Economic Policies
#18Key Findings
Showing significant gains in recent years, Malta falls into the upper-middle ranks (rank 18) with regard to economic policies. Its overall score in this area has improved by 0.6 points relative to 2014.
The pandemic arrested years of strong growth, spurring a sharp contraction in GDP in this tourism-dependent economy. However, growth surged back in 2021. The state provided relief to enterprises and individuals, with measures including vouchers, wage support and rent subsidies.
Due to government support, the employment rate actually rose by 2.7% in 2020. By late 2021, the overall unemployment rate was just 3.6%. Youth unemployment rates are also low in cross-EU comparison. Companies are reporting skills shortages and growing reliance on foreign labor. Work permit rules for non-EU nationals have been relaxed.
The state posted very large deficits of 10.1% and 12% of GDP in 2020 and 2021. Debt is expected to reach 63.6% of GDP in 2023. Tax evasion and money laundering remain problems. However, the country is addressing the issues; a new financial-crimes unit has led to a number of high-profile prosecutions. R&D spending is low.
The pandemic arrested years of strong growth, spurring a sharp contraction in GDP in this tourism-dependent economy. However, growth surged back in 2021. The state provided relief to enterprises and individuals, with measures including vouchers, wage support and rent subsidies.
Due to government support, the employment rate actually rose by 2.7% in 2020. By late 2021, the overall unemployment rate was just 3.6%. Youth unemployment rates are also low in cross-EU comparison. Companies are reporting skills shortages and growing reliance on foreign labor. Work permit rules for non-EU nationals have been relaxed.
The state posted very large deficits of 10.1% and 12% of GDP in 2020 and 2021. Debt is expected to reach 63.6% of GDP in 2023. Tax evasion and money laundering remain problems. However, the country is addressing the issues; a new financial-crimes unit has led to a number of high-profile prosecutions. R&D spending is low.
Graph View
Graph View
How successful has economic policy been in providing a reliable economic framework and in fostering international competitiveness?
10
9
9
Economic policy fully succeeds in providing a coherent set-up of different institutional spheres and regimes, thus stabilizing the economic environment. It largely contributes to the objectives of fostering a country’s competitive capabilities and attractiveness as an economic location.
8
7
6
7
6
Economic policy largely provides a reliable economic environment and supports the objectives of fostering a country’s competitive capabilities and attractiveness as an economic location.
5
4
3
4
3
Economic policy somewhat contributes to providing a reliable economic environment and helps to a certain degree in fostering a country’s competitive capabilities and attractiveness as an economic location.
2
1
1
Economic policy mainly acts in discretionary ways essentially destabilizing the economic environment. There is little coordination in the set-up of economic policy institutions. Economic policy generally fails in fostering a country’s competitive capabilities and attractiveness as an economic location.
Economic planning is at the forefront of Malta’s policymaking process and a clear-cut assignment of tasks to government institutions is its strength. Strong ties between public institutions, the economic planning ministry, and social partners exist through the Malta Council for Economic and Social Development (MCESD). This system has provided the ideal foundation for strong economic performance.
Indeed, provisional GDP estimates for the third quarter of 2021 indicate an increase of 11.9% over the same period in 2020 and a 9.7% increase in volume terms. The island is heavily dependent on tourism and therefore its economy was severely impacted by the pandemic in 2020. Nonetheless, the European Commission’s 2021 autumn economic forecast places Malta’s economic recovery on the path of robust growth for 2022 and 2023. The shift toward the provision of internationally focused services has undoubtedly contributed to the country’s long-term economic prosperity and high employment rates. The pandemic-induced crisis did not have a negative impact on employment rates thanks to a comprehensive public package of incentives and subsidies. Indeed, employment rose by 2.7% during 2020. A moderate level of inflation due to international energy prices, increased domestic demand and tourism services is expected to characterize 2022 and 2023.
The country’s recent grey listing by the Financial Action Task Force has significantly reduced the country’s attractiveness to foreign investors. Nonetheless, the international ratings agency Fitch Ratings has confirmed an A+ rating for the island. Moreover, Malta received a score of 70.2 on the Heritage Foundation’s 2021 Index of Economic Freedom, giving it an overall rank of 36th place. In Europe, Malta is ranked 21 out of 45 countries, a score which corresponds to the regional average.
The government is also working to diversify the economy and attract investment in leading technologies. The pandemic has highlighted even more the importance of a highly diversified economy, and – while tourism and aviation maintenance activities were hindered – the country’s consolidated pharmaceutical and medical device production sector experienced an increase in demand.
Rapid economic growth has brought several challenges to the fore. First is the substantial dependence on financial services and property development. Second, this growth has sparked a massive building program and consequent import of labor, while also increasing demands on infrastructure and social services to a degree that may prove unsustainable for an island country measuring just 316 square kilometers. An IMF review mission cautioned against the risks associated with the country’s fast-paced growth.
Finally, Malta ranked 33rd on the UN Sustainability Index 2021, with key indicators such as poverty and quality education performing well, but with challenges persisting on indicators such as the quality of overall infrastructure and sea cleanliness.
Citations:
National Statistics Office (NSO) News Release 217/2021
European Economic Forecast Autumn 2021 (Interim) p.90
The Malta Independent 19/10/2021 Updated: Malta’s Attractiveness to Foreign Investors Plummets After Greylisting
Malta Today 20/11/2021 Fitch Affirms A+ Malta Rating with Stable Outlook
https://www.heritage.org/index/ranking
https://whoswho.mt/en/the-pandemic-clearly-highlights-the-importance-of-having-a-well-diversified-economy
Malta Today 16/01/2019 Malta’s Strong Economy Faces Infrastructure, Housing and Labour Challenges – IMF
https://dashboards.sdgindex.org/profiles/malta
Indeed, provisional GDP estimates for the third quarter of 2021 indicate an increase of 11.9% over the same period in 2020 and a 9.7% increase in volume terms. The island is heavily dependent on tourism and therefore its economy was severely impacted by the pandemic in 2020. Nonetheless, the European Commission’s 2021 autumn economic forecast places Malta’s economic recovery on the path of robust growth for 2022 and 2023. The shift toward the provision of internationally focused services has undoubtedly contributed to the country’s long-term economic prosperity and high employment rates. The pandemic-induced crisis did not have a negative impact on employment rates thanks to a comprehensive public package of incentives and subsidies. Indeed, employment rose by 2.7% during 2020. A moderate level of inflation due to international energy prices, increased domestic demand and tourism services is expected to characterize 2022 and 2023.
The country’s recent grey listing by the Financial Action Task Force has significantly reduced the country’s attractiveness to foreign investors. Nonetheless, the international ratings agency Fitch Ratings has confirmed an A+ rating for the island. Moreover, Malta received a score of 70.2 on the Heritage Foundation’s 2021 Index of Economic Freedom, giving it an overall rank of 36th place. In Europe, Malta is ranked 21 out of 45 countries, a score which corresponds to the regional average.
