Malta’s offshore regime, for long a financial mainstay for the island, came under attack due to its incompatibility with European Union law.
To phase out offshore companies, Malta introduced international trading companies (ITCs) or international holding companies (IHCs) – corporate vehicles which trade overseas, or which provide back-office services to companies abroad. While ITCs are taxed at the normal company tax of 35%, non-resident shareholders are given tax advantages amounting to an effective tax rate on profits of 4.2%.
Although perfectly legal, in 2006 the European Commission formally requested Malta to abolish the tax regime for ITCs by 2010.
Over the past decade, Malta reformed its laws in line with international best practice, becoming one of the first countries to reach an advanced accord with the OECD, to exchange information to help tax authorities determine a taxpayer’s correct tax liability. As a result of this agreement, Malta does not consider itself a tax haven.
The Malta Financial Services Authority has vehemently defended the country’s reputation. In a letter to the Guardian back in 2004, MFSA chairman Joseph Bannister categorically denied Malta was a tax haven.
But in 2005, the Parmalat scandal caused new doubts to resurface. Malta was one of many fiscal paradises like the Cayman Islands, the Dutch Antilles, Luxembourg, British Virgin Islands, Ireland and Uruguay in which Parmalat owners funnelled company profits to make it disappear. Parmalat Capital Finance Ltd, a company registered in Malta, was at the centre of the scandal, from where it acted as a distribution centre of Parmalat’s liquidity.
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