If you were a multi-millionaire looking to invest money in an European Union country, Malta may not be the first country that springs to mind. Nestled away from the hustle and bustle of important EU metropolitan regions such as Rhine-Ruhr, the Metropolitan City of Milan and (for the time being) Greater London, a small island with a middling GDP by Europe’s standards seems like an unusual choice for non-EU investors to locate to. But with Malta’s Individual Investment Program (otherwise known as the IIP), you can do just that by obtaining Maltese citizenship at an overall cost of around 1 million Euros.
What then, would incentivise investors to take part in the IIP? Thanks to loopholes and convenient complexities, multinational corporations can enjoy a large tax refund which means they can pay a corporation tax rate as low as 5%. By comparison, the average EU corporation tax rate is 22%. Knowing that profits will be kept largely untouched, investors may find Malta to be an ideal location for a European economic base.
In exchange, Malta receives significant financial support. Those who sign up for the IIP have to contribute at least €650,000 to the National Development and Social Fund, a government agency designed to accumulate wealth and invest it into various forms of economic and social infrastructure.
Although this may seem like a win-win situation, the IIP has some worrying political consequences. Low tax rates may well entice potential investors, but this could come at the expense of threatening unity within the EU.
Between 2012 and 2015, Green Members of the European Parliament estimated that multinationals in Malta avoided paying at least €10bn in tax which could have been collected by other EU countries. Not only will the promotion of low tax rates frustrate large EU economies who want such tax revenue to promote their own economic development and social investment, but also countries recovering from financial crises, such as Greece, that desperately need significant investment.
The IIP has also caused tension within Malta for the past four years. Although the Maltese government claims the program creates ‘mutually beneficial partnerships’ with non-EU investors, this has come at the expense of local and small businesses. Not only are there reasonable fears that competition from multinational companies will force many out of business, but there is also anger at these new companies being able to enjoy exclusively low corporation tax rates that smaller businesses do not enjoy.
Considering we have seen populism rise throughout Europe with both radical right-wing and left-wing politicians promising to put the interests of ‘the people’ before those of ‘the elite(s)’, we cannot rule out the possibility of this tension aiding a new populist movement and polarisation in Malta.
Concerns have been raised about the security and legal risks the IIP poses to the EU. By reducing citizenship requirements to simply the wealth of the applicant, the program could potentially allow criminals and even those with links to terror organisations access to live and operate in Europe. Convicted fraudsters could theoretically start a new life in Malta and commit similar crimes within Europe’s borders.
Of course, the IIP buys not only Maltese citizenship, but also freedom of movement within the European Union and the right to live and work in all 28 of its member states. In the face of economic uncertainty posed by Brexit negotiations, the IIP appears to be an attractive opportunity for British-based companies and investors who seek to relocate to the EU in the event of a no deal Brexit. If the UK fails to maintain free trade with the EU, the government of the day may have to slash corporation tax rates to stop capital flowing out of the country to places such as Malta, much to the general public’s dismay. However, if this doesn’t happen and the IIP drives preachy, tax-dodging millionaire celebrities such as Bob Geldof out of the country, then perhaps we should all welcome the IIP.
Image: Beatrice Taylor