The government is also working to diversify the economy and attract investment in leading technologies. The pandemic has highlighted even more the importance of a highly diversified economy, and – while tourism and aviation maintenance activities were hindered – the country’s consolidated pharmaceutical and medical device production sector experienced an increase in demand.
Rapid economic growth has brought several challenges to the fore. First is the substantial dependence on financial services and property development. Second, this growth has sparked a massive building program and consequent import of labor, while also increasing demands on infrastructure and social services to a degree that may prove unsustainable for an island country measuring just 316 square kilometers. An IMF review mission cautioned against the risks associated with the country’s fast-paced growth.
Finally, Malta ranked 33rd on the UN Sustainability Index 2021, with key indicators such as poverty and quality education performing well, but with challenges persisting on indicators such as the quality of overall infrastructure and sea cleanliness.
Citations:
National Statistics Office (NSO) News Release 217/2021
European Economic Forecast Autumn 2021 (Interim) p.90
The Malta Independent 19/10/2021 Updated: Malta’s Attractiveness to Foreign Investors Plummets After Greylisting
Malta Today 20/11/2021 Fitch Affirms A+ Malta Rating with Stable Outlook
https://www.heritage.org/index/ranking
https://whoswho.mt/en/the-pandemic-clearly-highlights-the-importance-of-having-a-well-diversified-economy
Malta Today 16/01/2019 Malta’s Strong Economy Faces Infrastructure, Housing and Labour Challenges – IMF
https://dashboards.sdgindex.org/profiles/malta
Graph View
How effectively does labor market policy address unemployment?
10
9
9
Successful strategies ensure unemployment is not a serious threat.
8
7
6
7
6
Labor market policies have been more or less successful.
5
4
3
4
3
Strategies against unemployment have shown little or no significant success.
2
1
1
Labor market policies have been unsuccessful and rather effected a rise in unemployment.
Unemployment rates are at historically stable levels in Malta. Eurostat figures for October 2021 indicated that Malta had one of the lowest unemployment rates in the European Union, at 3.6% compared to the European average of 6.7%. Malta also had one of the lowest youth-unemployment rates in Europe, at 8.2% as compared to the EU-27 average of 15.9%. The overall labor market activity rate was estimated at 77.2% during the second quarter of 2021, with the highest rate being recorded among persons aged 25 to 54. This is largely attributable to a broad range of measures undertaken by the government to reduce unemployment, including the Strategy for Active Aging, the Youth Employment Guarantee Scheme, extended training programs, a reduction in income tax, tapering of social benefits and an in-work benefit scheme. Extensive benefits have been made available to enterprises and individuals during 2020 and 2021 in a bid to counteract the negative effects of the pandemic on the economy. These measures include vouchers, wage support and rent subsidies. Indeed, Malta’s labor market slack rate was one-third of the EU rate, confirming that the impact of the pandemic on the labor market was contained with certain industries never being fully locked down, government infrastructure projects continuing and new employment opportunities surfacing.
Malta possesses a consolidated support system for the unemployed, consisting of social benefits and retraining opportunities. Meanwhile, schemes to help low-skilled individuals find employment have been introduced in recent years. While Malta’s strong labor market has lifted wages, the average annual gross salary was estimated at €19,594 in 2019 with variances based on sex and district of residence. The minimum wage remains relatively low at €169.76 a week and has increased at one of the lowest rates (1%) in the European Union (an EU average of 6%). Emphasis on the need to introduce a living wage has increased.
Various measures have also been introduced to increase labor market participation rates among women. In the last five years, 30,000 women have joined or rejoined the workforce. Policies worth noting include the introduction of free childcare centers in 2014, along with the strengthening of breakfast and after-school clubs. Paid maternity leave, adoption and assisted procreation policies are all now well established. The government has also established a collective maternity fund financed by the private sector, with the goal of reducing discrimination. The in-work benefit scheme has also been extended for single-earner households with children. Presently female participation in the labor force stands at 48.3% (EU average 51.09%).
Until recently, Malta had one of the highest gender pay gaps in the European Union. However, this has now been reduced to 11.6%, which is lower than the EU average of 14.1%. Data recently released but the National Statistics Office has highlighted the fact that the average annual wage for men is €20,974, while for women it is €17,771. Women are also statistically more present in lower-paid occupations, even though their average educational levels are higher than those among men.
The Maltese labor market is also facing challenges related to an aging workforce (the number of persons aged 65 and over is expected to increase by 44% by 2035). A small proportion of the workforce would prefer to work more hours. At 1.7%, this rate is half the EU average. Moreover, companies are still reporting skills shortages, a skills mismatch and a growing reliance on foreign labor. A recently launched employment policy highlights the need to create a better skilled workforce and better salaries. Nonetheless, it warns that foreign labor is still required. A labor shortage is also being felt in various governmental areas of operation. For instance, one in every seven medical professionals is foreign-born. As of September 2020, the number of foreigners that are living and working in Malta stood at 69,919, which means that the number has effectively quadrupled since 2013. In 2021, the government relaxed the rules for work permits for non-EU nationals. The constant flow of low paid imported labor points to a structurally weak economy, which needs to be addressed with best practice models that facilitate better training of workers and incentives for older cohorts to remain in the labor market.
Malta does not have a unified labor market, but is split into a number of sectors. Nevertheless, tensions have risen in all of them due to recruitment problems. The strongest level of demand has come in the digital and financial sectors, where wages continue to climb. However, other sectors can be characterized by low pay and precarious work conditions. The influx of foreign workers and the higher rate of labor-force participation among women contributed to a moderation of unit labor costs. In 2020, estimated hourly labor costs stood at 14.5 compared to the EU average of 28.5. Moreover, concerns related to working conditions remain present, as some employers continue to exploit gaps in the law and employ workers at less than the minimum wage.
