moreover, Malta is widely known for its international business sector which, when coupled with the wide double tax treaty network, provides a spectrum of international tax planning opportunities. Malta is now building the same level of reputation in the manufacturing sector which currently represents approximately 25% of the gross domestic product.

Many companies already present in Malta have increased their investment and their operations significantly. Such companies, like ST Microelectronics and Playmobil, were a further confirmation that whilst incentives are important to attract investment, once established there, companies quickly understand and appreciate the benefits of operating from Malta. Certain investors are of the opinion that if a company needs qualified and highly skilled labour, at a reasonable cost, then Malta is an ideal location. Apart from the labour force, Malta also offers a wide range of professionals. Such professionals mainly qualify at the University of Malta or other local institutes. However, there is also a relatively high number of people who qualify from foreign universities or professional bodies, generally British universities or professional bodies.

Malta in recent years has also evolved as a marketing and sales centre. The marketers in Malta have found themselves analysing and assessing Mediterranean and European markets. For example, certain international banks operating in Malta are marketing their products in other Mediterranean countries through Malta. It is estimated that there is a market of 220m people in the Mediterranean region. Maltese marketers have been engaged by various locally-based as well as foreign-based organisations to market their products/services using Malta as a base.

Some foreign investors have demonstrated their interest in Malta but would prefer not going through the process of the setting-up phase. Acquisitions remain, in all countries and across all industry sectors, the quickest means of completing investment.

Despite this, we have seen more mergers and joint ventures than acquisitions in Malta. This is mainly because most companies in Malta are not listed on the Malta stock exchange as most companies are private limited liability companies. In view of this, acquisition becomes a harder task to achieve. However, foreign investors are realising all the more that setting up in Malta is a relatively quick process.

Others have preferred entering into collaboration agreements with Maltese companies, or otherwise utilising their services, in order to penetrate the Maltese and the Mediterranean market. This is another way of penetrating or growing in the Mediterranean market, but setting up in the country itself would have the further benefits of high quality production at reasonable costs, the incentives offered and the other opportunities offered by Malta through Malta's close position to different markets in Europe and North Africa.

Reuben Buttigieg ACCA is director of a Maltese accountancy and management consultancy firm.