For a small island, Malta does big business – Felicity Cousins explains its appeal for foreign investors.

Yellow clusters of giant wild fennel and pale blue star-shaped borage flowers dance in the onshore breeze, the clifftop field a brightly coloured smudged canvas under a clear, open sky. The sun’s golden rays cast shadows on the ruins of the Phoenician temple, and the Mediterranean flashes blue in the distance between the giant carved stones. This timeless scene is just one of the attractions Malta holds for the 1.4 million tourists who visit each year.

Lying south of Sicily and 290km north of Libya, the Republic of Malta is a group of peaceful, rocky islands that include Malta, Gozo and Comino. The islands offer a warm, dry climate, picturesque fishing villages, Phoenician temples, and the history of the Knights of St John and the shipwrecked St Paul. Visitors delve deep into the “Silent City” of Mdina and explore the capital of Valletta before enjoying a crisp white wine and fresh fish dinner at a harbour restaurant.

Tourism plays a large role in Malta’s economy, accounting for about 15 per cent of its GDP and employing 10 per cent of the island’s 400,000 people. But for an increasing number of visitors, Malta means business. According to the Malta Tourism Authority, there was an 11.2 per cent increase in business travel to the Maltese islands in the first quarter of this year, compared with the same period in 2011 (rising from 24,679 visitors to 27,453), and last year 116,326 delegates visited the Republic from countries including Italy, the UK, France and Germany.

Malta has a lot of the big hotel brands already – from Sheraton to Intercontinental – and it is home to Corinthia Hotels, which opened a luxury property in London last year. In 2010, the country held its largest conference to date. Oriflame was a meeting of 5,000 sales agents for a cosmetics distribution company and was estimated to have generated about €8 million. Nadine Brincat, the Malta Tourism Authority’s marketing manager for MICE, says: “Last year was another record year for conference and incentive business travel to Malta.”

Malta is strategically placed for doing business – it lies in the path of the Mediterranean’s main shipping routes and has the second-largest shipping register in Europe (eighth in the world). It has strong links with North Africa – Libya is a 40-minute “commute” by plane – and Malta International airport is a gateway to more than 75 destinations with direct flights all over Europe and a smaller number to the African continent. Over the past year passenger numbers have increased by 1.5 per cent to over 3.5 million.

The story is a positive one – so how, in the middle of an economic crisis, is Malta staying afloat in these choppy European waters?

Looking back, perhaps it’s no surprise – Malta has fought, and won, difficult battles before. When 30,000 Ottoman Turks attacked the island in 1565, it seemed an impossible task for 600 knights and a few thousand Maltese to defeat such a ferocious army, but they were victorious. Today, the battle to survive the global downturn may be more civilised, but success is just as important for the future of the Maltese people.

In 2011, Malta’s GDP was €6.4 billion and last year’s growth was 2.5 per cent, which, compared with others in Europe (Italy 0.7 per cent, Spain 0.6 per cent, UK 0.8 per cent), is impressive. However, it was recently confirmed that Malta has entered recession, with a 1 per cent decrease in GDP in the first three months of this year.

Joseph Zammit Tabona, Malta’s high commissioner to the UK, is not too concerned: “One of Malta’s strengths is the government’s ability to react quickly,” he says. During the 2008 crisis, when its manufacturing companies needed help, the government created a bespoke training course so people worked four days a week and were paid by the state for the fifth day of training. Such policies paid dividends – “Within six months Malta was out of recession,” Zammit Tabona says.

Manufacturing is the country’s largest sector, representing 25 per cent of GDP, and more than 200 foreign-owned enterprises have been enticed to the island. The country’s largest employer is global electronics company ST Microelectronics, which employs 1,500 people in its manufacturing plant and accounts for 60 per cent of exports (€1.2 billion a year). Other companies of note include Lufthansa Technik, which employs 700 people, and toy manufacturer Playmobil, which produces two million models a week here.

Zammit Tabona says: “A lot of manufacturing went to China but in Malta they can deliver a product in three to four weeks, whereas it might take China six to eight. Manufacturing companies maintain Maltese operations because the standard of work and efficiency of employees is so good.”

Crimsonwing provides IT solutions in the UK, Holland and Malta, and set up on the island 15 years ago. David Walsh, its chief executive, says: “Malta has exceeded our expectations. Some of our overseas clients have been working with us ever since we set up here because of the excellent language skills, loyalty of staff and high-quality work.”

Malta’s stable economy over the years has been aided by its impressive reach of double taxation agreements (DTAs) – which help countries to trade more easily with each other – forging good economic relationships with more than 60 countries across the globe. It’s a substantial amount for such a small country – the UK has the largest network of DTAs in the world, covering more than 100 countries. In the World Economic Forum’s Global Competitiveness Report 2010-2011, Malta was ranked 11th out of 139 countries for financial market development.

Alan Borg, chief commercial officer at Malta International airport, says: “The major growth sectors are gaming, IT, financial services – fund managers, especially from the UK [six companies have re-domiciled to Malta since 2009]; banking is gaining ground locally, as is health and medical tourism.”

Walking through Valletta, the thriving financial services sector is much in evidence. The sector makes up 15 per cent of Malta’s GDP but the government aims to increase this to 25 per cent by 2015 – an optimistic but not unrealistic goal. Big names already well established include HSBC, Deutsche Bank, PWC, Ernst and Young, Munich Re, JLT Insurance, Heritage, Custom House, Apex, TMF, Abacus, Maitland and Trident.