Citations:
Eurostat News Release 134/2021
National Statistics Office (NSO) News Release 173/2021
European Economic Forecast Autumn 2020 p.109
National Statistics Office (NSO) Regional Statistics Malta 2021 Edition p.107
Times of Malta 08/03/2019 Malta With Highest Gender Employment Gap
The Malta Independent 11/11/2021 NCPE Conference Highlights Current Developments in Existing Gender Pay Gap
2019 Report on Equality between Women and Men in the EU p. 18
Formosa Marvin (2014) Socioeconomic implications of Population Aging in Malta: Risks and Opportunities
Times of Malta 07/03/2018 Third of Companies in Malta Reporting Skills Shortage
Times of Malta 20/01/2019 The Economy Cannot Do Without Foreign Workers
Malta Today 05/10/2021 Employment Policy Seeks Better-Skilled Workforce but Warns Foreign Labour Still Needed
Malta Daily 04/06/2021 1 in 7 Medical Workers in Malta are Foreign
The Malta Independent 20/04/2021 Number of Foreigners Working in Malta Almost Quadrupled since 2013
https://ec.europa.eu/eurostat/statistics-explained/index.php?title=Wages_and_labor_costs
The Jounral.mt Malta: The country with the least labor market slack in the Euro area
Times of Malta 05/08/21 Fixing a flawed labour market
Times of Malta 10/02/21 The Case for a Living wage has never been stronger
Malta possesses a consolidated support system for the unemployed, consisting of social benefits and retraining opportunities. Meanwhile, schemes to help low-skilled individuals find employment have been introduced in recent years. While Malta’s strong labor market has lifted wages, the average annual gross salary was estimated at €19,594 in 2019 with variances based on sex and district of residence. The minimum wage remains relatively low at €169.76 a week and has increased at one of the lowest rates (1%) in the European Union (an EU average of 6%). Emphasis on the need to introduce a living wage has increased.
Various measures have also been introduced to increase labor market participation rates among women. In the last five years, 30,000 women have joined or rejoined the workforce. Policies worth noting include the introduction of free childcare centers in 2014, along with the strengthening of breakfast and after-school clubs. Paid maternity leave, adoption and assisted procreation policies are all now well established. The government has also established a collective maternity fund financed by the private sector, with the goal of reducing discrimination. The in-work benefit scheme has also been extended for single-earner households with children. Presently female participation in the labor force stands at 48.3% (EU average 51.09%).
Until recently, Malta had one of the highest gender pay gaps in the European Union. However, this has now been reduced to 11.6%, which is lower than the EU average of 14.1%. Data recently released but the National Statistics Office has highlighted the fact that the average annual wage for men is €20,974, while for women it is €17,771. Women are also statistically more present in lower-paid occupations, even though their average educational levels are higher than those among men.
The Maltese labor market is also facing challenges related to an aging workforce (the number of persons aged 65 and over is expected to increase by 44% by 2035). A small proportion of the workforce would prefer to work more hours. At 1.7%, this rate is half the EU average. Moreover, companies are still reporting skills shortages, a skills mismatch and a growing reliance on foreign labor. A recently launched employment policy highlights the need to create a better skilled workforce and better salaries. Nonetheless, it warns that foreign labor is still required. A labor shortage is also being felt in various governmental areas of operation. For instance, one in every seven medical professionals is foreign-born. As of September 2020, the number of foreigners that are living and working in Malta stood at 69,919, which means that the number has effectively quadrupled since 2013. In 2021, the government relaxed the rules for work permits for non-EU nationals. The constant flow of low paid imported labor points to a structurally weak economy, which needs to be addressed with best practice models that facilitate better training of workers and incentives for older cohorts to remain in the labor market.
Malta does not have a unified labor market, but is split into a number of sectors. Nevertheless, tensions have risen in all of them due to recruitment problems. The strongest level of demand has come in the digital and financial sectors, where wages continue to climb. However, other sectors can be characterized by low pay and precarious work conditions. The influx of foreign workers and the higher rate of labor-force participation among women contributed to a moderation of unit labor costs. In 2020, estimated hourly labor costs stood at 14.5 compared to the EU average of 28.5. Moreover, concerns related to working conditions remain present, as some employers continue to exploit gaps in the law and employ workers at less than the minimum wage.
Citations:
Eurostat News Release 134/2021
National Statistics Office (NSO) News Release 173/2021
European Economic Forecast Autumn 2020 p.109
National Statistics Office (NSO) Regional Statistics Malta 2021 Edition p.107
Times of Malta 08/03/2019 Malta With Highest Gender Employment Gap
The Malta Independent 11/11/2021 NCPE Conference Highlights Current Developments in Existing Gender Pay Gap
2019 Report on Equality between Women and Men in the EU p. 18
Formosa Marvin (2014) Socioeconomic implications of Population Aging in Malta: Risks and Opportunities
Times of Malta 07/03/2018 Third of Companies in Malta Reporting Skills Shortage
Times of Malta 20/01/2019 The Economy Cannot Do Without Foreign Workers
Malta Today 05/10/2021 Employment Policy Seeks Better-Skilled Workforce but Warns Foreign Labour Still Needed
Malta Daily 04/06/2021 1 in 7 Medical Workers in Malta are Foreign
The Malta Independent 20/04/2021 Number of Foreigners Working in Malta Almost Quadrupled since 2013
https://ec.europa.eu/eurostat/statistics-explained/index.php?title=Wages_and_labor_costs
The Jounral.mt Malta: The country with the least labor market slack in the Euro area
Times of Malta 05/08/21 Fixing a flawed labour market
Times of Malta 10/02/21 The Case for a Living wage has never been stronger
Graph View
How effective is a country’s tax policy in realizing goals of revenue generation, equity, growth promotion and ecological sustainability?
10
9
9
Taxation policy fully achieves the objectives.
8
7
6
7
6
Taxation policy largely achieves the objectives.
5
4
3
4
3
Taxation policy partially achieves the objectives.
2
1
1
Taxation policy does not achieve the objectives at all.
Malta’s income-tax system ensures that a portion of income is nontaxable for all three tax categories (€9,100 for single individuals, €12,700 for married individuals and €10,500 for parents). Parents also receive a tax rebate on school fees, cultural activities and creative education. No sales or inheritance tax is levied on a person’s primary residence. Moreover, first-time property buyers have been benefiting from a capped duty waiver since 2014, while similar benefits were also extended to second-time buyers at the beginning of 2018. Other measures contributing to greater equity have consistently been introduced in Malta’s latest budgets. For instance, for the fifth consecutive year, the 2022 budget did not introduce any new taxes. Moreover, tax refund checks will be issued and the part-time tax rate was reduced from 15% to 10%.
The burden of taxation falls mainly on people in fixed and registered employment. A recent study conducted by the Central Bank of Malta indicated that Malta’s shadow economy has stabilized over the last decade and now stands close to 21% of GDP. Figures published by the European Central Bank in 2018 had indicated that Malta was among the countries with the highest number of cash transactions in the European Union, a fact that strongly suggests tax evasion. However, tax-evasion controls have since been consolidated. A number of mitigating measures have recently been introduced to consolidate previously introduced actions in this area. Legislation was officially introduced in 2021 to cap cash transactions on high-value items such as property, jewelry and works of art at €10,000. A 2019 European Commission report stated that the offshore holdings of the Maltese stood at €5.2 billion, or nearly 48% of annual GDP, among the highest such rates in the European Union. Government estimates indicate that Malta loses an estimated €120 million to tax evasion every year, principally in VAT and income taxes. However, actual figures could have been closer to €300 million during pre-pandemic periods. It is also calculated that Malta loses up to 4% of its GDP through profit-shifting. The European Union’s latest VAT Gap Report indicated that, in 2019, Malta was the EU member state with the highest VAT gap increase and a gap rate that stands at 23.5%.
