Discusses distribution network from how products enter to final destination, including reliability of distribution systems, distribution centers, ports, etc.
Using an Agent or Distributor
The key to success in the Maltese market is having an experienced agent or joint venture partner in Malta with suitable experience and an extensive sales network. Providing after-sales support and spare parts to the consumer is also crucial.
Before making an agreement with prospective agents or joint venture partners, we advise U.S. firms to obtain background information and credit reports about prospective partners.
Companies wishing to use distribution, franchising, and agency arrangements must ensure that agreements they enter are consistent with EU and Member State national laws. Council Directive 86/653/EEC establishes minimum standards of protection for self-employed commercial agents selling or purchasing goods on behalf of their principals. The Directive establishes the rights and obligations of the principal and its agents, the agent’s remuneration, and the conclusion and termination of an agency contract. It also establishes the required notice and indemnity, or compensation paid to the agent in the event of a dispute. U.S. companies should not deviate from these requirements because European courts could invalid any clause specifying the application of an alternate body of law in the event of a dispute.
The European Commission’s Directorate General for Competition enforces legislation concerned with the effects of vertical agreements on competition in the internal market. U.S. small- and medium-sized companies (SMEs) generally are exempt from these regulations because their agreements are considered “agreements of minor importance,” meaning they are incapable of impacting competition at the EU level. The EU also considers companies with fewer than 250 employees and annual revenue of less than €50 million as small- or medium-sized and generally exempts agreements affecting less than ten percent of a particular market (Commission Notice 2014/C 291/01).
Directive 2011/7/EU addresses late payments for commercial transactions within the EU. The directive gives a seller, who does not receive payment for goods and/or services within 30 days of the payment deadline, the right to collect interest (at a rate of eight percent above the European Central Bank rate) and €40 as compensation for recovery of costs. For business-to-business transactions, parties may negotiate a 60-day period subject to conditions. The seller also may retain the title to goods until the purchaser makes full payment and may claim full compensation for all recovery costs. Transactions with consumers, however, do not fall within the scope of the directive.
Companies’ agents and distributors can take advantage of the European Ombudsman when they become victims of inefficient management by an EU institution or body. Businesses can lodge complaints with the European Ombudsman only if they have registered offices in the EU. The Ombudsman can act upon these complaints by investigating cases in which EU institutions fail to act in accordance with the law, fail to respect the principles of good administration, or violate fundamental rights. In addition, SOLVIT, a network of national centers, offers online assistance to citizens and businesses who encounter problems with transactions within the borders of the single market.
Establishing an Office
To establish an office in Malta, businesses must obtain an operating license from the appropriate government department. The fee depends on the nature of the business and its location. The process of developing premises for commercial use requires a license from the Malta Planning Authority (https://www.pa.org.mt/), and new commercial partnerships and legal entities need to registrate with the Malta Business Registry (MBR) (https://mbr.mt/). Every business must also register with the VAT Department and the Inland Revenue Department. Malta is a tax-efficient jurisdiction for holding and trading companies and Formation expenses in Malta are relatively low.
Malta offers two types of companies for foreign investors: International Holding Companies (IHC) and International Trading Companies (ITC), both of which are permit businesses to take advantage of favorable tax treaties. An IHC company’s activities are limited to foreign shareholders and other similar passive, income-generating activities. An advantageous tax regime applies to income generated from participating holdings by such entities. An ITC is an onshore Maltese company, whose trading activities are carried out from but not in Malta. An ITC may not hold foreign investments or equity.
Establishing an office requires a minimum of two shareholders, and shareholder details will appear on public filings. Shareholders may be corporate entities or individuals. To retain anonymity, Malta permits nominee shareholders.
Malta requires only one Director—either corporate or individual—whose details appear on public filings in Malta. To gain tax treaty benefits, a company must establish that it is tax resident in Malta. Therefore, the majority of the company’s board of directors should be based in Malta.
Every Maltese company must maintain a registered office in Malta and appoint a licensed Maltese nominee company as a company secretary or sole director.
Registration of Companies
A limited liability company is the most common form of business in Malta. To constitute a valid limited liability company in accordance with the Maltese Companies Act, at least two persons must enter into a memorandum of association and the Registrar of Companies must then issue a certificate of registration confirming that association.
Memorandum and Articles of Association
The Memorandum of Association must specify the objectives for which the company is incorporated, including the following:
- Whether the company is a public or a private company;
- The name and residence of each of the subscribers thereto;
- The company name;
- The company’s registered office address in Malta;
- The objects of the company;
- The number of shares (or amount of authorized) capital with which the company proposes to register, the division thereof into shares of a fixed amount, the number of shares taken up by each of the subscribers, the amount paid up in respect of each share, and where the share capital is divided into different classes of shares the rights attaching to the shares of each class;
- The number of the directors, the name and residence of the first directors, and where any of the directors is a corporate body the name and registered or principal office address of the corporate body, the manner in which the representation of the company is to be exercised, and the name of the first person or persons vested with such representation;
- The name and residence of the first company secretary or secretaries;
- The period, if any, fixed for the duration of the company;
- The number of an official identification for each shareholder, director, and company secretary;
- The total amount or an estimate of all the costs payable by the company or chargeable to it by reason of its formation up to the time it is authorized to commence business, and of all the costs relating to transactions leading to such authorization; and
- A description of any special advantage granted, prior to the time the company is authorized to commence business, to anyone who has taken part in the formation of the company or in transactions leading to such authorization.
The articles of association may accompany the memorandum of association to prescribe the internal regulations of the company.
