Malta is nearly as affluent as its European neighbors. The economy is dependent on tourism, which accounts for 35% of GDP; there are about 1.2 million visitors a year. Manufacturing industry represents about 25% of GDP. The financial services industry is the nation’s fastest-growing sector, which will have accounted for 15% of GDP in 2 or 3 years’ time. GDP per head is about $25,100 (2010), roughly equivalent to Cyprus, and above those of the other new EU member states. GDP growth in 2010 was 3.2%.
In 2007, inflation stood at 2.6% and dropped to 1.3% in 2008. 2009 saw a sharp rise to 2.1% and dropped to 1.7% in 2010. The government deficit was running at less than 3% of GDP in 2006 and dropped to just over 2% in 2007. 2008 saw a doubling of the deficit to 4.5%, a drop to 3.7% was recorded in 2009. The figure for 2010 stood relatively unchanged at 3.6%.
Exports are rising, but with limited agricultural land and wholly lacking in energy resources, Malta inevitably imports a great deal. The new administration has continued with sound financial policies, and has begun liberalization and privatization of various parts of the economy in line with EU requirements.
With GDP below 75% of the Community average, the Commission said in 2006 that the entire territory of Malta will continue to be eligible for regional investment aid. For the period 2007-2013, Malta expects to receive EUR840 million regional aid to deliver growth and jobs.
The Central Bank of Malta used to apply exchange controls under the terms of the Exchange Control Act 1972. Current transactions were freed from exchange controls in 1994; capital controls were removed in 2004 as part of EU entry.
In May, 2005, Malta was accepted into the EU's ERMII (Exchange Rate Mechanism), setting the country on a path towards full adoption of the Euro as from January, 2008. The Council fixed the equivalent rate for the Maltese lira at 0.429300 for one euro. Interest rates used to be controlled in Malta, but were effectively liberalized in 1995 when the Central Bank increased the ceiling on lending rates to 10% above the discount rate. There remain some controls on interest rates on loans for the purchase of residential property.
In a 2008 report, the IMF statement said that the Maltese authorities must be recommended for the successful adoption of the euro on January 1, 2008, calling it "a crucial landmark in their growth-oriented reform agenda".
This agenda appropriately aims at leveraging Malta's strengths and income-generating potential through closer integration in the European and global economies, the IMF suggested.
The Maltese economy was buoyed by significant growth in the island’s financial services sector during 2009, which grew by 22% in 2009 despite the difficult situation in the sector internationally. In 2010, the financial services sector chalked up an even more impressive 30% in growth.
Malta Business Environment
Malta has an excellent business infrastructure with good telecommunications; thi s coupled with the widespread use of the English language and a reasonably open and efficient public administration makes the island a very convenient and effective business base. Valletta, the administrative capital, is also the chief business centre.
The government is vigorously attracting external investment, and foreigner s are permitted 100% ownership of enterprises in almost al l sectors. There are extensive investment incentive schemes. More than 200 foreign companies have set up manufacturing operations in Malta.
There are a number of local banks, but foreign banking activity was heavily controlled in Malta until quite recently. Business legislation has created special regimes for a variety of types of business, including shipping companies, mutual funds and banks. There is also legislation for Trusts modeled on English trust law, which was updated in 2004.
Taxation for entities is very light, and Malta is unusual among low-tax countries in having tax treaties with 58 other countries, including most OECD countries.
Malta Investments by Foreigners
The Maltese government actively promotes foreign investment, particularly into the high technology sector. The Industrial Development Act 1988 introduced incentives and benefits for foreign investors, which were administered by the then Malta Development Corporation. Some incentives were automatic, others were at the discretion of the Corporation. Incentives included tax holidays, exemption from withholding tax, accelerated capital allowances, export promotion allowances, subsidized factories, customs duty relief, training grants, reduced tax rates, soft loans, etc.
In April 2001, the government amended the Industrial Development Act to incorporate a new incentive package to boost existing and new investment, primarily in the manufacturing sector which employs over 30,000 people and which, together with tourism and the services sector, is a key element of Malta's economy.
The incentives on offer no longer depend on whether a company exports or not. They are meant to promote productivity growth regardless of where the product is sold. The new package contains not only new tax incentives, with reduced rates of corporate tax which start from 5 per cent and move up to 15 per cent over a 15-year period, but also investment tax credits, a value added incentive scheme, special provisions for small businesses, and other incentives related to training and job creation.
In January, 2004, the government launched Malta Enterprise, a new body tasked with attracting more foreign direct investment (FDI) to the island. The umbrella body's mission is to sustain Malta's competitiveness and to offer assistance to those seeking to invest in Malta. Malta Enterprise consists of separate units, the first of which is responsible for business development and includes attracting FDI, trade promotion, marketing strategies, knowledge management, and foreign offices. The second unit is primarily responsible for client relationship management, whilst the third deals with corporate services.