With a corporate taxation rate of 35%, Malta has one of the highest tax rates applicable to companies in the European Union. However, as a result of the full imputation system and the tax incentives provided to companies registered in Malta, the actual tax rate is estimated to be as low as 5%. Nevertheless, the G7 in 2021 has agreed to the creation of a minimal corporate global tax rate of 15% for companies generating a turnover of over €750 million. Malta has provisionally signed up to the principle of 15% with reservations over a number of clauses including the €750 million threshold. While the immediate impact would be on 20 companies, the long-term impact is as yet unknown. The government is working on redirecting its focus on small and medium-sized companies, and on working with the European Union on negotiating carve outs and concessions. Moreover, the Maltese tax policy does not include additional taxes on dividends paid to shareholders, apart from the fact that they are entitled to tax credits. Special tax incentives are also available for industrial research and development projects and innovation activities conducted by SMEs. Professionals in the gaming, financial services and aviation sectors can pay a flat tax rate of 15% on personal income up to €5 million.
The island’s global residency program allows individuals with a certain income to benefit from a flat 15% tax rate. Moreover, in June 2021, the country introduced the Nomad Residence Permit for digital professionals working remotely and earning a minimum of €2,700 per month.
Fiscal incentives to enhance the competitiveness of various economic sectors and attract foreign direct investment are available. Indeed, corporate taxation is regarded as an important source of revenue for the island. However, this has raised concerns about exploitation by companies conducting aggressive tax planning. The Maltese government has transposed the provisions of the European Union’s Anti-Tax Avoidance Directives, which aim to prevent companies from aggressively exploiting differential tax rates across EU states. Moreover, the country’s recently approved Post-Covid Recovery and Resilience Plan (RRP) pledges to tackle tax avoidance.
Malta made a formal submission of its Recovery and Resilience Plan to the European Commission on 13 July 2021. On 16 September 2021, the Commission gave its green light to the plan. The plan addresses the urgent need to foster a strong recovery, promote sustainability, and better prepare Malta for the challenges and opportunities of the green and digital transitions. To this end, the plan consists of 17 investments and 30 reforms. They will be supported by €316.4 million in grants. 53.8% of the plan will support climate objectives and 25.5% of the plan will foster the digital transition. The reforms address bottlenecks to lasting and sustainable growth through a strengthening of the rule of law and fighting corruption, and tackling challenges related to health and skills. The plan also aims to increase Malta’s gross domestic product by 0.7% to 1.1% by 2026.
As indicated by credit agencies, Malta’s continued growth has ensured sufficient fiscal resources. In small states, the tendency has always been that ecological sustainability is a lower priority. This time around, public opinion has had a marked impact on the issue and better organized NGOs have put the issue firmly on the agenda. The battle between the two – business and public – will not go away, but we have already begun to see the move toward a balance.
Citations:
https://cfr.gov.mt/en/rates/Pages/TaxRates/Tax-Rates-2021.aspx
Budget Speech 2013 p. 14
Times of Malta 04/11/2013 Tax exemption for first-time property buyers announced
Times of Malta 03/02/2018 Second-time home-buyer scheme is rolled out
Times of Malta 11/10/2021 Budget 2022 At-A-Glance: What’s In It for You?
Central Bank of Malta (2020) An Analysis of the Shadow Economy in Malta:
A Currency Demand and MIMIC Model Approach
Times of Malta 12/03/2021 Malta Introduces €10,000 Cash Cap on Transactions of Valuable Items
Times of Malta 15/09/2021 VAT Evasion Costs at Least €120 Million Annually
Times of Malta 22/12/2021 Malta Registers Highest ‘VAT Gap’ Increase in European Union
https://cfr.gov.mt/en/Corporate/Pages/Corporate-Tax.aspx
https://cfr.gov.mt/en/inlandrevenue/legal-technical/Pages/Tax-Guidelines-on-Highly-Qualified-Persons-Rules.aspx
https://cfr.gov.mt/en/inlandrevenue/itu/Pages/Global-Residence-Programme-Rules.aspx
https://www.bbc.com/travel/article/20211109-malta-the-island-welcoming-digital-nomads
https://maltaenterprise.com/support
Times of Malta 06/06/2019 Commission Recommends that Malta tackles Taxation and Aggressive Tax Planning
https://www.internationaltaxreview.com/article/b1flt620g4dwgs/malta-implements-the-eus-anti-t ax-avoidance-directives
Malta Today 24/07/2021 Malta Makes Tax Avoidance Pledge in EU Recovery Plan
WIDER Working Paper 2017/55 Global distribution of revenue loss from tax avoidance Re-estimation and country results Alex Cobham and Petr Jansk
The burden of taxation falls mainly on people in fixed and registered employment. A recent study conducted by the Central Bank of Malta indicated that Malta’s shadow economy has stabilized over the last decade and now stands close to 21% of GDP. Figures published by the European Central Bank in 2018 had indicated that Malta was among the countries with the highest number of cash transactions in the European Union, a fact that strongly suggests tax evasion. However, tax-evasion controls have since been consolidated. A number of mitigating measures have recently been introduced to consolidate previously introduced actions in this area. Legislation was officially introduced in 2021 to cap cash transactions on high-value items such as property, jewelry and works of art at €10,000. A 2019 European Commission report stated that the offshore holdings of the Maltese stood at €5.2 billion, or nearly 48% of annual GDP, among the highest such rates in the European Union. Government estimates indicate that Malta loses an estimated €120 million to tax evasion every year, principally in VAT and income taxes. However, actual figures could have been closer to €300 million during pre-pandemic periods. It is also calculated that Malta loses up to 4% of its GDP through profit-shifting. The European Union’s latest VAT Gap Report indicated that, in 2019, Malta was the EU member state with the highest VAT gap increase and a gap rate that stands at 23.5%.
With a corporate taxation rate of 35%, Malta has one of the highest tax rates applicable to companies in the European Union. However, as a result of the full imputation system and the tax incentives provided to companies registered in Malta, the actual tax rate is estimated to be as low as 5%. Nevertheless, the G7 in 2021 has agreed to the creation of a minimal corporate global tax rate of 15% for companies generating a turnover of over €750 million. Malta has provisionally signed up to the principle of 15% with reservations over a number of clauses including the €750 million threshold. While the immediate impact would be on 20 companies, the long-term impact is as yet unknown. The government is working on redirecting its focus on small and medium-sized companies, and on working with the European Union on negotiating carve outs and concessions. Moreover, the Maltese tax policy does not include additional taxes on dividends paid to shareholders, apart from the fact that they are entitled to tax credits. Special tax incentives are also available for industrial research and development projects and innovation activities conducted by SMEs. Professionals in the gaming, financial services and aviation sectors can pay a flat tax rate of 15% on personal income up to €5 million.
