Malta’s Banking Act sets out the business of banking as the business of a person who regularly “accepts deposits of money from the public withdrawable or repayable on demand or after a fixed period or after notice or who borrows or raises money from the public, in either case for the purpose of employing such money in whole or in part by lending others or otherwise investing for the account and at the risk of the person accepting such money.”
Banks are referred to as credit institutions in the Banking Act. This law adopts EU Directives as the main reference for the regulatory concepts and supervisory practices that it introduced. The authority responsible for the issuing of banking licenses and the supervision of credit institutions is the Malta Financial Services Authority (MFSA). In addition to this duty, the MFSA also licenses branches of foreign institutions carrying on the business of banking in Malta. In the case of European credit institutions these are guided by the European Passport Rights for Credit Institutions Regulations 2004.
The Financial Institutions Act defines the activities of a financial institution as follows:
- lending, financial leasing and venture or risk capital;
- money transmission services, issuing and administering means of payment;
- guarantees and commitments;
- money broking;
- trading in money market instruments, foreign exchange, financial futures and options, exchange and interest rate and transferable instruments; and,
- underwriting and participating in share issues.
Credit institutions also carry on many of the above. The main contrast is that whilst a credit institution can accept deposits from the public, a financial institution cannot. The MFSA is also responsible for issuing licenses to financial institutions and for their supervision.
Malta tax treatment
Credit and financial institutions are liable to income tax on their profits at the standard Malta rate of 35%. Despite this, shareholders of these entities in receipt of a dividend are entitled to a Malta tax refund of the majority of the tax paid by the credit and financial institution.