MALTA: Jurisdiction's attractiveness to investors improves, but stays below pre-greylisting levels.

As published on newsbook.com.mt, Tuesday 18 October, 2022.

Malta’s attractiveness to foreign investors has increased once more after the country was taken off the Financial Action Task Force grey list, but nevertheless remains lower than it had been before the country became the first greylisted EU member state in the first place, the latest edition of the EY Malta Attractiveness Survey has found.

And while the proportion of existing foreign investors surveyed who deem Malta to be an attractive investment destination bounced back from 37% last year to 58%, that level remains lower than the 62% who described Malta as an attractive investment destination in 2020 – a year in which this proportion had already sharply declined in the wake of the Covid-19 pandemic.

This time round 30% maintained that Malta was not an attractive destination for investors. While this was, once more, lower than 2021 figures, it is a higher proportion than that recorded pre-greylisting: and markedly higher than that recorded pre-Covid.

Many of the investors surveyed highlighted that Malta’s swift removal from the grey list provided reasons for optimism, though they also recognised that the overall impact of greylisting would continue to be felt for some time.

And while the increase in the attractiveness index may appear encouraging, less so is a continued downward trend in the proportion of investors who expect to retain a presence in Malta in 10 years’ time. This proportion, which had been 80% in 2019, had declined only slightly to 77% by last year – but declined somewhat more notably to 69% this year.

An apparent explanation for this thread may be found when investors are asked to state what they perceive to be attractive about Malta as an investment destination: the top reason – mentioned by no less than 71% – was its corporate taxation.

At present, Malta’s corporate tax rate of 35% is actually the highest rate to be found in the EU. But in practice, many foreign investors end up paying an effective tax rate of just 5%, given a generous tax refund that has seen Malta described as a tax haven internationally.

But this state of affairs may not persist for much longer, amid worldwide and EU calls to establish a unified minimum tax on corporate profits of at least 15%.

The government has suggested that it is set to revise its corporate tax regime, lowering the top rate but slashing the generous tax refunds that have encouraged many foreign companies to domicile in Malta and offshore their profits here. These plans have provisionally shelved, according to Finance Minister Clyde Caruana: he said last month that Malta would not jump the gun at a time where the momentum for a minimum corporate tax had waned.

Even so, no less than 58% of foreign investors deemed international tax policy developments to be the biggest risk affecting Malta’s attractiveness to foreign investors, making it the top risk identified in the survey.

In any case, while the proportion of investors expecting to stay in the long-term declined, the proportion who expects to expand over the coming year actually increased by 7 percentage points this year to 46%. Once more, however, this is a level that remains lower than those reported before 2021.

The second biggest risk perceived by investors – a close second, given that it was mentioned by 54% – is skills shortages, with no less than 66% stating that they were unable to find the required specialised skills in Malta’s labour market.

And no less than 73% maintained that the skills and availability of the workforce influenced their future investment choices, making it the top reason cited by survey respondents.

This shortage appears to reflect, primarily, rising costs – no less than 87% deemed the cost of housing and living to impact their ability to recruit and retain talent from overseas, with 43% stating that it affected this ability to a large extent.

Though the survey itself did not elaborate on housing and construction, a reflection on the matter was made by the study’s authors, who argued that “there is some friction starting to develop” around Malta’s economic model.

“For example, a number of surveys indicate that people are getting tired of overdevelopment and construction. Yet does our legal and tax framework prioritise property development as opposed to other activities,” EY Malta asked.

Investors also complained about the lack of ease and the costs involved in hiring third-country nationals, with 82% deeming it to impact their recruitment.

And an identical proportion found that foreign workers in Malta faced challenges if they hoped to build a long-term future in the country.