The island’s global residency program allows individuals with a certain income to benefit from a flat 15% tax rate. Moreover, in June 2021, the country introduced the Nomad Residence Permit for digital professionals working remotely and earning a minimum of €2,700 per month.
Fiscal incentives to enhance the competitiveness of various economic sectors and attract foreign direct investment are available. Indeed, corporate taxation is regarded as an important source of revenue for the island. However, this has raised concerns about exploitation by companies conducting aggressive tax planning. The Maltese government has transposed the provisions of the European Union’s Anti-Tax Avoidance Directives, which aim to prevent companies from aggressively exploiting differential tax rates across EU states. Moreover, the country’s recently approved Post-Covid Recovery and Resilience Plan (RRP) pledges to tackle tax avoidance.
Malta made a formal submission of its Recovery and Resilience Plan to the European Commission on 13 July 2021. On 16 September 2021, the Commission gave its green light to the plan. The plan addresses the urgent need to foster a strong recovery, promote sustainability, and better prepare Malta for the challenges and opportunities of the green and digital transitions. To this end, the plan consists of 17 investments and 30 reforms. They will be supported by €316.4 million in grants. 53.8% of the plan will support climate objectives and 25.5% of the plan will foster the digital transition. The reforms address bottlenecks to lasting and sustainable growth through a strengthening of the rule of law and fighting corruption, and tackling challenges related to health and skills. The plan also aims to increase Malta’s gross domestic product by 0.7% to 1.1% by 2026.
As indicated by credit agencies, Malta’s continued growth has ensured sufficient fiscal resources. In small states, the tendency has always been that ecological sustainability is a lower priority. This time around, public opinion has had a marked impact on the issue and better organized NGOs have put the issue firmly on the agenda. The battle between the two – business and public – will not go away, but we have already begun to see the move toward a balance.
Citations:
https://cfr.gov.mt/en/rates/Pages/TaxRates/Tax-Rates-2021.aspx
Budget Speech 2013 p. 14
Times of Malta 04/11/2013 Tax exemption for first-time property buyers announced
Times of Malta 03/02/2018 Second-time home-buyer scheme is rolled out
Times of Malta 11/10/2021 Budget 2022 At-A-Glance: What’s In It for You?
Central Bank of Malta (2020) An Analysis of the Shadow Economy in Malta:
A Currency Demand and MIMIC Model Approach
Times of Malta 12/03/2021 Malta Introduces €10,000 Cash Cap on Transactions of Valuable Items
Times of Malta 15/09/2021 VAT Evasion Costs at Least €120 Million Annually
Times of Malta 22/12/2021 Malta Registers Highest ‘VAT Gap’ Increase in European Union
https://cfr.gov.mt/en/Corporate/Pages/Corporate-Tax.aspx
https://cfr.gov.mt/en/inlandrevenue/legal-technical/Pages/Tax-Guidelines-on-Highly-Qualified-Persons-Rules.aspx
https://cfr.gov.mt/en/inlandrevenue/itu/Pages/Global-Residence-Programme-Rules.aspx
https://www.bbc.com/travel/article/20211109-malta-the-island-welcoming-digital-nomads
https://maltaenterprise.com/support
Times of Malta 06/06/2019 Commission Recommends that Malta tackles Taxation and Aggressive Tax Planning
https://www.internationaltaxreview.com/article/b1flt620g4dwgs/malta-implements-the-eus-anti-t ax-avoidance-directives
Malta Today 24/07/2021 Malta Makes Tax Avoidance Pledge in EU Recovery Plan
WIDER Working Paper 2017/55 Global distribution of revenue loss from tax avoidance Re-estimation and country results Alex Cobham and Petr Jansk
Graph View
To what extent does budgetary policy realize the goal of fiscal sustainability?
10
9
9
Budgetary policy is fiscally sustainable.
8
7
6
7
6
Budgetary policy achieves most standards of fiscal sustainability.
5
4
3
4
3
Budgetary policy achieves some standards of fiscal sustainability.
2
1
1
Budgetary policy is fiscally unsustainable.
Budgetary developments since 2013 have demonstrated that Malta is set to meet most standards of financial sustainability. As of June 2015, Malta was no longer subject to the European Union’s Excessive Deficit Procedure. Indeed, deficit levels decreased, and the island went on to register surpluses between 2016 and 2019.
Pre-pandemic projections anticipated that the government would be able to maintain a surplus between 2019 and 2021. Nonetheless, the pandemic disrupted this growth pattern, and budgetary expenditure shifted drastically to cater for a broad range of subsidies and incentives that the government provided to keep the economy afloat. The government was expected to register a surplus of €114 million in 2020 and public debt as a percentage of GDP was expected to fall from 43.2% to 40.4%. However, the government recorded a deficit of 10.1% of GDP in 2020. It has also been confirmed that the budget deficit will amount to €1.6 billion or 12% of GDP. This policy was assisted by the EU budgetary escape clause valid for 2020 and 2021.
Projections presented by the Maltese government in its 2021 Stability Programme and the European Commission figures indicate that the government deficit in 2023 could range from 4.7% to 3.9%. European Commission figures project gross public debt at 63.6% in 2023. In its recommendations on the program, the European Commission stressed the need to prioritize fiscal reforms that will address the problem of sustainability with regards to the healthcare and pension systems. In this regard, the government has introduced a number of measures intended to contain these challenges (e.g., gradual increases to the age of pension eligibility and incentives to defer early retirement). Malta faces a medium risk to fiscal sustainability over the medium term, according to the latest debt sustainability analysis. Recommendations for Malta included prioritizing sustainable and growth-enhancing investment, in particular investment supporting the green and digital transition, and strengthening the coverage, adequacy and sustainability of healthcare and social protection systems.
Air Malta, a state-owned enterprise, continues to register losses of over €170,000 daily in view of COVID-19-related losses, which has led the government to request permission from Brussels to provide state aid amounting to €290 million. Meanwhile, the country’s energy provider, Enemalta, was given a positive review by the S&P Global Ratings agency in 2021, despite the pandemic.
Citations:
The Politics of Public Expenditure in Malta in Journal of Commonwealth & Comparative Politics, Vol. 46, No. 1, February 2008, Routledge, U.K. Maurice Mullard, University of Hull & Godfrey Pirotta.
