ACCSPRING18_ONLINEVER

bdarmanin

SMALL AND MEDIUM

ENTERPRISES

The importance of their

sustainability and growth

Spring 2018

NEWSPAPER POST

20. MANAGING TALENT WITHIN SMES

By Cathy Peric

24. SME GOING DIGITAL – THE WAY TO

TRANSFORM THE BUSINESS

By Reuben Portanier

57. BUSTING THE BITCOIN MYTHS

by Michael Sciculuna


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© 2018 KPMG, a Maltese Civil Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”),

a Swiss © 2018 entity. KPMG, All rights a Maltese reserved. Civil Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”),

© a Swiss 2018 KPMG, entity. a All Maltese rights reserved. Civil Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”),

a Swiss entity. All rights reserved.


CONTENTS

spring 2018 | theaccountant.org.mt p.03

p.04

PRESIDENT’S ADDRESS

news

p.05

MIA NEWS

p.06

MIA NEWS AND FORTHCOMING EVENTS

p.08

LOCAL NEWS

FEATURES

COVER

Issued quarterly,

The Accountant is

published by

MBR Publications Ltd

on behalf of

The Malta Institute of

Accountants

EDITOR

Michelle Spiteri Bailey

mspiteribailey@miamalta.org

DESIGN

MBR Design

Sales Manager

Margaret Brincat

margaret@mbrpublications.net

All correspondence, articles for

publication and enquiries are to

be addressed to:

The Editor

MIA Services Limited

Level 1, Tower Business Centre

Tower Street, Swatar

BKR 4013

Malta

p.10

SUSTAINABILITY OF MALTA’S ECONOMIC GROWTH AND THE ROLE OF SMES

by Aaron Grech

p.12

GOING PUBLIC – DR ADRIAN ATTARD TREVISAN

by Claudia Vella Schembri

p.15

DIRECTORS AND SMALL COMPANIES – A DISCUSSION PAPER

by Dr David Fabri

p.18

GETTING READY FOR GDPR

by Matina Massa

p.20

MANAGING TALENT WITHIN SMES

by Cathy Peric

p.24

SMES GOING DIGITAL – THE WAY TO TRANSFORM THE BUSINESS

by Reuben Portanier

p.26

IS BUSINESS PLANNING RELEVANT FOR SMEs

by Chris Meilak

p.28

INVESTING WISELY DIVERSIFICATION AND PICKING THE RIGHT FUND

by Joseph Portelli

p.30

REDISCOVERING THE VALUE OF SME AUDIT

by Accountancy Europe

p.34

THE START-UP JOURNEY IN MALTA – HOW FRIENDLY IS THE FRAMEWORK

FOR BUDDING ENTREPRENEURS?

by Chris Cachia

p.48

THE INSURANCE DISTRIBUTION DIRECTIVE (IDD) – ARE YOU READY?

by Matthew Micallef

p.54

TRANSFORMING CHALLENGES INTO OPPORTUNITIES – FEE PRESSURE

by Christopher Arnold and Mats Olsson

p.57

BUSTING THE BITCOIN MYTHS

by Michael Scicluna

p.60

RECENT AMENDMENTS FOR SMES AND STARTUPS

By Malta Enterprise

TECHNICAL

ADVERTISING INQUIRIES

Margaret Brincat

(+356) 9940 6743

margaret@mbrpublications.net

The Institute does not necessarily concur

with the views expressed in the articles

published in this journal. Articles are

published without responsibility on the

part of the publishers or authors for

loss occasioned in any person acting or

refraining from action as a result of any

view expressed therein. The Accountant

can also be accessed from the website at

www.theaccountant.org.mt

LOOKING BEYOND THE GOVERNMENT PENSION-SOME RECENT TAX DEVELOPMENTS

IMPACTING THE LOCAL PENSIONS’ ARENA

by Bernard Attard and Victoria Muscat

p.38

p.42

GETTING IT RIGHT - RELATED PARTY DISCLOSURE FOR SMES

by Roberta West Falzon

p.44

VAT FOR SMALL BUSINESS – EXISTING RULES AND CURRENT DEVELOPMENTS

by Matthew Zampa

LIFESTYLE

p.64

LIFESTYLE- REACHING CAMBODIA

by Elaine Marie Debono


PRESIDENT’S ADDRESS

WILLIAM SPITERI BAILEY

PRESIDENT’S ADDRESS

WILLIAM SPITERI BAILEY

Dear Members,

In Europe, there are approximately 23million SME’s, which

is about 98% of the business and provides 2/3 of the

private employment. The number of enterprises in Malta,

grew from just over 72,000 in 2012 to nearly 95,000 in

2016. The National Statistics Office indicated that the bulk

increase in business units in Malta was due to small- and

medium-sized entities. In fact, 99% of the overall increase

was amongst firms that employ fewer than 10 persons,

so-called micro firms. Thus, contributing significantly to

countries’ gross domestic product. SMEs are crucial to the

health, stability, and sustainable economic growth of both

developed and developing economies.

