Malta is known to have a stable and successful financial system leading to more business entities being set up in Malta. Following Malta’s accession to the EU in 2004, the financial services sector has grown exponentially and is nowadays one of the main pillars behind the country’s economic growth.  Indeed, despite of the European sovereign debt crisis which at that time had led to loss of confidence in financial institutions, Malta’s financial services sector including the banking sector has remained, and still is, remarkably robust and also thriving.

The Maltese banking sector

The banking sector in Malta is composed of:

  • The Central Bank of Malta who is primarily responsible for maintaining price stability, promotion of a sound financial system and orderly capital markets;
  • The Malta Financial Services Authority (MFSA) who is the single financial services regulator in Malta and is therefore entrusted with the banking licensing, regulatory and supervisory function, and
  • Credit institutions whose principal business is the receipt of deposits and granting of credit facilities as well as other financial services such as retail banking, corporate banking, private banking, business banking and investment banking.  

Banks in Malta are regulated by the Banking Act, 1994 which is founded on EU legislation and is compliant with Basel Core Principles.   

The Basel Committee on Banking Supervision issued a set of reform measures in banking regulation known as Basel III which were transposed into EU law through the Capital Requirements Directive IV (CRD IV) and Capital Requirements Regulation (CRR), together known as the CRD IV package.  The CRD IV package was published in the Official Journal (OJ) of the EU on 27 June 2013. Member States, including Malta, were required to adopt these new laws and regulations with an effective implementation date of January 2014. The aim of these robust regulations was to strengthen the EU banking sector in a manner that banks would be able to absorb economic shocks whilst continue facing economic growth and activity.

As at June 2019, 23 entities held an active MFSA licence to operate as a credit institution in terms of the Banking Act, 1994.  


Activities of a bank

The core banking activities are defined as the acceptance of money deposits from the public or raising of money from the public for the purpose of lending to others or otherwise investing for the account and at the risk of the bank.

Besides the business of banking, the activities of a bank may include:

  • Financial leasing;
  • Payments services as defined in the Financial Institutions Act;
  • Issuing and administering other means of payment;
  • Guarantees and commitment;
  • Trading for own account or for account of customers in:

           (a) money market instruments (cheques, bills, certificates of deposit, and similar instruments);

           (b) foreign exchange;

           (c) financial futures and options;

           (d) exchange and interest-rate instruments;

           (e) transferable securities.

  • Participation in securities issues and the provision of services related to such issues;
  • Advice to undertakings on capital structure, industrial strategy and related questions and advice as well as services relating to mergers and the purchase of undertakings
  • Money broking;
  • Portfolio management and advice;
  • Safekeeping and administering of securities;
  • Credit reference services;
  • Safe custody services, and
  • Issuing electronic money.


Licensing of banks in Malta

The Banking Act states that a company will be granted a banking license if:

  • Its’ own funds amount to not less than €5 million;
  • There are at least two individuals who will effectively direct the business of the credit institution in Malta;
  • The Authority is notified of the identities of the shareholders or members whether direct or indirect, that have qualifying holdings and of the amounts of those holdings or, where there are no qualifying holdings, of the twenty largest shareholders.  In terms of the CRR a ‘qualifying holding’ means a direct or indirect holding in an undertaking which represents 10 % or more of the capital or of the voting rights or which makes it possible to exercise a significant influence over the management of that undertaking;
  • All qualifying shareholders, controllers and persons who will effectively direct the business of the credit institution are suitable persons to ensure its sound and prudent management, and
  • the Authority is satisfied that there are no close links between that company and another person/s which through any law, regulation, administrative provision or in any manner prevent the company from exercising effective supervision of the company under the provisions of the Banking Act.

In applying for a banking license with the MFSA, the following documents must be submitted:

  • Form 1 as annexed to Banking Rule 01 –  Application for Authority to Carry Out the Business of Banking in or from Malta;
  • Form 2 as annexed to Banking Rule 01 – Questionnaire for Qualifying Shareholders other than Individuals;
  • In terms of Banking Rule 01 – Personal Questionnaire for individuals who are or propose to be Directors, Controllers or Managers;
  • a copy of the Memorandum and Articles of Association of the institution
  • audited financial statements for the last three years (if applicable);
  • identity of all directors, controllers and managers of the institution;
  • identity of all shareholders with qualifying shareholding; and
  • identity of the individuals who will be effectively directing the business of the prospective bank.

Following the set-up of the Single Supervisory Mechanism (SSM) in November 2014, the European Central Bank (ECB) has become the authority in charge of all banking authorisations in the Euro Area irrespective of the size of the bank.  The rules emanating from the Single Supervisory Mechanism Framework (Regulation (EU) No 468/2014) state that when the National Competent Authority (NCA) receives an application for an authorisation to take up the business of a credit institution to be established in a participating Member State, it shall notify the ECB of the receipt of such application within 15 working days.  The MFSA will assess whether the applicant complies with all the national laws and regulations. If the MFSA is satisfied with the application, it will prepare a draft decision proposing that the ECB grants the application. The latter notification must be performed by the MFSA to the ECB and the applicant within at least 20 working days before the end of the maximum assessment period provided by the Banking Act which stands to be six months.  The ECB will take a decision on the draft authorisation decision it receives from the MFSA within 10 working days. If the MFSA concludes that the application does not satisfy the Banking Act and hence reject the application, it will notify the ECB with its decision.



