Investment Climate Malta

Background

Malta's economic development is based on promotion of tourism and export-oriented manufacturing. Expansion in these two sectors was Malta's principal engine for strong growth in the 1990s. The country enjoyed rapid economic growth during most of the decade, fueled by the vibrant tourist and manufacturing sectors (mainly semi-conductors). Preparations for EU membership in 2004 spurred broad-based reform that helped mitigate structural impediments, especially by initiating the restructuring of the vast and inefficient public enterprise sector and liberalizing the trade regime. Largely as a consequence of liberalizing reforms, Malta experienced robust growth from 2005 to 2007, underpinned by foreign direct investment (FDI) and export diversification. Progress was also made in fiscal consolidation and in reducing direct public sector involvement in economic activities. On Jan. 1, 2008, Malta successfully adopted the euro, a crucial milestone in the government's growth-orientated reform agenda.

Malta's economy was hit by the global recession in 2009, although the downturn was less severe than that experienced by most other EU countries. Real GDP contracted in 2009 largely as a result of a decline in domestic demand, as investment and consumption fell significantly. While the drop in world trade also had an adverse impact on Malta's exports, the contribution of net exports to GDP was positive in 2009 as imports fell more substantially. During 2009, the government implemented a selective fiscal aid package providing financial assistance to specific manufacturing firms to support employment and investment. Despite the shortfall in revenues and the fiscal stimulus, the fiscal position improved in 2009 compared with that in 2008, reflecting the government policy of reducing or terminating subsidies to some sectors. The country's financial services industry performed particularly well as it is centered on the indigenous real estate market and is not highly leveraged. The global economic downturn and high electricity and water prices did hurt Malta's real economy, which is dependent on foreign trade, manufacturing - especially electronics and pharmaceuticals - and tourism, but growth bounced back as the global economy recovered in 2010. In early 2011, the EU ended excessive deficit procedures against Malta, after Malta had taken measures to correct an excessive deficit in 2010 and appeared likely to reach its deficit target in 2011. By September 2011, Moody's had downgraded Malta's sovereign credit rating.

In October 2011, the Times of Malta reported that the country had received funds from the European Union that totaled nearly twice as much as it passed on to the organization since it become a member in 2004. As such, it's safe to say that Malta is by far one of the biggest net beneficiaries of the EU's 27 members, according to EU's 2010 Financial Report. The largest portion of the funds received were connected to cohesion monies that were used to improve the island's infrastructure, including the re-building of new roads, new faculties at the University, the restoration of the bastions and the new Malta College of Arts, Science and Technology in Paola. Overall, fiscal stimulus measures contributed to a deterioration in Malta's public finances in 2011, leading the EU to warn Malta that it would risk sanctions if it failed to bring its deficit and debt levels within EU guidelines. In May 2012, the International Monetary Fund noted that Malta had taken effective action to correct its excessive fiscal deficit, shoring up confidence in the country's public finances. The IMF noted that Malta's structural fiscal adjustment was one of the largest among advanced countries. Looking ahead, the deficit was expected to fall further in 2012. Compared to euro area peers, Maltese banks continue to outperform in terms of profits and capital adequacy. But the fragile macroeconomic environment and sustained market volatility were expected to dampen export growth in 2012. With the euro area expected to go into a mild recession in 2012, the IMF predicted that Malta's real GDP growth in 2012 would be relatively modest and it was, although it grew stronger in the second half of the year than the first.

In the first half of 2013, Malta's central bank and the European Commission predicted that the Mediterranean country's economy would likely accelerate that year and next, driven by rising domestic demand and increased net exports. Malta's central bank governor, Josef Bonnici, noted that the country's banks had thus far weathered the financial crisis well but that it would be good to see more diversity in banks' lending portfolio. As of mid-2013, the unemployment rate stood at about 6.4 percent - or around half that of the euro zone. Debt as a proportion of GDP was below the euro zone average at 72 percent. The EU reopened an excessive deficit procedure against Malta in June 2013, having found that its forecasted deficit for the year was likely to exceed 3 percent of GDP.

But by December 2013, Malta's central bank said the economy was on track to accelerate, boosted by exports in 2013 and anticipated consumer demand in 2014. The central bank went on to say that core domestic banks were "highly capitalized, profitable and liquid." Meanwhile, in March 2014, Fitch Ratings affirmed Malta's long-term foreign and local currency Issuer Default Rating at "A," saying the economy was on the road to recovery.

In 2014, Malta led the Eurozone in growth, expanding by an estimated 3.5 percent. Also in 2014, the government began promoting public-private partnerships in the healthcare sector to establish Malta as a Mediterranean health hub for medical tourism, reduced residential and commercial energy tariffs by 25 percent. It also implemented a citizenship purchase program to increase government revenue and attract foreign investors. The government has implemented new programs, including free child care, to encourage increased labor participation. The high cost of borrowing and small labor market present potential constraints to future economic growth.

