TerraLex Cross-Border Guide to Cross-Border Merger & Acquisition Guide

Malta formally introduced its foreign direct investment regime in 2020 through the enactment of the National Foreign Direct Investment Office Screening Act (Chapter 620, Laws of Malta) (the “NFDIOSA”) . The NFDIOSA is in turn largely based on the provisions of the EU FDI regime as set out in Regulation (EU) 2019/452.

The NFDISOA outlines several key sectors and criteria whereby a notification to the Maltese FDI office will be required if an investment by a non-EU investor (via incorporation or acquisition) results in more than ten percent (10%) of ownership and/or control being directly or indirectly held in a target entity operating in the aforementioned sectors or qualifying criteria.

Depending on the nature of the transaction, and particularly if such transaction might affect the public order and security of Malta, the Maltese FDI Office may then subject the investment to screening and trigger the EU cooperation mechanism in terms of the EU FDI Regulation. The notification needs to be made prior to the investment being effected. Otherwise, the Maltese FDI Office reserves the right to prohibit and unwind the investment and it may also apply substantial administrative penalties.

Following Malta's accession to the European Union on 1 May 2004, all previously applicable exchange controls were removed. Funds may thus be freely transferred in and out of Malta, subject to applicable anti–money laundering (AML) and know-your-customer (KYC) requirements being met. However it should be noted that any person entering or leaving Malta, or travelling through Malta, with an amount of cash (including currency, bearer-negotiable instruments, highly-liquid commodities and prepaid cards) amounting to €10,000 or more in value is obliged to report such cash to the Customs Department on the EU Cash Declaration Form.

The Maltese Government provides a wide range of grants and incentives to prospective investors, acquirers, founders, startups and people seeking to do business in Malta generally. These range from 'industry-agnostic' grants that are applicable to all sectors, to sector-specific grants for areas such as R&D, pharmaceuticals, tech/AI and the film industry. A comprehensive list of grants is available on the Malta Enterprise website (https://maltaenterprise.com/support) and the Tech.mt website (https://tech.mt/malta-business-grants-incentives/). Additionally, several tax rebate schemes are available to certain investors and businesses provided the requisite criteria are met.

Generally speaking, there are no local management representation and/or employee consultation requirements in an M&A scenario. However, consultation obligations may arise if, post-completion, the transaction results in: (i) collective redundancies; (ii) restructurings; (iii) changes in work organisation; (iv) transfers of employees between group companies; or (v) business transfers.

The above is without prejudice to other applicable protections such as:

• TUPE protection pursuant to the Transfer of Business (Protection of Employment) Regulations (S.L. 452.85);
• Consultation requirements pursuant to the Collective Redundancies (Protection of Employment) Regulations (S.L. 452.80);
• Information and consultation rights pursuant to the Employee (Information and Consultation) Regulations (S.L. 452.96).

Furthermore, if employees are represented by a recognised trade union, collective agreements may impose additional consultation obligations and/or collective bargaining requirements on a case-by-case basis.

Termination of employment in Malta is regulated by the Employment and Industrial Relations Act (Chapter 452 of the Laws of Malta). Employment contracts are in turn divided into definite (fixed-term) and indefinite contracts.

During the probationary period, both the employer and the employee may terminate employment without providing a reason, although the parties may decide to contract out of such probationary period. One (1) week’s notice must be given should the employee have been in employment for more than one (1) month, with special rules applying to employees who are pregnant, on maternity leave or who have suffered a work injury.

Definite contracts may not be terminated prior to the expiration of their term, except on the basis of “good and sufficient cause”. Should either party terminate prior to the lapse of the specified term, the terminating party would be liable to pay the other party half of the wages that would have accrued to the employee in respect of the remainder of the time specifically agreed upon. Indefinite contracts (post-probation) may be terminated by the employer on the grounds of: (i) good and sufficient cause; (ii) redundancy; or (iii) reaching retirement age.

The term “good and sufficient cause” is not defined by law. However, the law delineates what does not constitute “good and sufficient cause”, for example termination on the occasion of an employee’s marriage. In such cases, the employer is not required to provide prior notice of termination or compensation in relation to such notice period.

Employees are entitled to terminate their indefinite contract employment at any time, without assigning any reason, provided that the employee provides the employer with the required notice period. In such cases, the employer may either allow the employee to work their full notice period or, alternatively, terminate the employment and pay the employee a sum equal to the full wages due for the unexpired period of notice.

In the case of redunancies, employers must follow the 'last in first out' rule and provide statutory notice (based on the employee's length of employment). Should the employee not wish to work their notice period, the employee shall be entitled to a sum equal to one half of the wages due to said employee for the unexpired period of notice.

An indefinite contract of employment may be terminated by the employer on the grounds of redundancy. In such cases, employers must follow the 'last in first out' rule and provide statutory notice (based on the employee's length of employment). Should the employee not wish to work their notice period, the employee shall be entitled to a sum equal to one half of the wages due to said employee for the unexpired period of notice.

Collective redundancies are regulated by the Collective Redundancies (Protection of Employment) Regulations (S.L. 452.80). A 'collective redundancy' under Maltese law means the termination of employment by an employer on grounds of redundancy, over a period of 30 days, of: (i) 10 or more employees in companies normally employing more than 20 but less than 100 employees; (ii) 10% or more of the number of employees in companies employing 100 or more but less than 300 employees; and (iii) 30 or more employees in companies employing 300 or more employees.

In collective redundancies, the employee representative(s) must be notified in writing of the upcoming redundancies and discussions on possible mitigating measures shall be held. The written notice, which should include all pertinent information including the employees who are to be made redundant and the period over which such redundancies are to be carried out, shall also be served on the Director of Employment and Industrial Relations.

The sale or issue of shares in a Malta company will attract stamp duty and capital gains tax. Stamp duty is generally payable by the purchaser/incoming shareholder, although strictly speaking the seller and purchaser/incoming shareholder are jointly and severally liable for the payment of this stamp duty. Duty is charged at 2% of the market value or the consideration paid (whichever higher) for normal companies, except in the case of immovable property-owning companies whereby the stamp duty will be 5%.

Capital gains tax is payable solely by the seller, as it relates to the gain that such seller has made on the transfer of shares (or the value shift in the context of a share issue). This tax is generally calculated as the transfer value of the shares minus their acquisition cost and allowable deductions. The chargeable gain is then taxed as income in the hands of the seller.

Notwithstanding the above, the Maltese fiscal regime provides various exemptions that may reduce or in some cases completely exempt the transaction from taxation. These would include where the company holds more than 90% of its business interests outside of Malta (for a stamp duty exemption), where the seller is not tax resident in Malta (for a capital gains tax exemption), and where the sale is made by a Maltese holding company which is a 'participating holding' in terms of the participation exemption.