European Economic Forecast Spring 2018 p.100, p.101
National Statistics Office (NSO) News Release 069/2017
European Economic Forecast Spring 2018 p.109
European Economic Forecast Spring 2019 p. 123
http://europa.eu/rapid/press-release_MEMO-15-4971_en.htm
Central Bank of Malta Economic Projections 2019-2021
Council Recommendation delivering a Council opinion on the 2021 Stability Programme of Malta COM(2021) 518 final p.5, p.6
Ministry of Finance Malta: Annual Report 2020 p.3
Times of Malta 27/08/2021 2021 Deficit Confirmed at €1.6 billion
Times of Malta 14/02/2021 Air Malta is Losing More Than €170,000 daily – Finance Minister
Malta Today 25/03/2021 S&P Keeps Enemalta Rating at BB - With Negative Outlook
Pre-pandemic projections anticipated that the government would be able to maintain a surplus between 2019 and 2021. Nonetheless, the pandemic disrupted this growth pattern, and budgetary expenditure shifted drastically to cater for a broad range of subsidies and incentives that the government provided to keep the economy afloat. The government was expected to register a surplus of €114 million in 2020 and public debt as a percentage of GDP was expected to fall from 43.2% to 40.4%. However, the government recorded a deficit of 10.1% of GDP in 2020. It has also been confirmed that the budget deficit will amount to €1.6 billion or 12% of GDP. This policy was assisted by the EU budgetary escape clause valid for 2020 and 2021.
Projections presented by the Maltese government in its 2021 Stability Programme and the European Commission figures indicate that the government deficit in 2023 could range from 4.7% to 3.9%. European Commission figures project gross public debt at 63.6% in 2023. In its recommendations on the program, the European Commission stressed the need to prioritize fiscal reforms that will address the problem of sustainability with regards to the healthcare and pension systems. In this regard, the government has introduced a number of measures intended to contain these challenges (e.g., gradual increases to the age of pension eligibility and incentives to defer early retirement). Malta faces a medium risk to fiscal sustainability over the medium term, according to the latest debt sustainability analysis. Recommendations for Malta included prioritizing sustainable and growth-enhancing investment, in particular investment supporting the green and digital transition, and strengthening the coverage, adequacy and sustainability of healthcare and social protection systems.
Air Malta, a state-owned enterprise, continues to register losses of over €170,000 daily in view of COVID-19-related losses, which has led the government to request permission from Brussels to provide state aid amounting to €290 million. Meanwhile, the country’s energy provider, Enemalta, was given a positive review by the S&P Global Ratings agency in 2021, despite the pandemic.
Citations:
The Politics of Public Expenditure in Malta in Journal of Commonwealth & Comparative Politics, Vol. 46, No. 1, February 2008, Routledge, U.K. Maurice Mullard, University of Hull & Godfrey Pirotta.
European Economic Forecast Spring 2018 p.100, p.101
National Statistics Office (NSO) News Release 069/2017
European Economic Forecast Spring 2018 p.109
European Economic Forecast Spring 2019 p. 123
http://europa.eu/rapid/press-release_MEMO-15-4971_en.htm
Central Bank of Malta Economic Projections 2019-2021
Council Recommendation delivering a Council opinion on the 2021 Stability Programme of Malta COM(2021) 518 final p.5, p.6
Ministry of Finance Malta: Annual Report 2020 p.3
Times of Malta 27/08/2021 2021 Deficit Confirmed at €1.6 billion
Times of Malta 14/02/2021 Air Malta is Losing More Than €170,000 daily – Finance Minister
Malta Today 25/03/2021 S&P Keeps Enemalta Rating at BB - With Negative Outlook
Graph View
To what extent does research and innovation policy support technological innovations that foster the creation and introduction of new products?
10
9
9
Research and innovation policy effectively supports innovations that foster the creation of new products and enhance productivity.
8
7
6
7
6
Research and innovation policy largely supports innovations that foster the creation of new products and enhance productivity.
5
4
3
4
3
Research and innovation policy partly supports innovations that foster the creation of new products and enhance productivity.
2
1
1
Research and innovation policy has largely failed to support innovations that foster the creation of new products and enhance productivity.
Given Malta’s very limited access to natural resources, the country’s business R&D sector continues to hold considerable potential. However, Malta has traditionally been one of the EU member states with one of the lowest investment levels in this area. In 2019, Malta was last in the EU in terms of government R&D spending. Data published by Eurostat in 2021 highlighted the fact that, at 0.7% of GDP, Malta had one of the lowest R&D expenditures in Europe when compared to the EU average of 2.3%. Figures published by the European Commission in 2021 indicate that there were 478 female researchers and 1,068 male researchers working in Malta during 2017.
As of 2021, the European Union has made €95 billion in funds for R&I available throughout the European Union through Horizon Europe. This constitutes the largest funding scheme for R&I endeavors to date. The program was officially launched in Malta in February 2021 and should provide much needed funding for local R&I projects.
The European Innovation Scoreboard 2021 identifies Malta as a moderate innovator and highlights the fact that the country’s performance relative to the European Union has increased over the years, though it remains below the EU average. The country’s R&I strategy for the period 2020–2027 highlights smart specialization as the key to harness innovation. The sectors that have been identified as having potential for growth are health and well-being, sustainable use of resources for climate change mitigation and adaptation, smart manufacturing, marine and maritime technologies, aviation and aerospace, and digital technologies. With 10%, Malta has the sixth highest share in the European Union for green innovations in energy-intensive industries.
Other significant actions include the FUSION program, which focuses on the analyses of companies’ or researchers’ ideas for commercial viability purposes, the introduction of research clusters, and the applied research framework. The applied research framework is administered by the Malta College of Arts, Science and Technology (MCAST), the research trust, the Center for Entrepreneurship and Business Incubation (CEBI) within the University of Malta, the Malta Information Technology Agency (MITA) Innovation Hub, and the Malta Life Sciences Park, which provides high-end facilities for the chemistry, biology and digital-imaging sectors. The Malta Digital Innovation Authority has also been active since 2018 and is tasked with promoting digital innovation activities. Furthermore, Esplora, Malta’s Interactive Science Center, is intended to instill a broader interest in science and innovation within the general public.
Despite limited funding, Malta still contributes to cutting-edge R&D. For instance, researchers at the University of Malta have developed state-of-the-art diving safety equipment, while Malta’s first space mission, Project MALETH, aims to advance medical research in the area of diabetes.
