Slowly but surely the ominous July 1, 2011 deadline is approaching when the EU savings tax rate increases to 35 per cent from the current 20 per cent. This means that interest income on bank deposits, fixed income securities (bonds), certain investment funds and other structures will be taxed at 35 per cent. It is important to remember that, as the name suggests, this is not a local tax but an EU savings tax.

Investors who are paying such a tax should not be misled into thinking that once this EU Savings tax is paid then there is no need to pay any further local tax. Maltese investors are obliged to either disclose their income from investments to the local tax authorities or to pay the local withholding tax of 15 per cent on the ‘savings’ income. This means that from July 1 investors holding their assets overseas could conceivably be paying 50 per cent tax on their savings income.

Additionally from July 1 the option to have tax deducted on savings income will be dropped in certain foreign jurisdictions (e.g. Isle of Man). Instead financial institutions will provide information to the relevant tax authorities on a named basis.

Investors should be wary of these developments and should consider using local solutions for their investments. This will bring the benefit of easy access to your investment advisor, a simple tax structure on savings income with tax charged at a maximum of 15 per cent on savings income, similar levels of confidentiality and, we believe, performance at least on a par with the large investment houses found in other financial centres.

Libya – Corinthia/IHI/MIH

The developments in Libya and the Middle East are indeed worrying. From a local perspective there is the oil price hike to deal with. This will hit all walks of life as hikes in the cost of oil filter into electricity/petrol/diesel costs.

Additionally, from an entrepreneur’s perspective the prospect of penetrating the Libyan market has long been an attractive proposition despite the trials and tribulations associated with closing deals in Libya.

Given the lucrative nature of the market across the Mediterranean, many local entrepreneurs invested time and resources into breaking into this market.

Many were very successful. Chief among these have been the Corinthia Group, directly, and through IHI and MIH. Libya has long been considered their back yard and, as the country appeared to be opening up, their strong ties reaped enormous benefit.

Unfortunately the current events occurring in Libya put a more challenging outlook on the future of the group.

One could argue that a Libya without Gaddafi is a Libya with significant opportunity. This may be true but it is difficult to see the end of this current conflict happening soon. And it possibly couldn’t have come at a worse time for the group. Fund raisers were planned for MIH and IHI this year while the opening of IHI’s flagship hotel in London is due to take place shortly. This is unfortunate for a group that has put Maltese entrepreneurship on the world map with its string of top hotels around Europe and North Africa.

From a Malta Stock Exchange perspective the developments in Libya are also important, not least because Corinthia, IHI and MIH account for approximately 30 per cent of all corporate bonds issued on the local market. Perhaps most at risk are the bonds of MIH since MIH is a company whose asset base is entirely in Libya. The Palm City project is indeed a highly attractive compound superbly situated on the shores of the Mediterranean just a stone’s throw from the centre of Tripoli, yet it is hard to see how the cash flows of MIH will pan out if there is a protracted conflict in the country.

IHI is much more diversified company, owning prize assets in Budapest, Libya, Lisbon, London, Malta, Prague and St Petersburg amongst others. The Libya hotel was however the jewel in the crown, contributing over 64 per cent of total EBITDA in 2009.

Whether other hotels have taken up the slack remains to be seen. One hopes that, even in the face of a lengthy conflict in Libya, the breadth of assets held by IHI should serve the company sufficiently well.

6pm

It is curious to see that 6pm is proposing to hold a rights issue to fund the proposed purchase of the Compunet Group. In markets more developed than ours, the company would have felt the need to sit with market participants to explain the rationale behind the proposed transaction. The rationale here is that a company would listen to the market participants to gauge the level of support it would get for its proposed deal. Alas 6pm has other ideas.

One hopes that top management of other local companies do not avoid briefing brokers and investment managers of developments within their companies. This would be short sighted. Or perhaps I am being naive and in Malta this is how listed companies are supposed to act.

Curmi & Partners Ltd are members of the Malta Stock Exchange and licensed by the MFSA to conduct investment services business. This article is the objective and independent opinion of the author. The information contained in the article is based on the research note issued by C&P, copies of which are available on request. Any opinions that may be expressed here above should not be interpreted as investment advice, nor should they be considered as an offer to sell or buy an investment.

www.curmiandpartners.com

Mr Curmi is managing director of Curmi & Partners Ltd.