Malta has become a destination of choice for the setting up of Payment Institutions (also referred to as Payment Services Providers or PSPs). A number of advantages has contributed to this success, mainly but not limited to the fiscal incentives granted not only to the payment institutions themselves, but also to their shareholders and highly qualified expatriates. Other advantages include passporting rights and a thriving and a rapidly growing i-Gaming and e-Commerce industry.
Financial institutions, with the exclusion of banks are regulated by the Financial Institutions Act. The MFSA has also issued a number of rules referred to as Financial Institutions Rules. Financial institutions cannot accept deposits of money from the public since such an activity has remained an exclusive activity of the banks.
The Financial Institutions Act extends to the regulation of Payment Services Providers (PSPs) in terms of the Payment Services Directive (Directive 2007/64/EC) and Electronic Money Institutions (EMIs) that fall within the remit of the Electronic Money Directive (Directive 2009/110/EC).
Permissible Activities
The Second Schedule to the Financial Institutions Act sets out the following permissible activities for PSPs:
- Services enabling cash to be placed on a payment account as well as all the operations required for operating a payment account;
- Services enabling cash withdrawals from a payment account as well as all the operations required for operating a payment account;
- Execution of payment transactions, including transfers of funds on a payment account with the user’s payment service provider or with another payment service provider:
Execution of direct debits, including one-off direct debits;
Execution of payment transactions through a payment card or a similar device;
Execution of credit transfers, including standing orders.
- Execution of payment transactions where the funds are covered by a credit line for a payment service user:
Execution of direct debits, including one-off direct debits;
Execution of payment transactions through a payment card or a similar device;
Execution of credit transfers, including standing orders
- Issuing and/or acquiring of payment instruments;
- Money remittance;
- Execution of payment transactions where the consent of the payer to a payment transaction is transmitted by means of any telecommunication, digital or IT device and the payment is made to the telecommunication, IT system or network operator, acting solely as an intermediary on behalf of the payment service user and the supplier of the goods and services.
Moreover, PSPs may also carry out the following additional activities:
- Execution of payment transactions, foreign exchange services, safekeeping activities, storage and processing of data;
- The operation of payment systems;
- Certain business activities other than the provision of payment services;
- Hold payment accounts used exclusively for transactions;
- Grant credit in relation to certain services, subject to the fulfilment of certain conditions.
Capital requirements
PSPs licensed to carry out the above-listed Second Schedule activities are subject to the following initial capital requirements:
- Where the institution only provides money remittance, its capital shall at no time be less than €20,000;
- Where the institution provides the payment service listed in paragraph (g) of the Second Schedule to the Act, its capital shall at no time be less than €50,000; and
- Where the institution provides any of the payment services listed in paragraphs (a) – (e) of the Second Schedule, its capital shall at no time be less than €125,000.
For PSPs that are also licensed to carry out other activities (listed under the First Schedule to the Act) applicable to General Financial Institutions, the MFSA may:
- set a level of initial capital as applicable to GFIs; and
- require additional capital depending on the activities undertaken by the respective PSP’s licensable activities.
Licensing requirements
The payment institution must own funds which are determined in accordance with the payments services provided. The institution must have at least two individuals who will effectively direct the business of the institution in Malta. The Maltese Competent Authority has to be satisfied that the individuals must prove prudent conduct, they are fit and proper persons, they must show integrity and professionalism and provide adequate flows of information.
The licensing time frame is of three months.
Passporting rights
Given that payment services are the subject of harmonised EU legislation, these specific activities may be passported into other EU member states and EEA jurisdictions in accordance with the prescribed notification procedure. This would effectively enable the Maltese licensee to provide its services within the relevant Member State/s either (i) through the establishment of a branch or (ii) on the basis of the cross-border provision of services.
Licence documentation
The following documents must accompany the application form for a PSP licence:
- Copy of the company’s Memorandum and Articles of Association;
- A business plan which should include the structure, the organization and the management systems
- Financial projections
- Identity of all shareholders, directors, controllers and managers of the institution and of those individuals who will be effectively directing the business of the said institution
- Personal Questionnaires
- A description of the internal control mechanisms
- A programme of operations
- Audited financial statements for the last 3 years (if applicable)
- Measures concerning safeguarding of funds
- The identity of the statutory auditors
- The applicant’s legal status and the address of its head office
Fees payable by Payment Institutions
A company applying for a PSP licence to the Malta Financial Services Authority must together with the application, pay a non-refundable fee of €3,500 as an application and processing fee. Annual supervision fees payable to the MFSA amount to 0.0002 of the total assets as reported in the statutory schedules by the PSP in the previous year, subject to a minimum annual amount of €2,500.
Taxation
The Maltese legislative regime relative to financial institutions is further complemented by various other incentives to set up business in Malta, including a refundable tax credit system whereby shareholders of Malta registered companies are granted a refund of 6/7ths of the tax paid by the Malta Company, resulting in a net tax liability in Malta of 5%.
Furthermore, highly qualified expatriates working with PSPs, EMIs and other financial institutions are subject to Malta income tax at the rate of 15% on their employment income, subject to certain conditions being satisfied.
Why Malta?
Some of the main advantages that Malta has to offer include:
- Advantageous tax treatment for shareholders of PSPs
- Access to a wide tax treaty network
- Malta is an EU member state with access to the various EU Directives
- Malta has the Euro as its currency
- A stable political environment
- A cost effective jurisdiction
- A robust but at the same time flexible legal and regulatory framework
- English as an official language
- Passporting rights
- A well-educated and English speaking workforce
- Efficient and flexible regulator
- A solid Company law legislation
- Sound technological infrastructure
- Specialist professionals such as accountants, auditors, lawyers and tax advisors
- Attractive tax rates for highly qualified employees working with such institutions
Malta has the right ingredients which makes it an efficient jurisdiction, positioning itself as a key jurisdiction from where Payment Services Providers, Electronic Money Institutions and other Financial Institutions can develop their business and operate through Europe.