In February 2015, Malta's economy continued to weather the global crisis well, according to the IMF. Spillovers from turmoil in international financial markets were contained due to low reliance on external financing by the government and banks. Real GDP growth in Malta has been one of the highest in the euro area since the beginning of the crisis, supported by relatively diversified exports, a recent recovery in domestic demand, and a stable banking sector. Unemployment was close to historical lows and among the lowest in the euro area, noted the IMF. Growth was expected to remain robust in 2015 and 2016, supported by domestic demand. Inflation was projected to remain subdued.

Also in February 2015, Fitch Ratings affirmed Malta's long-term foreign and local currency Issuer Default Rating (IDRs) at 'A' with stable outlooks. Fitch estimated real GDP grew by 3.4 percent in 2014, better than in 2013 and higher than the eurozone average. It also projected potential growth to average 3 percent in 2015-16, continuing above the eurozone average.

In August 2016, Fitch Ratings affirmed Malta's long-term foreign and local currency Issuer Default Ratings at 'A' and revised the outlook to "positive" from "stable." The issue ratings on Malta's senior unsecured foreign and local currency bonds have also been affirmed at 'A'. Fitch pointed out that Malta's economic growth continued to outperform the eurozone average and peers in the first quarter of 2016 at 5.2 percent. The agency went on to say it expected growth to remain buoyant although moderating over 2016-2018 at 3.6 percent, driven by strong domestic demand. The impact of Brexit was likely to be negative but limited, as the decrease in tourist arrivals from the UK would likely be offset by those from elsewhere. Although house prices in Malta were rising due to a large influx of foreign workers, measures supporting first-time buyers and low unemployment, central bank studies showed prices were in line with fundamentals.

From 2014 through 2016, Malta led the euro zone in growth, expanding more than 4.5 percent per year.

By mid-2017, economic growth was estimated at about 6 percent, unemployment was at a record low of about 4 percent, and wages and pensions were rising.

The Labour government led by Prime Minister Joseph Muscat won re-election in June 2017 amidst allegations of corruption - namely improper business dealings - aimed at Muscat's wife and some of his associates. When Muscat - whose five-year term was to have ended in 2018 - called for the snap elections in May 2017, he said they were crucial in order to contest the corruption allegations he believed could end up negatively impacting the strong economy, according to a Reuters report.

In May 2017, Moody's revised upward its GDP growth forecast for Malta, projecting growth to occur at a faster rate than previously expected. The New York-based credit ratings agency said it expected the Malta economy to grow by 4.3 percent in 2017, up from the 3.4 percent rate it had forecast in January. It also revised growth forecasts for 2018 from 3.1 percent to 3.7 percent and confirmed the country's A3 rating.

Updated in 2017

Supplementary Sources: The Times of Malta, Reuters and the International Monetary Fund

Foreign Investment Assessment

Openness to Foreign Investment

The government of Malta (GOM) actively seeks foreign direct investment opportunities and considers attracting foreign investment to be one of its highest priorities. Foreign investment plays an integral part in the country's economic restructuring program and provides technology and marketing skills, which are in short supply in Malta. The political stability that Malta enjoys makes investing in the country an attractive and safe option. In the last several years, the private sector also has played an increasingly important role. The Malta Development Corporation (MDC), a corporation established to promote investment in local industry, provides information to prospective investors, processes applications for industrial projects and serves as liaison between investors and other government entities. MDC is also responsible for the construction and management of Malta's 12 industrial parks.

Five major laws govern foreign investment in Malta; two bilateral agreements with the U.S. complete the legal framework for American investors. The Income Tax Act of 1948 (as amended) established a single rate of taxation of 35 percent for limited liability companies in Malta. The Industrial Development Act of 1988 authorizes the government to build and allocate factories, and to give fiscal incentives and customs exemptions. The Companies Act of 1995, administered by the Department of Trade, regulates the creation of limited liability companies. The Malta Development Corporation (MDC) Act of 1967 established the MDC as the government agency responsible for promoting industrial activity. The Exchange Control Act of 1972 specifies that the Central Bank of Malta must approve applications for investment and the subsequent repatriation of profit and capital.

Proposals for investment are considered on a case-by-case basis by MDC. Virtually, all manufacturing sectors are open to export-oriented investors. While there are no overt legal prohibitions against such activity, the government carefully screens foreign proposals oriented principally toward the domestic market. Certain economic activities, such as energy, are at present effectively closed to new private investment. These restrictions apply both to foreign and domestic investors. The government gives priority to investments, which have a higher capital input and offer greater technology, higher value added and marketing expertise. Research and development projects are also encouraged. Private foreign investors are free to make equity arrangements as they wish - from joint ventures to full equity ownership. Work permits are normally issued to foreign investors and to their management and technical personnel.