SMEs speed up economic growth. They are more flexible

and have simpler structures, making them more responsive

to change. Yet despite this, it is important that they keep

up to speed when it comes to the advancements and

implementation in relation to new developments such as

digitalisation, as this enables them to remain competitive.

Statistics clearly indicate that SMEs are still in the early

stages when it comes to ICT adoption and usage in their

business, with no real alignment to their business objectives,

and limited applicability to their business processes. There

are many areas that are of concern to SMEs, but when

taken seriously and exploited wisely they can translate into

significant opportunities. An SME should initially assess the

business situation and identify ways how going digital will

improve the entity’s status, thereafter an entity.

A very important regulation that will come into effect

on the 25 May is the GDPR. This is not optional and is a

business concern that can have significant repercussions

if not abided with. It must be seen as an integral part of

businesses, it is all about good business and the obligation

to respect and protect personal data. Any organisation that

conducts business within the EU that collects, or processes

personal data needs to be GDPR compliant, regardless of

its size.

A key element for the success of an enterprise is talent

management. As a business owner, one must learn to

attract, select, develop, reward and retain people. Research

confirms that SMEs can provide a creative environment

that encourages new ideas and innovation. It also states

that employees perceive working in an SME as better job

quality, less bureaucracy, higher flexibility leading to better

job satisfaction and a better working environment. These

are all key points that SMEs must use in their favour, as

talent management in SMEs is valid and valuable.

Malta is rapidly gaining international recognition as a

brand denoting excellence in several sectors, including the

pharmaceuticals, life sciences, advanced manufacturing,

fintech, aviation and ICT amongst others. In order to

assist enterprises, particularly SMEs to improve their

competitive edge, Malta Enterprise has developed various

incentives for the promotion and expansion of industry

and the development of innovative enterprises. A series of

new schemes have been launched and a number of other

schemes are work in progress.

SMEs’ demand for advice is influenced by various factors,

which include external factors, such as competition and

regulation, and internal factors, such as the size and nature

of the entity, and the relationship and level of trust between

the small and medium-sized practices (SMP) and the

SME owner-manager. SMPs are considered an important

part of the profession. The vast majority of accountancy

practices worldwide are believed to be SMPs and it is well

recognized that professional accountants are often the

preferred source of advice for SMEs, typically forming longterm

relationships founded on trust. Here in Malta we are

no different and having myself been for a long time an SMP,

I can confirm that SMPs are a preferred source of advice to

SMEs and the more the work relationship grows and the

SMP understands and assists the SME through his advice

to develop his aspirations, the more the SMP will become

the Trusted Advisor of the SME.

Finally, I am happy to say that the Institute wants to be a

catalyst and help its membership with these challenges.

In this regard, our SMP Committee is organising the

annual SME Forum which amongst other topics will deal

with GDPR issues. We are also slowly building up to the

Biennial Conference which will this year revolve around

Digitisation and how this will be affecting our work. I would

like to encourage all SMPs to participate and be active in

our activities. With your help we will continue to make the

Institute relevant to you, its members in today’s world. We

want all activities, communications, and events to focus

on adding value to our members, but also on ensuring

that our members add value to their clients. However, let

us not forget our values of independence, diligence and

integrity when we are offering our services and in our lives

as professional accountants. If values are not given their

due importance we cannot on the other hand add value.

Participate, call us and speak to us about your concerns or

needs. The Institute is there to serve all its members and

professional accountants.

William Spiteri Bailey

04 Spring 2018


MIA NEWS

MIA NEWS

Women’s day Conference

The Malta Institute of Accountants organised its

first conference dedicated to women titled ‘Inspire

to Achieve’ on 9 March 2018. The conference was

held under the auspices of H.E. Marie-Louise Coleiro

Preca, President of Malta.

During the conference the President of Malta Marie-

Louise Coleiro Preca noted that:

“According to the European Commission's Report,

women across the European Union are still a long

way off from achieving full economic independence.

In comparison to men, women still tend to be

employed less;

they are employed in lower-paid sectors;

they work, on average, 6 hours longer per week than

men and have fewer paid hours; and

women also face fewer and slower promotions.”

She encouraged all to find ways to empower women

as well as men, which would enable everyone to

work together for the advantage of all.

The Institute will drive to push the profession in terms of

the openings it provides for women who want to achieve

and be part of creating value to society by building on the

values of equality, empowerment and achievements.

