MALTA HAS HEEDED AN EU WARNING TO PHASE OUT ITS BUSINESS TAX BREAK REGIME ON FOREIGN INCOME FOR SHAREHOLDERS' BY 2010, THE EUROPEAN COMMISSION SAID FRIDAY, ACCORDING TO AP. EU COMPETITION COMMISSIONER NEELIE KROES SAID THE ENDING OF MALTA'S FAVORABLE TAX SYSTEM FOR OFFSHORE TRADING COMPANIES WAS AN IMPORTANT STEP TO SCRAPPING SELECTIVE TAX INCENTIVES THAT UNFAIRLY ATTRACT BUSINESSES TO ONE PART OF EUROPE OVER OTHERS. EU REGULATORS IN MARCH WARNED MALTA THAT THE TAX REGIME WAS ILLEGAL BECAUSE IT GAVE SIZABLE ADVANTAGES TO COMPANIES OWNED BY NON-MALTESE WHO MADE MONEY OUTSIDE MALTA, WHILE DOING NOTHING TO PROMOTE THE GROWTH OF THE MALTESE ECONOMY. IN 1994, MALTA INTRODUCED TWO BUSINESS TAX SYSTEMS THAT ALLOW MULTINATIONAL COMPANIES TO SET UP A MALTESE UNIT TO CARRY OUT FINANCING ACTIVITIES AND DISTRIBUTE THEIR EARNINGS WITHIN THE GROUP. MALTESE COMPANIES ACTING OUTSIDE MALTA ARE TAXED JUST 4.2 PERCENT INSTEAD OF THE USUAL 35 PERCENT WHEN THEY PAY OUT PROFITS TO SHAREHOLDERS WHO LIVE OUTSIDE MALTA. THE GOVERNMENT HAS NOW AGREED TO ABOLISH THE TWO SCHEMES BY THE END OF THE YEAR AND PHASE OUT THE SYSTEM BY THE END OF 2010. IT WILL BE ALLOWED TO INTRODUCE A NEW REFUNDABLE TAX CREDIT SYSTEM THAT DOES NOT FAVOR FOREIGN FIRMS OVER MALTESE COMPANIES.
