Chetcuti Cauchi | Sound Financial Advice

Dr Maria Chetcuti-Cauchi                               Dr Priscilla Mifsud-Parker    

Questions are answered by firm partner and co-founder Dr Maria Chetcuti-Cauchi, in charge of the Financial Services Practice Group, firm partner Dr Priscilla Mifsud-Parker, in charge of the Corporate Services Department, and firm associate Dr Charles Cassar.

Q: What type of services does Chetcuti Cauchi predominantly provide? How large is the company currently?

Dr Maria Chetcuti-Cauchi (MCC): Chetcuti Cauchi is a professional services group providing legal, tax, company formation and fiduciary services to businesses and private clients worldwide. We offer sophisticated business advice and legal representation in all aspects of corporate, commercial and financial-legal services.

Q: What, in your view, the state of the financial services sector today?

MCC: In the last two decades, Malta earned a reputation of a forward-looking, stable and respectable European financial centre; compliant with international and EU standards and regulations; presenting an approachable, flexible yet serious regulator and boasting an attractive business incentives and tax benefits package.

All this has dubbed the island as a noteworthy competitor to other traditional financial centres such as Geneva, Luxembourg, Dublin and Zug and has particularly attracted respectable fund managers, financial investment companies, investment advisors, forex brokers, securities market makers, stock brokers and ICT & e-commerce ventures to our shores. The jurisdiction's regulator, the MFSA, has played a key role in this growth, primarily thanks to its high levels of accessibility and responsiveness, as well as its openness to innovative proposals.

Q: Has the sector grown substantially over the past year? By how much?

MCC: Malta's financial services industry has grown in recent years. One could say that in 2008/2009 it sidestepped substantial damage that could have been caused from the international financial crisis, partly due to the close regulation of the local banking system. Malta currently enjoys a rising presence in five main sectors in the financial services industry: insurance, banking, trusts, funds, and wealth management. All these areas have recorded a solid performance during 2011. In April of this year Malta was again vetted by the Global Financial Centres Index (GFCI), an international survey of financial centres complied by Long Finance. Although Malta dropped in the rankings, the Island retained the same ratings points. Malta Financial Services moved from 70th to 72nd place in the ranking retaining its overall rating of 568 points.

Foreign investment appetite in Malta is strong; foreign direct investment in Malta improved slightly over 2011, to an estimated €12.5 billion (NSO). Growth in the establishment of multinational manufacturing, pharmaceutical and aircraft maintenance service companies is also reported.  This complements the ever-growing financial industry and the well-established shipping industry - Malta having the largest maritime register in Europe.

Q: Where do the majority of Malta's financial services clients come from, and what services do they tend to seek out?

Dr Charles Cassar (CPC): When we look at the financial services clients that we have assisted we find that it is difficult to spot very pronounced trends as to geographical origin. We have assisted clients from various EU countries, as well as from countries outside of Europe, such as Canada, the Philippines, South Africa, Russia, Australia, Tunisia and the United States. Malta is now well known within certain circles and can thus attract business from around the globe. Coming to the services sought out, these tend to be quite varied, but the most common requests we address relate to advisory services in relation to financial regulation, corporate law and tax, plus general company maintenance matters.

Q: Why is the financial services sector so important to the Maltese economy? What does it bring in?

CPC: The obvious answer is that the financial services sector is a valuable source of revenue for the jurisdiction. However in reality this is only a small part of the argument, as the industry brings a lot more than that. The industry, for example, provides the Maltese workforce with the opportunity of acquiring useful and sophisticated skills. The presence of a sound financial sector also improves Malta's brand as a whole, making the country more attractive to participants in other industries, such as ICT.

Q: Do you think more can be done to further develop the sector? What would that be?

CPC: Malta has been a success in this industry for many reasons; the regulator is approachable, the population is fluent in English and high regulatory standards are maintained. More importantly, there is a sense of shared undertaking between the authorities and the private sector, with the two having a frank and open dialogue and recognizing each other's importance. Retaining this approach will be essential for the sector to develop further. In many ways, it's not about different things; it's about doing more of the same successful things that we've been doing as a jurisdiction.

Q: Do you think that 

the sector is being held back somewhat by government bureaucracy and red tape?

CPC: On the contrary, the lack of red tape has been one of the essential factors contributing towards the growth of the sector. Whilst Malta could generate some criticism in this regard in some other areas, the financial services industry cannot be an attestation of this. The Malta Financial Services Authority, in particular, is well-liked by market participants for its 'lack of red tape'. This does not mean that the MFSA is pliable to the demands of the industry; we know from experience as advisors the rigour and seriousness with which MFSA takes its role. But in many countries it is simply not possible to have a dialogue of any sort with your regulator; the MFSA's open approach therefore comes as a breath of fresh air for many market participants.

Q: Many point to Malta's favourable taxation environment as being a big factor in Malta's success in this regard. Do you think this is the case?

CPC: There are many countries which have taxes which are lower than Malta's or which have simple zero-tax regimes. Therefore tax, while certainly important, is only a small part of a much broader discussion. Various factors have contributed to the jurisdiction's growth: accessibility of the country from major international centres such as London; ability to hold face to face meetings with financial services authorities; cost-effectiveness of local professionals; English being also an official language and sound IT infrastructure. Every piece of the puzzle is important.

Q: Malta has been opposing the introduction of Financial Transaction Tax on a European level. What would the effect of such a tax be on Malta's financial sector?

Dr Priscilla Mifsud-Parker (PMP): An introduction of such a tax would mean that Malta loses competitive advantages as opposed to other EU states and non-European countries that do not have such tax.  Malta could still offer other advantages, however it is very important to protect this industry from extra financial burdens that could lead it to move outside of our shores.

Q: Under what circumstances do you think that the establishment of an FTT would be acceptable?

PMP: There are very f

ew scenarios where it would be acceptable. The only scenario would be where the Maltese government counteracts such an introduction by offering an increase of other advantages and incentives. This might result in foreign direct investment not being directly affected by the introduction of this additional tax.

Q: Can Malta, one of the smallest member states, hold out indefinitely in the face of economic giants like Germany and France?

PMP: Malta cannot afford to join the bigger states in supporting this tax. Our economy very much depends on the income that the financial services sector brings into the country's economy.  In fact there are also other big states which are still opposing the FTT such as Britain and Sweden.   

Q: Malta has also been opposing the establishment of an EU-broad fiscal union. What do you think would the effect of such a development be on Malta's financial sector?

PMP: A fiscal union would completely wipe out any benefits that Malta presents in terms of taxation and a business friendly environment.  Malta's financial sector would definitely be very heavily hit and there could be a reduction in jobs starting from the banks, moving onto fund administrators, fund managers and service providers in the legal and financial fields. This could result in huge unemployment percentages amongst graduates especially in the legal, accounting and economics field.

From a European point of view, critics of the promoted initiative also pointed out that the tax could distort the EU's single market by giving financial companies various reasons to shift their trading activities to European financial centres where the tax is not charged, or totally away from European shores.

Q: Do you think the establishment of an EU-wide fiscal union is simply a matter of time? Can it be avoided?

PMP: This can be avoided.  The European Union was never intended as a fiscal union and the only harmonized law that there is in this area to date is the VAT law.  The European Commission should be focusing on removing barriers to trade between EU countries, not on increasing burdens.