Walsh says Malta is attractive to foreign investors for a number of reasons: “For a small island it has a lot of foreign direct investment with a commensurate demand for business services. The business environment is innovative and buoyant, and the blend of local and international opportunities for us has been a winning combination.”

But in an Ernst and Young survey this year, almost half of participants (46 per cent) saw the corporate tax rate as the most important criterion for companies to expand and develop here. Some Maltese companies pay corporate tax of 35 per cent, but there are various breaks that effectively lower the rate to around 5 per cent.

Borg says: “Companies re-domiciling here can benefit from the government’s attractive taxation and investment policies. They are allowed to set up under the structure of the existing legislation for international trading companies.” For individuals relocating, the relief is even greater – last year income tax on expats was reduced from 35 per cent to 15 per cent.

But the high commissioner doesn’t believe tax is the main reason for Malta’s success. Zammit Tabona says: “The fact we are in Europe [Malta joined the EU in 2004], speak English and are part of the Eurozone is the reason why we are so attractive. Tax is not a priority for many people setting up in Malta. It is more about the longevity of staff, the labour costs, the environment and the schools. Lifestyle is important – we see the sun 300 days a year.”

The average wage in Malta is €12,000-€15,000 – half of that in the UK – so savings on labour costs are a major bonus for any company looking to move here. Malcolm Becker, branch chair of the Society of Trust and Estate Practitioners Malta, and chief executive of Bentley Trust Malta, says: “A lot of people are looking at EU compliance and most are taking advantage of the lower labour costs as well. The main reason we moved to Malta from the Channel Islands was the availability of good labour.”

He adds: “Financial services get a lot of support in Malta and one of the other reasons we came here is that the regulator was welcoming and made it easy. We needed to have continuation legislation [to continue operating while moving locations] and the Ministry of Finance pushed it through parliament to enable us to continue smoothly.”

Malta Enterprise, the national development agency responsible for promoting and facilitating international investment in the islands, launched its Business First product in January – placing more than 50 government services under one roof to make it easier for new businesses to set up.

Zammit Tabona says: “The government is a one-stop-shop for people coming over but I would recommend people visit before they set up to meet up with accountants, lawyers, banks and financial services.”

Those visiting for work will most likely be heading into the mesmerising capital of Valletta. Elaborate painted balconies overhang streets and gargoyles jut out from the corners of grand government buildings. But while the capital offers an inspiring setting for business, there is no room for expansion.

Borg says: “Valletta is where the main professional services are situated and it is the perfect mix of cultural and cosmopolitan character. But although the capital is the centre of most of the legal and consultancy activity, space is limited.”

Most office space is situated in the old townhouses or converted apartments, and parking is a major issue, but a new business park opened this summer at the airport to help combat these issues. Skyparks has already attracted Vodafone Malta, the Bank of Valletta and newly registered aviation company Hangar 8. The complex offers a childcare facility, gym, restaurants and shops and is in close proximity to banks, a post office and supermarkets.

Borg says: “Skyparks will become the new hub in the south of Malta, avoiding the chaotic harbour areas while still being connected to any part of the island. It’s two minutes’ walk from the airport so people can find offices straight off the plane.”

For those who are staying for longer and making Malta home, most head to the expat communities near the capital. Clive Cordina, director of sales and marketing at Valletta’s Hotel Phoenicia, says: “Expats live in the St Julian’s area and Silema – these are the most expensive towns but if you go a few kilometres out it’s much cheaper.”

Becker says: “I’ve been in Malta for nine years. The traffic is bad but it is lovely and sunny and I have friends who are Swedish, Finnish, Irish, Scottish, American, Canadian, English and Maltese too.”

It’s hard to fathom how so much activity can be taking place on an island of only 245 sq km but, as Zammit Tabona says, its petite size brings its own advantages: “Malta is a small country and that makes it very accessible – we can make things happen.”

A safe bet

Malta’s gaming industry has created 5,500 jobs and last year had a turnover of €2 billion. The Society of Trust and Estate Practitioners’ Malcolm Becker says: “Malta is one of the few places where gaming is licensed, regulated and established.”

The country was quick off the mark to encourage the online gaming sector, gaining its first sports betting license in 2001. There are now about 400 internet gaming companies registered here, all attracted by competitive licence fees, industry-specific regulation, EU membership, legal and operational support, and attractive tax regimes. The Hotel Phoenicia’s Clive Cordina says: “One of the biggest investments over the past few years has been the gaming companies setting up in Malta because the government is offering tax reductions.”

And the sector continues to expand – in July it was announced that Tipico, a German gaming company based in Malta since 2004, plans to double its workforce by the end of next year to 200 employees, with many new roles to be taken by graduates of Malta’s university.

Malta in numbers

419,000 Total population

450,000 Number of British tourists per year

1.4 million Total number of tourists per year

24 hours Time usually taken to register a partnership or company

6% Unemployment rate

60+ Number of double taxation agreements globally

95% Roman Catholic population

1,265 Number of people per sq km

30% Financial sector growth in 2011

8 Increase in the number of banks based here between 2004 and 2010 (from 16 to 24)

25 Total number of banks

22 Foreign-owned banks