Malta remains a jurisdiction of choice. Its EU-compliant regulatory framework coupled with a highly skilled workforce and a competitive tax regime makes the island an interesting option for foreign direct investment. This holds also true for German investment in Malta, which dates back to the 1960s.

Whereas in the past, Germans mainly opened production sites in Malta using  benefits under the various government schemes attracting foreign direct investment, today Germans choose Malta mostly for its innovative regulatory framework, for example in the field of financial services or iGaming. Moreover, Malta has a lot to offer to private individuals who have chosen Malta as their domicile under the High Net Worth Individuals Rules, or acquire property to rent in Malta, or Malta registered assets such as yachts or planes.

At the same time, Malta’s current EU presidency has put the jurisdiction under the spotlight. Due to ever growing competition between the various Member States to attract foreign direct investment, the arguments put forward get chillier. To safeguard Malta’s reputation as a jurisdiction, advisers therefore have to pay full attention to offer a compliant structure to their foreign clients.

Indeed, in the case of German foreign direct investment, the growing transparency requirements vis-à-vis the fiscal authorities and recent developments in the pertaining case law of the German Federal Fiscal Court (Bundesfinanzhof) gain importance in this regard.

Germany champions transparency at a global level, and in 2014, on the occasion of the ‘Global Forum on Transparency and Exchange of Information for Tax Purposes’ in Berlin, it invited leading jurisdictions to comply with OECD standards on the automatic exchange of information bet­ween the participating tax authorities.

Germany champions transparency at a global level

At the European level, EU Council Directive 2014/107/EU (commonly known as ‘DAC2’) was adopted to facilitate such an automatic exchange of information within the EU. This extension effectively incorporated the OECD Common Reporting Standard (commonly known as ‘CRS’) into EU Council Directive 2011/16/EU in respect of administrative co-operation.

Malta, as an ‘early adopter’ of the above standards, has committed to implement the CRS following an ambitious timetable leading to the first automatic information exchanges in 2017. Hence, it is crucial for Germans having interests in Malta to bring their investment in line with the pertaining tax rules and for their advi­sers to act accordingly.

For example, German individuals owning pro­perty for personal use, such as real estate, yachts or planes, should take recent decisions by the Bundesfinanzhof into account: The court held that, under certain circumstances, the use of such pro­perty by their ultimate owners without paying rent based on its value may trigger German tax in cases where the property is held by a corporate structure. The highest court for tax matters in Germany argued that the non-payment of rent was to be qualified as a hidden profit distribution to the shareholders that would be taxable.

The ownership of property in Malta through such corporate structures is, however, often used to establish a genuine link to the country of registration or – prior to the EU Succession Regulation coming into force as of August 17, 2015 – to avoid the application of Maltese succession law to Malta-based real estate in spite of the German nationality of the deceased.

In light of this new case law, corporate structures chosen in the past should be revisited to assess whether German taxes have been triggered, and if so, whether the Maltese assets have been declared to the German tax authorities. If that is not the case, it is crucial to act expeditiously given the growing transparency as already described. Under certain circumstances, German taxpayers may avoid punishment under German law on fiscal offences provided that the taxpayer has notified such offences prior to the discovery by the German tax administration.

Clients should therefore be advised to seek further assistance from legal experts conversant with international tax law as applied by the German tax administration. Indeed, practical experience in drafting such notifications is fundamental to successfully mitigate criminal prosecution, as the extensive experience of our colleague Joachim Greuner, from the multidisciplinary practice of Wülfing Zeuner Rechel, gained in numerous cases of German individuals having undeclared assets in Switzerland or Dubai, has shown.

Maltese advisers should include German counsel at an early stage when structuring certain investments in Malta. Nevertheless, we have seen cases in our practice where this basic principle was not followed. For example, we were instructed in a German-Maltese case where German VAT was triggered due to the wrongful choice of the appropriate corporate structure: The Maltese-German group ultimately became insolvent and the German CEO went to jail.

Of course, this had major repercussions on the Maltese consultants facing personal liability for ill-advice. We are sure, however, that with the help of comprehensive advice on both Maltese and German (tax) law the success story of Germans investing in Malta will continue in the future.

Christian Pisani is a German qualified lawyer based in Munich and member of the Malta Chamber of Advocates.

christian.pisani@pisani-partner.de

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