A treaty with a message
We have now achieved a new high in our economic relations with the US. A historic accord was signed last Friday, the Double Taxation Treaty between the two countries. This treaty is on its way to ratification by the US Senate for Foreign Relations after which it will come into force.
This is an important achievement that is expected to have a very positive impact on our economic growth and job creation prospects, to the benefit of business and worker alike. This is because this treaty is not just one of the 50 that we already have with so many other countries, but is with the US, the largest destination market and source of investment.
Over the years we have worked assiduously to build the economic framework that makes Malta the successful financial and business jurisdiction it is today. We have great people who are well educated, pleasant, and English speaking. We have a really good tax regime. We have introduced the Euro, one of the most highly traded currencies on the world markets. Our banking and financial system has grown with most of the big names with a presence here. We have joined the euro payments system, placing us on the international payments network together with all other EU member states. The best known financial services providers are here.
Our regulatory regime is very well established and has grown its connections internationally. Our quality of life and standard of living is really attractive with the right resources for health, education, international travel and other ingredients modernised and in place. The word is out and robust quality foreign direct investment is being received.
We did not stop here. Our strategy is to establish at least two more ingredients to trade and economic facilitation. The first is improved international marketing and communications through FinanceMalta and Malta Enterprise. The second is our international tax treaty network to open up more cross-border investment channels.
Treaties that avoid double taxation are a critical instrument in overcoming a major barrier to trade – that of being taxed twice by two different governments. So for example, if a Maltese investor establishes a business in the US and makes a profit there, that profit could be taxed in the US and again in Malta. This treaty avoids this situation and determines the tax regime to ensure fair treatment and to encourage investment in both countries.
These treaties therefore have helped Malta develop trade relations with other countries, improving the flow of inward direct investment and serving as an important platform for Maltese residents doing business in partner countries. We now have treaties with about 50 countries, and a few nearing completion.
We have grown our tax treaties network beyond our important trading partners and have expanded this to emerging economies, neighbouring countries and other jurisdictions expected to become trading or diplomatic partners over time.
The addition of the US, one of the world’s major economic players, to treaty partner level is critical in terms of true recognition of Malta’s progress internationally. This is not only positive for the benefits that can be achieved from the US-Malta relationship, but also because it sends a very positive international message to the global market that, having passed a very demanding US Treasury regime, Malta is a recognised quality jurisdiction. This is because the value of the treaty is also largely in its perception value. A treaty means normalised political and economic relations between two countries, and acceptance of the Malta jurisdiction by US regulatory and fiscal authorities.
Malta really means business. The significance of this treaty therefore extends beyond the tax implications to improve Malta’s competitive and marketing position so that it is perceived to be clean, above board and accepted by our counterparts internationally, including the US. We have based our reputation on these quality fundamentals.
To this end, the US and Malta already have well established information exchange links through international networks and bodies combating tax fraud, terrorist financing and other forms of criminal activity. However the treaty provides another necessary component to this network. The message it sends is also quite clear – we will protect our excellent reputation by working openly with the best in the world.
Malta’s economy has made significant strides forward in recent years with good GDP growth, the fulfilment of the Maastricht economic convergence criteria and adoption of the euro as our national currency. When taking all such factors into consideration, it is therefore no surprise that in the past two years alone, we have also managed to attract over US $3 billion worth of high quality FDI to our shores.
This success is everybody’s success. Everybody benefits from this. How else could we have afforded improving tax bands, large capital projects, and continued social benefits? Everybody benefits because we are a socially responsible government and have ensured that benefits are properly distributed.
We aim to continue this run of success – with everybody’s participation. We believe that we can continue to improve our attractiveness to investors abroad. We have already attracted and continue to attract investments such as Smart City and numerous other international organisations in the financial, manufacturing, tourism, gaming and other industries. We believe that we can do this in other areas too. This way, we can also enjoy employment opportunities in a variety of fields and a diversity of investment to make the Malta portfolio a truly resilient one.
Mr Fenech is Minister of Finance, the Economy and Investment.