Malta’s reliance on its attractive tax regime to attract foreign business places it in a position that is vulnerable to political developments in other countries, and the potential loss of this competitive edge is “indeed worrying”, according to economist Kristy Debono.
However, she believes that by focusing on other elements of Malta’s value proposition, the country can diffuse the impact of international tax reform, and ensure that it keeps attracting high quality businesses to set up here.
The publication of the annual landmark EY Attractiveness Survey has shown that Malta is once again increasing its attractiveness to foreign investors, reversing the trend seen over the last few years. However, corporate tax reform was at the top of foreign companies’ concerns, a response to global developments which saw major countries’ views coalesce around the implementation of a global minimum tax rate.
Earlier this year Finance Minister Clyde Caruana had revealed a planned overhaul for the entire corporate tax regime to move away from the current imputation system.
More recently, as energy around the issue seems to have abated and momentum lost, Minister Caruana shelved the plans, saying Malta “will not jump the gun” given that the international appetite for setting a minimum corporate tax rate has waned.
Speaking to BusinessNow.mt, Dr Debono says it is “perfectly understandable” for the Malta Attractiveness Index to show that 71 per cent of the respondents consider Malta’s corporate tax regime as a major selling point to attract more and sustain foreign direct investment (FDI), and that uncertainty about its sustainability will “naturally pose significant risk to our economy”.
The former Shadow Minister for Economy, Financial Services and Industry, who opted out of contesting in March’s general election and who was in August appointed to the Malta Financial Services Tribunal, continues by saying that tax harmonisation has been, for the past years, “a matter of when rather than if”.
She says that while it is certainly necessary to negotiate for the best package “so at worst we will be equal to the lowest rate with other countries”, Malta simultaneously needs to pre-empt the consequences of harmonisation.
“It is imperative to consolidate on our strengths and improve on our deficiencies in administration, innovation, transparency, and our bureaucratic procedures,” Dr Debono says.
A shortage of human resources has been a central issue since 2021, exacerbated by COVID-19 travel restrictions, a major visa backlog, and low wages that limit Maltese businesses’ ability to compete for labour. This was reflected in the EY Attractiveness Survey, which found that skills shortage is the second highest concern for businesses.
“We need to focus on a strategy that encompasses a vision that is relevant to our labour needs,” Dr Debono says, “where skill mismatches are increasingly becoming a significant threat, not only to attract FDI, but in our business sector in general.”
She believes that by addressing business concerns holistically, the country might be able to avoid any significant impact of tax harmonisation.
“It is important to adjust and plan strategically to bounce back to the pre2020 attractiveness levels, to attract more high quality business in Malta whilst increasing our efforts to restore our country’s reputation,” she concludes.
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