A company can adopt the model articles of association found in the First Schedule to the Companies Act. If a company does not register articles of association, the law will presume that the company intended to adopt the model articles.
The person incorporating the company must deliver the memorandum and articles to the Registrar of Companies to register them. Prior to registration, the registrar confirms that the memorandum of articles complies with the requirements of law. A company comes into existence from the date of registration indicated in its Certificate of Registration.
Who May Incorporate
Subscribers may be individuals or corporate entities. A trustee, a duly authorized person in accordance with Maltese Law, may also hold the shares of a company.
Time Required for Incorporation
The length of time to incorporate a company depends on the type of company and whether all information and documentation is available and in order. Once the Registrar has all necessary documentation and information, the process may take as little as 2-3 working days.
Every company registered in Malta must also have a registered office in Malta. A law firm or other corporate services provider can establish a registered office on behalf of an individual. The company needs to inform the Registrar of Companies of any changes to the company’s registered office.
Private Company Formation
A private company’s memorandum or articles must:
- Restrict the right to transfer its shares;
- Limit the number of shareholders to fifty; and
- Prohibit any invitation to the public to subscribe for any shares or debentures of the company
A private company needs a minimum authorized share capital of €1,165. The authorized share capital must be subscribed by at least two persons, where the authorized share capital is equal to the minimum stipulated by law, and must be fully subscribed in the memorandum. Where it exceeds such a minimum, at least that minimum must be subscribed in the memorandum.
Private Exempt Companies
A private company may have the status of an exempt company and qualify for certain advantages if the following conditions are contained in its memorandum or articles of association:
(a) The number of persons holding debentures of the company is not more than 50; and
(b) No corporate body is the holder of or has any interest in any shares or debentures of the company; no corporate body is a director of the company; and neither the company nor any of the directors is party to an arrangement whereby persons other than the directors, shareholders, or debenture holders thereof are capable of determining company policy.
The maximum number of shareholders for a private company is fifty. The minimum number of shareholders is normally two; however, the Companies Act allows registration of a single-member company. A single-member company is a private limited liability company, which qualifies as an exempt company and is incorporated with one member. The Memorandum of Association for a single-member company should indicate the main trading activity of the company.
Directors and Company Secretary
Every private company must have at least one director, and every company must have a company secretary. No company may have its sole director as its company secretary, unless the company is a private exempt company. A corporate body whose sole director is company secretary cannot be the sole director of the company.
It is the duty of the directors of a company to take all reasonable steps to ensure that the company secretary is an individual who appears to them to have the requisite knowledge and experience to discharge the functions of company secretary. The law does not require the company secretary to be resident in Malta.
Maltese entrepreneurs often are interested in franchising. Despite the small market, major U.S. brands exist on the island. The Commercial Section at Embassy Valletta receives several requests annually for U.S franchising opportunities from local entrepreneurs. International franchise operators in Malta include some of Malta’s most experienced companies and investors, maximizing the probability of franchise success.
The European Franchise Federation website (https://eff-franchise.com/ )contains information regarding specific legislation relating to franchising. Foreign Exchange Control regulations govern the payments of the franchise and royalty fees.
Direct marketing has become more popular in Malta in recent years. Several mail and telephone ordering services now exist in Malta, and door-to-door selling exists on a limited scale but is not common.
The EU has not adopted legislation harmonizing the direct-selling of consumer products. However, there is a wide-range of EU legislation impacting the direct marketing sector. Compliance requirements are stiffest for marketing and sales to private consumers. Companies should provide clear and complete information to consumers prior to any purchase of goods and services and need to inform consumers of their approaches to collecting and using customer data. Companies should also comply with the new General Data Protection Regulation that came into effect in 2018.
For a brief overview of provisions flowing from EU-wide rules on distance-selling and on-line commerce, please consult the Direct Marketing section of the “Doing Business in the European Union: 2021 Country Commercial Guide for U.S. Companies,” available from the U.S. Mission to the EU.
Maltese laws allow and encourage joint-venture and licensing arrangements with foreign companies. Private foreign investors are free to make equity arrangements as they wish, ranging from joint ventures to full equity ownership.
A number of express delivery options exist for American companies wishing to dispatch goods to Malta, including Fedex, UPS, DHL, TNT, which usually guarantee a second business day delivery to Europe from the U.S. Most logistics companies offer a range of options for international delivery at different price points to meet customers’ needs, with logistical services that include dangerous goods shipping, worldwide shipping solutions, and customs clearance services.
Potential U.S. investors in Malta and U.S. exporters of goods and services should perform due diligence on potential local agents, partners and customers, particularly when extending credit.
Embassy Valletta provides basic background information on companies operating in Malta. American companies may also request information from the Malta Chamber of Commerce, Enterprise, and Industry at https://www.maltachamber.org.mt/.
Full company reports are available from Creditinfo Malta, which is the local representative of Dun & Bradstreet at https://mt.creditinfo.com/.
The Malta Business Registry maintains a central repository of information for registered Maltese limited liability companies and commercial partnerships. This government-maintained repository found here provides information at a charge for filed accounting documentation required by law. There are also independent credit ratings companies that can be contracted to execute a credit evaluation.
U.S. firms, especially those with no previous experience in doing business in Malta, should consider the U.S. Commercial Service’s International Company Profile (ICP) service prior to signing any agreements. The ICP provides information on the reputation, reliability, and financial status of a potential partner in a confidential report, along with a recommendation from the U.S. Commercial Service as to the partner’s suitability.