An application fee of €35,000 is also required upon submission of the aforementioned application.  Credit institutions licensed under the Act must also pay an annual supervision fee of 0.02% of its deposit liabilities as reported at the end of the year immediately before the year in which the fee is payable. This must not be less than €25,000 and not more than €1,200,000.  Companies which are incorporated outside of Malta, but which have representative offices in Malta, shall pay the MFSA a fee of €3,600 every year.


Banking structures in Malta

The Maltese Banking Act, prescribes that no business of banking shall be transacted in or from Malta except by a company which is in possession of a licence granted under the said Act unless it is a credit institution licenced in a Member State or EEA State and is exercising its’ right under European Union Law.  In essence, a bank may operate in Malta as follows:

  • A Bank fully licenced by the MFSA, or
  • An EU Bank exercising its right to passport into Malta and establish a branch.  In this case, these branches are exempt from the licensing requirement, however, they are required to register the branch with the Maltese Registrar of Companies within one month from establishing a branch in Malta; or
  • A non-EU licensed Bank establishing a branch of the same bank in Malta. or
  • A representative office of a Bank licensed in another jurisdiction.  The activities must be restricted to purely liaison activities and may not include financial transactions or execution of any documents.  In such cases, the foreign bank must submit a notification to the MFSA that they have an intention of establishing an office.


Monitoring and supervision

Upon commencement of activities, Maltese licensed banks are required to monitor the capital adequacy of their own funds in ensuring that they hold sufficient capital against the credit risk, the market risk, the operational risk, the large exposures, and the liquidity and leverage amongst other requirements whilst ensuring that effective policies and procedures and good governance are in place.  The regulations emanating from the CRD IV aim at improving the quantity and quality of capital through the introduction of additional capital buffers in addition to the minimum capital requirement of 8% of the risk weighted assets of which 4.5% of the risk weighted assets must be met with Common Equity Tier 1 Capital whilst also introducing new liquidity ratios (Liquidity Coverage Ratio and Net Stable Funding Ratio), amongst others.

Following the implementation of the SSM, which comprises of the ECB and the NCAs of the EU Member States, a new supervision system has been introduced.  Credit institutions are classified as significant institutions or less-significant Institutions depending on criteria such as the total value of the assets and their economic importance.  The ECB directly supervises institutions classified as significant through the supervision conducted by the Joint Supervisory Teams (JSTs) comprising of staff from both the ECB and the NCA.  JSTs supervise around 1,200 entities (120 groups) which are equivalent to around 85% of the total banking assets of the Euro Area. In Malta the three largest domestic banks, namely Bank of Valletta plc, HSBC Bank Malta plc and MeDirect Group Limited are subject to supervision by JSTs.  The NCAs are directly responsible for the supervision of the less significant institutions which make up to around 3,500 entities. Hence, the ECB is the direct supervisor of the biggest banks and indirect supervisor of the smaller banks. In the case of Malta, the MFSA is also directly responsible for the remaining less-significant Institutions.  Banks are subject to an annual supervisory fee levied by the ECB.


Passporting rights

Over the last decade, the Maltese banking sector has experienced a shift towards liberalisation and foreign ownership.  Indeed, highly respected names have established operations in Malta and use Malta as a strategic base for further expansion.  The implementation of the European Passport Rights for Credit Institutions Regulations makes Malta an ideal platform from where a credit institution may establish itself and provide banking services across the EU or EEA and therefore benefit from the EU’s Single Market. Conversely, a credit institution which is authorized by a regulatory authority in a Member State of the EU or the EEA may benefit from the European passport to establish a branch in Malta or provide cross-border services in Malta, without being required to obtain a separate licence from the MFSA.  



Banks in Malta are subject to the general rules of taxation.  Shareholders may avail themselves from Malta’s full imputation tax system and therefore when in receipt of dividends they are entitled to a tax credit which is equal to the tax borne on the profits out of which the dividends are paid.  Shareholders may also be entitled to tax refunds upon the distribution of taxed profits. Tax refunds may be claimed on all profits excluding interest and any other income derived from the provision of loans which finance the acquisition, development or renovation of Maltese immovable property since such profits are allocated to the Immovable Property Account and no refunds may be claimed.

Malta has a wide network of tax treaties which may reduce the withholding tax rates on dividends, interest and royalties paid to Malta. On the other hand, Malta does not impose or levy any withholding taxes on outgoing dividends, interest and royalties.  

Heavily capitalised banks may also avail from the Notional Interest Deduction Rules which entitle companies to claim a tax deduction equivalent to the notional interest calculated on its equity thus making equity financing on the same level playing field as debt financing for taxation purposes.  Other benefits emanating from the Maltese tax system include the ‘participation exemption’ on profits derived from participating equity holdings and no capital gains on transfer of shares in a non-property company held by non-resident shareholders.

For further details on the Maltese taxation system in Malta, please refer to Corporate Taxation.

How can we help you?

Avanzia Taxand is a corporate service provider registered with the MFSA and we may assist in the application process with the MFSA, the drafting of documentation in connection with the corporate structure set-up as well as some of the ongoing compliance requirements and filing obligations especially those related to secretarial and taxation.