Citations:
Times of Malta 01/12/17 “Very little being spent on research despite surplus”
Malta Independent 02/12/17 Malta holds position as one of lowest spenders on R&D in the EU
Eurostat News Release 5/2019
https://ec.europa.eu/eurostat/web/products-eurostat-news/-/ddn-20211129-2
SHE Figures 2021 p.134
Times of Malta 27/10/2021 €95.5 Billion Available for R&I
Times of Malta 17/02/2021 Horizon Europe Launched in Malta
European Innovation Scoreboard 2021 p. 57
Malta’s Smart Specialisation Strategy 2020-2027 p.5
http://mcst.gov.mt/ri-programmes/fusion/
https://www.mcast.edu.mt/applied-research/
https://www.um.edu.mt/cebi/ourresearch
https://mih.mt/
https://www.maltaenterprise.com/industries/life-sciences
http://esplora.org.mt/
The Malta Independent 06/12/2021 University Researchers Develop State-Of-The-Art Diving Safety Equipment
https://zaar.com.mt/projects/maleth-maltas-space-mission/
European Commission THE 2021 EU INDUSTRIAL R&D INVESTMENT SCOREBOARD
As of 2021, the European Union has made €95 billion in funds for R&I available throughout the European Union through Horizon Europe. This constitutes the largest funding scheme for R&I endeavors to date. The program was officially launched in Malta in February 2021 and should provide much needed funding for local R&I projects.
The European Innovation Scoreboard 2021 identifies Malta as a moderate innovator and highlights the fact that the country’s performance relative to the European Union has increased over the years, though it remains below the EU average. The country’s R&I strategy for the period 2020–2027 highlights smart specialization as the key to harness innovation. The sectors that have been identified as having potential for growth are health and well-being, sustainable use of resources for climate change mitigation and adaptation, smart manufacturing, marine and maritime technologies, aviation and aerospace, and digital technologies. With 10%, Malta has the sixth highest share in the European Union for green innovations in energy-intensive industries.
Other significant actions include the FUSION program, which focuses on the analyses of companies’ or researchers’ ideas for commercial viability purposes, the introduction of research clusters, and the applied research framework. The applied research framework is administered by the Malta College of Arts, Science and Technology (MCAST), the research trust, the Center for Entrepreneurship and Business Incubation (CEBI) within the University of Malta, the Malta Information Technology Agency (MITA) Innovation Hub, and the Malta Life Sciences Park, which provides high-end facilities for the chemistry, biology and digital-imaging sectors. The Malta Digital Innovation Authority has also been active since 2018 and is tasked with promoting digital innovation activities. Furthermore, Esplora, Malta’s Interactive Science Center, is intended to instill a broader interest in science and innovation within the general public.
Despite limited funding, Malta still contributes to cutting-edge R&D. For instance, researchers at the University of Malta have developed state-of-the-art diving safety equipment, while Malta’s first space mission, Project MALETH, aims to advance medical research in the area of diabetes.
Citations:
Times of Malta 01/12/17 “Very little being spent on research despite surplus”
Malta Independent 02/12/17 Malta holds position as one of lowest spenders on R&D in the EU
Eurostat News Release 5/2019
https://ec.europa.eu/eurostat/web/products-eurostat-news/-/ddn-20211129-2
SHE Figures 2021 p.134
Times of Malta 27/10/2021 €95.5 Billion Available for R&I
Times of Malta 17/02/2021 Horizon Europe Launched in Malta
European Innovation Scoreboard 2021 p. 57
Malta’s Smart Specialisation Strategy 2020-2027 p.5
http://mcst.gov.mt/ri-programmes/fusion/
https://www.mcast.edu.mt/applied-research/
https://www.um.edu.mt/cebi/ourresearch
https://mih.mt/
https://www.maltaenterprise.com/industries/life-sciences
http://esplora.org.mt/
The Malta Independent 06/12/2021 University Researchers Develop State-Of-The-Art Diving Safety Equipment
https://zaar.com.mt/projects/maleth-maltas-space-mission/
European Commission THE 2021 EU INDUSTRIAL R&D INVESTMENT SCOREBOARD
Graph View
To what extent does the government actively contribute to the effective regulation and supervision of the international financial architecture?
10
9
9
The government (pro-)actively promotes the regulation and supervision of financial markets. It demonstrates initiative and responsibility in such endeavors and often acts as an international agenda-setter.
8
7
6
7
6
The government contributes to improving the regulation and supervision of financial markets. In some cases, it demonstrates initiative and responsibility in such endeavors.
5
4
3
4
3
The government rarely contributes to improving the regulation and supervision of financial markets. It seldom demonstrates initiative or responsibility in such endeavors.
2
1
1
The government does not contribute to improving the regulation and supervision of financial markets.
Malta is a small economy and as such is not a principal actor in the regulation of financial markets. However, it possesses consolidated links with regional and international organizations which help it through shared intelligence, to combat high-risk or criminal financial activities, ensuring fair cost and risk-sharing among market actors when a market failure occurs or is likely to occur, and to enhance information transparency in international markets and financial movements. The Central Bank of Malta, the Malta Financial Services Authority (MFSA) and the Ministry of Finance collaborate closely with similar bodies abroad. Malta has a sound regulatory framework for the fight against terrorism financing. This ensures rapid implementation of targeted UN financial sanctions on terrorist financing and the financing of weapons of mass destruction.
The Central Bank of Malta operates within the European System of Central Banks. Malta is also a member of MONEYVAL, a European committee of experts evaluating anti-money-laundering measures. Supranational regulatory regimes have strong influence on Maltese banking regulations. For instance, the 2014 European Bank Recovery and Resolution Directive was transposed into Maltese law in 2015. In the same year, the Central Bank of Malta introduced the concept of a central credit register, which requires Maltese banks to report end-of-month balances of exposures exceeding €5,000. Legislation was also officially introduced in 2021 to cap cash transactions on high-value items such as property, jewelry and works of art at €10,000.
The Financial Intelligence Analysis Unit (FIAU) helps to combat high-risk or criminal financial activities. The FIAU is responsible for the collection, collation, processing, analysis and dissemination of information related to combating money laundering and the funding of terrorism. The unit is also responsible for monitoring compliance with relevant legislative provisions and issuing guidelines aimed at curbing money laundering. Throughout its years of operation, the FIAU has signed memos of understanding with other national FIAUs, and spearheaded the transposition of the European Union’s Fifth Anti-Money Laundering Directive (AMLD) into Maltese law in 2020. Among other elements, this directive continues to build on the existing framework, adding provisions related to virtual currencies, broader access to information and stricter control for transactions above specified thresholds.
Policies within the Maltese financial sector have raised concerns at the European and international level in recent years. A report published by MONEYVAL in September 2019 noted recent progress insofar as the competent authorities have improved their understanding of the threats and vulnerabilities, and have undertaken certain actions to mitigate the risks. However, the report also stressed the fact that the Maltese anti-money laundering framework is not equipped to tackle offenses, particularly those of a more complex nature. MONEYVAL emphasizes that the FIAU is weak and too small in terms of the size of the island’s financial-services sector. Nevertheless, Malta passed the MONEYVAL test in 2021 following a series of reforms that beefed up the island’s anti-money laundering regime. The Maltese police force included the Economic Crimes Unit and National Counterfeit Unit. These were relatively weak, securing few convictions or sanctions for money laundering. However, the creation of a more robust financial crimes unit has led to a number of high-profile prosecutions for money laundering and other financial crimes.