The government welcomes private investors, foreign and local, to participate in privatization projects. The Malta government has published a comprehensive plan outlining the privatization of several government entities during the next five years. There are no reported incidents of discrimination against foreign investors.

Transparency of Regulatory System

The GOM has adopted transparent and effective policies and regulations to foster competition. It is striving to eliminate unnecessary bureaucratic procedures and has taken steps to revise labor, safety, health and other laws in general to conform to EU standards.

Labor Force

Total: 160,000

By occupation: agriculture 5%, industry 24%, services 71%

Agriculture and Industry

Agriculture products: potatoes, cauliflower, grapes, wheat, barley, tomatoes, citrus, cut flowers, green peppers; pork, milk, poultry, eggs

Industries: tourism; electronics, ship building and repair, construction; food and beverages, textiles, footwear, clothing, tobacco

Import Commodities and Partners

Commodities: machinery and transport equipment, manufactured and semi-manufactured goods; food, drink, and tobacco

Partners: Italy 19.1%, France 13.5%, UK 8.4%, Germany 6.5%, Singapore 6.1%, Japan 5.6%, South Korea 5.4%, US 4%

Export Commodities and Partners

Commodities: machinery and transport equipment, manufactures

Partners: Singapore 17.4%, US 11.7%, UK 9.4%, Germany 8.8%, France 7.5%, China 7%

Telephone System

Telephones- main lines in use: 208,300

Telephones- mobile cellular: 290,000

General Assessment: automatic system satisfies normal requirements

Domestic: submarine cable and microwave radio relay between islands

International: country code - 356; 2 submarine cables; satellite earth station - 1 Intelsat (Atlantic Ocean)

Internet

Internet Hosts: 7,156

Internet users: 120,000

Roads, Airports, Ports and Harbors

Railways:

Highways: 2,222 km

Ports and harbors: Marsaxlokk, Valletta

Airports: 1; w/paved runways: 1

Legal System and Considerations

Malta's legal system is based on English common law and Roman civil law. It accepts compulsory ICJ jurisdiction, with reservations.

Dispute Settlement

There have not been any investment disputes over the past few years involving foreign investors or contractors in Malta.

The highest law-making institution is the House of Representatives, whose 65 members are elected every five years by proportional representation. Government functions through a cabinet of ministers, headed by the Prime Minister, all of whom are responsible to Parliament. The judiciary is independent and courts are divided into Superior Courts presided by judges and Inferior Courts presided by magistrates. The jurisdiction of the Inferior Courts is restricted to minor offenses of a criminal nature and to small civil matters. Traditionally, the judiciary functions through three courts--Criminal, Commercial and Civil. The Court Of Appeal hears appeals from the Civil and Commercial courts. Appeals from the Criminal Court are dealt with in the Court of Criminal Appeal. Finally, a Constitutional Court has jurisdiction to hear and determine questions and appeals on constitutional issues. There are also a number of administrative tribunals, such as the Industrial Tribunal, the Rent Regulation Board and the Board of Special Commissioners for income tax purposes.

The Maltese judiciary has a long tradition of independence. Once appointed to the bench, judges and magistrates have fixed salaries, which do not require annual approval and they cannot be dismissed. The Constitution guarantees the separation of powers between the executive and the judiciary. Fair trial is also recognized as an enforceable human right under Chapter 4 of the Maltese Constitution.

Malta has a distinct Commercial Code. Commercial activities are regulated by the Commercial Code and related legislation, such as the Banking Act, the Central Bank of Malta Act, etc. Bankruptcy is contemplated in the Commercial Code. The court appoints a curator to liquidate the assets of the bankrupt company, organization or individual and distribute the proceeds among the creditors.

Malta is not currently a member of either the International Center for Investment Disputes (ICSID) or of the New York Convention of 1958 on the recognition and enforcement of foreign arbitration awards. However, Malta is actively considering membership in both of these organizations. Modes of settlement of disputes are also provided in bilateral investment guarantee agreements, which Malta has with several countries, including the United States, Italy, Germany, France, Bulgaria, Kuwait and the United Kingdom

Corruption Perception Ranking

See Transparency International's listing of least to most corrupt countries in the world in this Country Review; Malta's country ranking makes it one of the least corrupt nations in the world.

Cultural Considerations

In Malta, punctuality is expected of foreign businessmen and women. However, do not expect your Maltese counterpart to be on time. Also noteworthy is that one must always be respectful toward the elderly. Never speak to them with your hands in your pocket. Remove your hat when speaking to someone older than yourself. It is very disrespectful to speak to elders with your hands positioned on your hips while you are standing.

For more information see:

United States' State Department Commercial Guide