The last few years have seen a number of Maltese companies set up shop in Malta’s fellow ex-British colony in the Mediterranean, Cyprus, in sectors spanning tech, real estate, and telecoms.
The similarities between the countries go beyond the geographic and historical, extending to the positioning each country has adopted to attract foreign capital.
Tourism, financial services, and iGaming are major industries for both European Union countries, and both offer a low tax rate that can be highly attractive to multinational companies looking to set up tax-efficient structures.
Maltese companies’ profits are subject to the top rate of income tax, 35 per cent. However foreign-owned companies may be eligible for a refund, typically of 6/7ths, creating an effective corporate tax rate of five per cent.
This, local business operators claim, creates an unlevel playing field on the local market, as competing with companies paying that much less tax is practically impossible.
In an ironic twist, Maltese businesses have wised up, and are now investing heavily in Cyprus, where they can avail of its 12.5 per cent corporate tax rate, which is one of the lowest in Europe.
In comments made to BusinessNow.mt, a Malta Chamber of Commerce, Enterprise and Industry spokesperson said the Eastern Mediterranean island also has no succession taxes and offers a tax exemption on gains made from the disposal of securities – making it a highly attractive destination for investment, especially for those who cannot make use of Malta’s rules – such as the Maltese.
“Additionally, the similarities Cyprus shares with Malta makes it easier for local companies to expand to Cyprus than to other countries,” they continued, “while its attractive Start-up Visa Programme could be another factor.”
Malta’s own visa for start-ups is currently being developed, which will extend a favourable residency duration for founders and key employees together with their immediate families.
“With respect to the tech industry,” The Malta Chamber representative continued, “feedback collected from our members identifies Cyprus as an ideal jurisdiction to expand in, particularly because of the ease of doing business and connectivity with the Middle East and Asia.”
Asked whether these same advantages could not draw foreign investment away from Malta, the reply was that ease of doing business and reducing unnecessary bureaucracy remains key to ensuring the country remains competitive, as is the need to focus on better banking facilities and services.
“Revisiting our visa programmes and schemes to attract foreign workers, particularly highly skilled and professionals, to ensure that what we are offering is competitively attractive, should also be on high on our agenda. In addition, we should also be looking towards initiatives which incentivise businesses to invest their money and re-invest their profits in Malta.”
As for Maltese companies expanding to Cyprus, a new market always brings with it the element of venturing into the unknown.
“It is very important to be fully conversant with the economic climate of the country and how it could affect business, clarity on business registration and related regulation, clarity on tax implications, as well as awareness of cultural differences,” The Malta Chamber suggested.
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