Investment Registration Scheme 2003 in detail

The Central Bank of Malta reviews the intricacies of the ongoing Investment Registration Scheme and the government’s decision to offer a one-time extension for a limited period until 15 November

In September 2001, the Government launched an Investment Registration Scheme (IRS) to provide residents of Malta who held foreign eligible assets without the necessary exchange control permits and/or without declaring the relevant income for tax purposes, with the opportunity to regularise their position. That Scheme expired at the end of 2002.
When launching that Scheme, the Government had amply emphasised that consultations were actively being conducted between the governments of the major industrialised economies to introduce multilateral and bilateral agreements regarding exchange of information between tax authorities on non-resident investments in their respective countries. This international collaborative framework is intended to combat money laundering, terrorism and tax evasion generally.
Since then, a number of significant developments have taken place towards this common international objective. In particular, the EU Directive on Taxation of Savings Income came into force in July 2003. EU Member States must adopt legislation to comply with this Directive before 1 January 2004 and apply its provisions as from 1 January 2005. This Directive requires an institution (such as a bank, an issuer of bonds and similar securities, etc) in a Member State which pays investment income to individuals resident in another Member State, to provide information concerning such payments to the competent tax authority of its Member State. This tax authority, in turn, is obliged to communicate this information automatically to the tax authority of the Member State where the recipient of the investment income resides.
This obviously implies that once Malta adopts this Directive, the Inland Revenue Department in Malta will receive information from the tax authorities of other EU members regarding the financial investments held by Maltese residents in such Member States.
Against this background, the Government decided to offer a one-time extension of the Investment Registration Scheme for a limited period until 15 November 2003. The Scheme is governed by regulations which are broadly in line with those of the previous IRS. These regulations were published in the Government Gazette of Friday 22 August 2003 through Legal Notice No 209 of 2003 (as amended by Legal Notice 226 of 2003) issued by the Minister of Finance and Economic Affairs under the Exchange Control Act.
Main features of the scheme
The Scheme is operational from 1 September 2003 to 15 November 2003 and allows a resident of Malta to register any eligible asset held outside Malta on the applicable date and which should have been declared in terms of the Exchange Control Act (as in force on 1 July 2003). Income from such assets which should have been declared under the Income Tax Act may also be registered under the Scheme by the person who owns such assets on the applicable date.
The "applicable date" for the purposes of this Scheme refers to eligible assets that were held outside Malta:
a) on or after 1 January 2000 and which were repatriated to Malta before 1 September 2001, or
b) on 1 September 2001 but which will be repatriated to Malta before 16 November 2003, or
c) on 1 September 2001 and which will be retained abroad.
Registration can be effected with regard to eligible foreign assets that are repatriated to Malta as well as assets that continue to be retained abroad.
The following eligible assets may be registered under the Scheme:
i. financial assets held abroad, including bank deposits, shares, bonds, collective investment schemes, derivatives, and other investment instruments;
ii. life and annuity long term insurance policies issued abroad;
iii. loans extended by the applicant to companies established abroad for the sole purpose of investing funds for portfolio purposes;
iv. immovable property held abroad.
Registration of eligible assets must be executed through Appointed Registration Agents, namely credit institutions, stockbrokers and other Investment Services Providers holding a category 2 or category 3 licence. Special forms are available at these Agents for this purpose.
Appointed Registration Agents will only register such assets following submission by the applicant of original documentary evidence confirming that the applicant was the beneficial owner of these assets on the applicable date. Persons registering their overseas portfolio investments will be asked by the Appointed Registration Agent to sign a declaration to confirm that they are the beneficial owners of the registered assets, that all the information and documentation submitted are authentic, and that the assets do not represent proceeds from criminal activities. Once such a declaration is provided, the Appointed Registration Agent will issue a Registration Certificate.
The Registration Certificate will be issued to the applicant against the payment of a registration fee equivalent to five per cent of the current market value of the registered eligible assets. The applicant is not to be charged any fee for registration services rendered by the Appointed Registration Agent. This fee is paid directly by the Government to the Agent (recoverable from the registration fee). However, if the applicant requests additional services (such as valuation of assets), the Agent is entitled to charge a fee for such extra services.
The Agent issues three copies of the Certificate. The original is given to the applicant, the duplicate copy is retained by the Registration Agent for his records, while the triplicate copy is sent to the Central Bank of Malta for custody in the Central Registration Certificate Depository. Certificates are sequentially and uniquely numbered on controlled stationery and are strictly non-transferable.
The beneficial owner of assets registered under this Scheme is exempted from retrospective action by Government in respect of such registered assets in terms of the Income Tax Act and the Exchange Control Act. Once a person registers eligible assets, he is exempted from all tax that would have been chargeable on all income received up to date of registration. The only exception is income that had been declared in income tax returns up to the year of assessment 2001, and that had already been submitted to the Commissioner of Inland Revenue by 1 September 2001.
Upon registration, a person is considered as never having contravened any exchange control restrictions or requirements with regard to the registered assets.
The submission by the applicant of false statements and documents will nullify the Certificate and render the applicant liable to criminal action being taken against him.
Registration is covered by confidentiality and the Appointed Registration Agents and the Central Bank are prohibited by law from disclosing information obtained in the process of registration. In order to protect this confidentiality, stringent measures and procedures have been put into place at the Central Bank to ensure the utmost confidentiality of information contained in the Registration Certificate filed in the Central Registration Certificate Depository.
Neither the Inland Revenue Department nor any other entity can have access to the information held by the Registration Agents and the Central Bank in respect of Registration Certificates. The Inland Revenue Department can only come to know about the information contained in the Certificate if the owner of the registered assets, at his discretion, reveals the Certificate to the tax authorities in order to prove that he has regularised his position. This might occur, for instance, in the event that such a person is undergoing an investigation by the Tax Compliance Unit in respect of information that was obtained from an overseas tax authority in the context of the EU Directive on Taxation of Savings Income or under any other bilateral agreement with the tax authorities of other countries.
Further information on the Scheme can be obtained from the Appointed Registration Agents or from the Central Bank of Malta (r Edmund Calleja and Frank Caruana) Freephone 8007 2308, or visit the Central Bank’s website www.centralbankmalta.com