However, Malta was still grey listed by the Financial Action Task Force (FATF) in 2021, despite the country being largely or fully compliant with all 40 of the FATF recommendations. The main reasons attributed to the grey listing were money laundering, defective rule of law and justice system, institutional corruption, lack of transparency, and weak institutions. This could potentially have a far-reaching impact on the island’s economy, and as a result the FIAU is spearheading efforts to rectify shortcomings and remove Malta from the list. Meanwhile, FATF President Marcus Pleyer has since noted that good progress on the grey listing action plan has been made, although key points of action still need to be addressed.
Citations:
https://www.mfsa.mt/about-us/
https://www.centralbankmalta.org/ relations-with-international-institutions
Times of Malta 26/10/2015 The impact of the European Bank Recovery & Resolution Directive
The Malta Independent 16/04/2015 Central Credit Register to become operational by October
https://www.centralbankmalta.org/ccr
Times of Malta 12/03/2021 Malta Introduces €10,000 Cash Cap on Transactions of Valuable Items
http://www.fiumalta.org/about
https://ec.europa.eu/info/publications/anti-money-laundering-directive-5-transposition-status_en
https://pulizija.gov.mt/en/police-force/police-sections/Pages/Economic-Crimes-Unit.aspx
European Commission Press Release 08/11/2018 Commission Requests Maltese Anti-Money Laundering Watchdog to Step Up Supervision of Banks
Malta Today 12/09/2019 Updated | Moneyval: Malta Must Step Up Investigation and Prosecution of Money Laundering
Times of Malta 06/02/2021 Plans to Set Up Financial Crime Agency are Scrapped
Times of Malta 23/06/2021 FATF Votes to Greylist Malta
Times of Malta 05/12/2021 In Depth: Malta ‘On the Right Track’ to Get Off FATF Grey List – FIAU deputy director
Times of Malta 21/10/2021 Malta Makes ‘Good Progress’ on Greylisting Action Plan – FATF president
Malta Today 02/01/2022 Looking Back at 2021: One shade of Grey
Times of Malta 08/12/2021 Malta’s grey listing contributing factors and the road ahead
The Central Bank of Malta operates within the European System of Central Banks. Malta is also a member of MONEYVAL, a European committee of experts evaluating anti-money-laundering measures. Supranational regulatory regimes have strong influence on Maltese banking regulations. For instance, the 2014 European Bank Recovery and Resolution Directive was transposed into Maltese law in 2015. In the same year, the Central Bank of Malta introduced the concept of a central credit register, which requires Maltese banks to report end-of-month balances of exposures exceeding €5,000. Legislation was also officially introduced in 2021 to cap cash transactions on high-value items such as property, jewelry and works of art at €10,000.
The Financial Intelligence Analysis Unit (FIAU) helps to combat high-risk or criminal financial activities. The FIAU is responsible for the collection, collation, processing, analysis and dissemination of information related to combating money laundering and the funding of terrorism. The unit is also responsible for monitoring compliance with relevant legislative provisions and issuing guidelines aimed at curbing money laundering. Throughout its years of operation, the FIAU has signed memos of understanding with other national FIAUs, and spearheaded the transposition of the European Union’s Fifth Anti-Money Laundering Directive (AMLD) into Maltese law in 2020. Among other elements, this directive continues to build on the existing framework, adding provisions related to virtual currencies, broader access to information and stricter control for transactions above specified thresholds.
Policies within the Maltese financial sector have raised concerns at the European and international level in recent years. A report published by MONEYVAL in September 2019 noted recent progress insofar as the competent authorities have improved their understanding of the threats and vulnerabilities, and have undertaken certain actions to mitigate the risks. However, the report also stressed the fact that the Maltese anti-money laundering framework is not equipped to tackle offenses, particularly those of a more complex nature. MONEYVAL emphasizes that the FIAU is weak and too small in terms of the size of the island’s financial-services sector. Nevertheless, Malta passed the MONEYVAL test in 2021 following a series of reforms that beefed up the island’s anti-money laundering regime. The Maltese police force included the Economic Crimes Unit and National Counterfeit Unit. These were relatively weak, securing few convictions or sanctions for money laundering. However, the creation of a more robust financial crimes unit has led to a number of high-profile prosecutions for money laundering and other financial crimes.
However, Malta was still grey listed by the Financial Action Task Force (FATF) in 2021, despite the country being largely or fully compliant with all 40 of the FATF recommendations. The main reasons attributed to the grey listing were money laundering, defective rule of law and justice system, institutional corruption, lack of transparency, and weak institutions. This could potentially have a far-reaching impact on the island’s economy, and as a result the FIAU is spearheading efforts to rectify shortcomings and remove Malta from the list. Meanwhile, FATF President Marcus Pleyer has since noted that good progress on the grey listing action plan has been made, although key points of action still need to be addressed.
Citations:
https://www.mfsa.mt/about-us/
https://www.centralbankmalta.org/ relations-with-international-institutions
Times of Malta 26/10/2015 The impact of the European Bank Recovery & Resolution Directive
The Malta Independent 16/04/2015 Central Credit Register to become operational by October
https://www.centralbankmalta.org/ccr
Times of Malta 12/03/2021 Malta Introduces €10,000 Cash Cap on Transactions of Valuable Items
http://www.fiumalta.org/about
https://ec.europa.eu/info/publications/anti-money-laundering-directive-5-transposition-status_en
https://pulizija.gov.mt/en/police-force/police-sections/Pages/Economic-Crimes-Unit.aspx
European Commission Press Release 08/11/2018 Commission Requests Maltese Anti-Money Laundering Watchdog to Step Up Supervision of Banks
Malta Today 12/09/2019 Updated | Moneyval: Malta Must Step Up Investigation and Prosecution of Money Laundering
Times of Malta 06/02/2021 Plans to Set Up Financial Crime Agency are Scrapped
Times of Malta 23/06/2021 FATF Votes to Greylist Malta
Times of Malta 05/12/2021 In Depth: Malta ‘On the Right Track’ to Get Off FATF Grey List – FIAU deputy director
Times of Malta 21/10/2021 Malta Makes ‘Good Progress’ on Greylisting Action Plan – FATF president
Malta Today 02/01/2022 Looking Back at 2021: One shade of Grey
Times of Malta 08/12/2021 Malta’s grey listing contributing factors and the road ahead