What is Value Chain Management
"A multi-disciplinary analysis of the group's supply chain with a view to optimising the business processes, supplier relationships and business culture with a view to streamlining, simplifying and energising the business model as a result of which there may be opportunities to significantly optimize the group's direct tax, indirect tax and Customs & trade position"
Key Considerations for 'Value Chain Management' (VCM)
- Going global–VCM enhances the company's operations by analysing market forces, increasing production efficiencies as well as improving distribution networks.
- Market entrance –companies looking for a foothold in a new market or region should consider such structures.
- Post merger integration is a good context for tax-efficient centralisation strategies. Tax saving can help to pay for wider restructuring.
- Emphasis on centralisation of functions and risks of all or a part of the business.
- Cost efficiencies in the industry –VCM planning focusing on VAT and customs duty can help deliver short-term cash savings for international groups.
- Tax and legal structure is aligned with the business needs.
- Supply and value chain is the main focus.
- Limited risk entities focusing on their core activities.
- Potential concentration of the group profits in the principal risk taking entity of the business.
Allocation of profits follows the (re)location of functions, assets and risks
Various VCM legal and operating models are possible
The Principal Trading Company Model
Over recent years Malta has achieved rapid and continuous growth specifically as a manufacturing base, a European Distribution Centre and a financial services hub. The various ingredients to which this success can be attributed are:
- Malta's Strategic Location -Right on the major global trade route bridging two markets with convenient, established, cost-effective feedering networks
- Extensive shipping connections
- Customs suspension procedures / Free-zones
- Efficient customs clearance into the EU
- A favourable business environment
- Highly-qualified workforce
- Flexible, international legal and accounting traditions
- Attractive specialist fiscal and non-fiscal incentive packages
What is Malta Today
Malta's rapid growth spurred by the key factors outlined previously and nurtured through a series of industrial policies throughout the years specifically designed to support foreign export-oriented industries has seen Malta become a solid industrial base in a crucial geographical position, which is further complimented by an exploding financial services sector. Today, Malta is home to a myriad of first-rate companies predominantly in sectors such as:
- Logistics-based services
- Healthcare, pharmaceuticals and medical devices
- ICT and electronics
- Front and back-office operations
- On-line gaming
This modern, high-tech, diversified economy, a business hub in the cross-roads between Europe, the Middle East and North Africa is one of the most exciting jurisdictions through which to do business today.
A bridge between markets
Malta is located at the very centre of the Mediterranean with direct access to the European, North African and Middle Eastern markets which conveys a significant logistical advantage to companies operating in a single central distribution hub from which to service these major markets in Malta especially as regards the time to market.
Malta is in the Central European Time zone, a distinct advantage to companies serving European clients.
The legal, regulatory and fiscal framework in Malta, has followed a unique evolution resulting in a system which can claim familiarity with both civil and common law concepts, this combined with English being the official business language of Malta. All laws, official forms and related correspondence are promulgated, published and applied in the English language. Eliminating any language burden on multi-national operations is one of the ingredients that has contributed to Malta's continuing success as a manufacturing base, a European Distribution Centre and a financial services hub.
The focused regulatory regime is complimented by the fiscal environment which provides taxpayers with certainty through rulings and confirmations of the tax treatment of complex transactions mainly based on the International Financial Reporting Standards ("IFRS") accounting treatment.
- A favourable business environment
- English is the Business Language
- Relatively low cost environment (typically some 50% cheaper than doing business in Northern Europe)
- An EU regulatory environment ensuring a fair and level playing field for all players in the intra-EU market
- Specialist incentive packages yielding attractive benefits for Malta-based enterprises
- A well developed infrastructure, including an advanced telecommunications infrastructure with plenty of available bandwidth and great sea and air links
Malta enjoys a stable economic, industrial and political climate which coupled with a competitive and productive labour force and attractive incentive packages, offers companies an ideal scenario to which to locate their operations in Malta.
- A highly qualified and competitive labour force.
- The established manufacturing industries in Malta guarantee the existence of specialist logistics, procurement and trading personnel who are well versed in the challenges of such international trade.
- Almost 3,000 graduates per annum with degrees geared towards the infrastructural and industrial needs of the country providing expertise in crucial fields ranging from Commerce, ICT to Science and Engineering.
- Low salary/wage inflation providing a competitive advantage over other overseas competitors. In 2010 monthly labour costs were at around 45% of the EU 27 average. Furthermore, when productivity and working hours are factored into the equation, Malta's workforce becomes cheaper than all established EU members.
- Mastery of dual linguistic capabilities. English is also an official language of Malta.
Maltese tax law finds its origins in the UK tax system and is based on UK tax principles. The Income Tax Act levies a tax on income and certain capital gains; the distinction between items of income and capital is fundamental in Maltese tax law and unless specifically taxable, capital receipts are not subject to income tax.
Malta has a full imputation tax system which completely eliminates the economic double taxation of company profits. Shareholders in receipt of dividends are entitled to a tax credit equal to the tax borne on the profits out of which the dividends are paid.
In support of Malta's drive to eliminate economic double taxation, ever since 1994 Malta has adopted a system of tax refunds to non-resident shareholders upon a distribution of dividends, pursuant to which, various refunds are available which reduces the effective tax rate to a maximum of 6.25%.
Effective tax rate between 0% and 6.25%
Also further to the provisions of the EU Parent –Subsidiary Directive, Malta offers a full participation exemption upon qualifying inbound dividends and gains, in terms of which such dividends are fully exempt from Maltese taxation.
- A wide treaty network of more than 60 Treaties and growing
- No withholding tax on dividends
- No withholding tax on interest
- No withholding tax on royalties
- No withholding tax on liquidation proceeds
- No Transfer Pricing Rules
- No Thin Capitalisation Rules
- No CFC Rules
- No Capital or Wealth Taxes
- No Transfer Taxes
- No Exit Taxes
In addition to having the lowest effective tax rate in Europe, various incentives of a fiscal and non fiscal nature may be granted to companies operating in Malta. Such incentives include inter alia interest rate subsidy, loan guarantees or soft loans.
Companies established in Malta which hold a license to carry out certain qualifying activities may also be entitled to investment tax credits which are calculated as a percentage (30%, 40% or 50% in case of large, medium-sized or small companies respectively) of:
- the amount invested in qualifying tangible and intangible expenditure; or
- the wage cost for jobs created
which are deducted from the tax charge. Unutilised tax credits are carried forward to be deducted from the tax payable in future years.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.