Ruth Galea, partner, has recently written an article in Acquisitions International on how to establish a payment services business in Malta.
Over the years, Malta has established itself as an ever-growing financial services hub having attracted major players in the business of investment funds, fund managers, investment service providers, insurance captives, and forex trading. More recently, Malta has been consolidating its name on the map within the payment service industry. As with the rest of the financial services sector generally, this is primarily the result of a combination of winning ingredients: a robust legal framework, the business-sensitive approach of the Malta Financial Services Authority (‘MFSA’), an attractive taxation regime and the cross-border reach of a financial license via the European passport regime.
Businesses proposing to carry out payment services in or from Malta require a license from the MFSA. Payment service providers (‘PSPs’) are regulated by the Financial Institutions Act (‘FIA’) which transposes the European Payment Services Directive (‘PSD’) into Maltese law, by the MFSA Financial Institutions Rules and partly by a Directive issued by the Central Bank of Malta which implements the substantive parts of the PSD.
The activities licensed under the FIA, including payment services, are considered ‘quasi-bank’ in nature and whilst the legal regime to which they are subject is rooted in that applying to credit institutions, it enjoys certain flexibility and is less onerous. Whereas the initial and ongoing requirements imposed on an authorized PSP will vary depending on the nature of the payment services being carried out, certain minimum requirements will invariably apply, in particular: the ‘four eyes’ principle (i.e. at least two individuals must effectively direct the business of the PSP in Malta), the satisfaction of the ‘fit and proper’ test by qualifying shareholders and persons who direct the PSP business, satisfaction of initial and ongoing capital requirements, the segregation of user funds and compliance with applicable anti-money laundering obligations.
Once the PSP has obtained a licence from the MFSA, it may exercise a European right to provide payment services in another Member State either through the establishment of a branch or under the freedom to provide services.
A licensed PSP may benefit from Malta’s corporate tax regime and in so doing be taxed at a standard corporate tax rate of 35% with the possibility of shareholders to receive a tax refund thereby potentially bringing the tax exposure in Malta down to 5%. Additionally, persons employed with the PSP holding senior positions may benefit from a special tax program which entitle the beneficiary to be taxed at a flat rate of 15%.
In a digital era the importance of ensuring safe and efficient online payment transactions is at the forefront of any regulatory debate. In this spirit, in October 2015 the European Parliament adopted a revised PSD – PSD2 – with the objective of enhancing consumer protection and providing a level playing field for all market players. By implementing these set of rules, Malta will continue to develop its legal framework to cement its role as a leading destination for PSPs across the globe.