Restrictions remain as External Transactions Act 2003 comes into force

Legislation establishing a framework for the liberalisation of external transactions while collecting the related statistical information came into force on Thursday.

The Central Bank of Malta said in a statement last week that the new legislation, the External Transactions Act, Cap 233, which replaces the amended Exchange Control Act, Cap 233, provides for the retention of a number of restrictions.

The following restrictions will remain in force in the absence of specific authorisations issued by the CBM, acting as agent for the Minister of Finance and Economic Affairs, in terms of the External Transactions Act 2003:

1. Cash gift/family subsistence allowance. The maximum limit on payments by residents in connection with cash gifts or family living expenses is Lm30,000 per adult per year;

2. Current accounts with credit institutions overseas. The opening and maintenance of current accounts by residents with credit institutions overseas is not permitted. Financial services companies which provide investment services to their clients are, however, permitted to open and maintain client current accounts with credit institutions overseas;

3. Foreign currency holdings - resident (natural person). The maximum limit on foreign currency holdings (cash/cheques) that a resident is exempted from surrendering to an institution licensed to carry on the business of foreign exchange (formerly referred to as an authorised dealer) is the equivalent of Lm50,000;

4. Foreign currency current accounts with local credit institutions - resident (natural person). The holding of foreign currency current accounts by natural persons with local credit institutions is permitted subject to the following conditions:

i) that funds deposited are already denominated in foreign currency; and
ii) the maximum aggregate balance in these accounts does not exceed the equivalent of Lm50,000;

5. Foreign currency accounts with local credit institutions - companies/retail outlets. The holding of foreign currency accounts (current, savings, time) by companies/retail outlets with local credit institutions is permitted subject to the following conditions:

i) that funds deposited are already denominated in foreign currency; and
ii) balances may only be used to effect overseas payments in connection with business costs.

Agents who receive payments in foreign currency from local customers for the import of goods and services may deposit such funds into foreign currency accounts with local credit institutions. However, such receipts have to be remitted to the foreign counterparty within a month of receipt;

6. Foreign portfolio investment. While foreign portfolio investments are not subject to any quantitative limit, residents are not permitted to place funds in portfolio assets with a maturity period of less than six months;

7. Financial loans by residents to non-residents. Residents are not permitted to extend financial loans to non-residents for periods of less than six months;

8. Financial loans to residents in foreign currency. Residents are not permitted to borrow in foreign currencies from resident or non-resident sources for periods of less than six months;

9. Investment by local fund investment schemes. Fund investment schemes, which collect funds in Maltese liri from residents with the specific aim of investing these funds in Maltese liri-denominated assets, are not permitted to maintain foreign currency assets in excess of 15% of their shareholders' funds;

10. Contracts with non-resident life insurance companies. Residents are not permitted to enter into life insurance contracts with non-resident life insurance companies except in cases where the policy of insurance provides solely for the payment of a sum of money, or other consideration, on the occurrence of death within a period which is specified in the policy;

11. Contracts with non-resident non-life insurance companies. Residents are not permitted to enter into non-life insurance contracts involving motor vehicle insurance with non-resident companies (that is, any premium in terms of Group 2 of Part II of the Third Schedule to the Insurance Business Act [Cap 403] which provides for policies of insurance issued by an authorised insurer as defined in the Motor Vehicles Insurance [Third Party Risks] Ordinance, Cap. 104);

12. Spot/forward currency transactions. Institutions licensed to carry on the business of foreign exchange are not permitted to enter into spot/forward contracts relating to capital account transactions where funds in Maltese liri borrowed by the resident or non-resident counterparty are used in the transaction;

13. Repatriation of export receipts. Residents involved in export transactions are not permitted to retain export proceeds in accounts with foreign credit institutions, as mentioned in No. 5 above. They are, however, permitted to deposit these proceeds in foreign currency accounts with local credit institutions; and

14. Issue, acquisition, sale and redemption of securities not listed on the Malta Stock Exchange and registered in Malta - non-residents. Applications by non-residents for the issue, acquisition, sale and redemption of securities not listed on the Malta Stock Exchange in local companies established, or to be established, in Malta have to be cleared by the Registrar of Companies of the Malta Financial Services Authority. This procedure does not apply to companies as defined in article 2 of the Income Tax Act, Cap. 123 (that is, international holding/trading companies) and to companies that own a vessel registered under the Merchant Shipping Act, Cap. 234, and where the resident participation does not exceed 20%.

In effecting foreign exchange transactions on behalf of their customers, institutions licensed to carry on the business of foreign exchange will still be expected to examine the appropriate documentation provided to them by their customers as evidence of the purpose of the payment.

It will be their responsibility to keep proper records of all such transactions and to provide the Central Bank with regular returns as requested by the CBM, which are required for monitoring and statistical compilation purposes.

The procedures to be followed in implementing these restrictions will be elaborated on further in circulars to be issued to these institutions by the Central Bank.

The removal or modification of these restrictions will be made through subsequent legal notices issued by the Finance Minister.