To press for progress the Institute will be investigating

the issue of possible pay gap within the accounting

profession. This study will be conducted with the

help of MISCO, a recognised leader in independent

marketing, research and HR consultancy in Malta.

theaccountant.org.mt

05


MIA NEWS

Anti-Money Laundering Conference

The European Union’s 4th Anti-Money Laundering Directive was enacted into Maltese legislation earlier this

year bringing with it some fundamental changes to the anti-money laundering procedures.

National Public Procurement

Regulations (1)

Anthony Cachia, Lorraine Mangion

Duca, Dr Franco Agius

08 May 2018

National Public Procurement

Regulations (2)

Lorraine Mangion Duca, Dr Franco

Agius, Ninette Gatt, David Gatt

18 May 2018

The Malta Institute of Accountants chose to discuss this topic during its first conference organised in 2018

because it believes that it is an important and vital issue for our country. As mentioned by the Institute’s CEO,

Ms Maria Cauchi Delia in her opening speech “This isn’t just a regulatory issue but one of national concern”.

The conference brought together a number of leading experts to provide the latest information on the

current anti-money laundering and counter terrorist financing developments and requirements. Sessions

and a panel discussion gave first-hand knowledge discussing topics such as changes brought about by

the 4th Anti-Money Laundering Directive, the upcoming Moneyval inspection, the Beneficial Ownership

Register, and the interaction of GDPR and Blockchain on AML.

Rules and Regulations applicable

for Corporate Service Providers

Dr Joseph Saliba & Dr Nicole Demicoli

22 May 2018

Value drivers and controls in

health sector

Jacqueline Camilleri & Jonathan Dingli

29 May 2018

Collective Investment Schemes

and the Investment Management

Process (1)

Stephen Tedesco

31 May 2018

Block Chain and Smart Contracts

Dr Ian Gauci, Dr Cherise Abela Grech

and Dr Emma Portelli Bonnici

06 June 2018

Collective Investment Schemes

and the Investment Management

Process (2)

Stephen Tedesco

12 June 2018

The formation and support of

shipping and aviation companies - A

legal Aspect

Dr Denise Abela & Dr Nicholas Valenzia

15 June 2018

Introduction to cryptocurrencies

and their tax implications

Josef Mercieca & Dr Chris Agius

19 June 2018

VAT for financial services

Graziella Demanuele Bianco

26 June 2018

Access our website for a continuous update

of events

06 Spring 2018


25th May 2018

MIA NEWS

08:15 - 17:00 Intercontinental

3rd July 2018

Save the date

the yearly MIA/ACCA

Joint Event


LOCAL NEWS

Two new partners at RSM Malta

RSM, one of Malta's leading audit, tax and advisory firms

has announced the appointment of Timothy Zammit

and Gordon Micallef as partners with the firm. Given

their experience, Timothy and Gordon’s appointment

will further strengthen RSM’s corporate structure.

Timothy will be responsible for the tax and corporate

services unit while Gordon will be responsible for the

technology consulting practice of the firm.

Together with a team of financial and legal professionals,

Timothy will be assisting clients with enhancing their

fiscal efficiencies through the setting up of companies,

special purpose vehicles and corporate restructuring

while providing transactional support in acquisitions,

mergers and divisions. Together with his team, Timothy

also works on business succession planning while

ensuring clients’ full compliance with their tax and

corporate obligations. Prior to joining RSM Malta as

a tax lawyer in 2010, Timothy served as the head of

corporate and tax services at mid-tier firms specialising

in international structuring and cross border companies.

Timothy read law at the University of Malta having

graduated as a doctor of laws in 2005 and called to the

bar in 2006. Timothy subsequently read for a Master of

Arts in Financial Services from the University of Malta.

He is also a member of the Malta Institute of Taxation

and Institute of Financial Services Practitioners, sitting

on the Tax & EU Affairs Sub-Committee.

As the leader of the technology consulting practice of

the firm, Gordon assists organisations in addressing

their digital agenda by guiding board of directors and

executives to develop and execute transformation

strategies enabled by technology. Together with

his multidisciplinary team of technology, business

analysists, and legal specialists, he also delivers

managed services to various industries including

cyber security, privacy, regulatory technology, and

data management. He joined the firm in 2014 and is a

Certified Public Accountant (CPA), Certified Information

Systems Auditor (CISA) and holds other certifications

in governance of IT (CGEIT), risk management (CRISC),

and project management (Prince2).

Peter J Baldacchino

Twenty-five years ago, Peter J Baldacchino, Head

of the Department of Accountancy, was the first

member of staff at the University of Malta who,

after graduating as a chartered certified accountant,

decided to undertake a postgraduate research

degree in accountancy - at the time this involved a

Master of Philosophy thesis based on Malta at the

University of Loughborough titled "The Auditor-

Management Relationship in a Microstate". Recently

Peter decided to undertake another research study

in a related area, this time a Doctor of Philosophy

(Ph.d) with a thesis titled "Auditing and Corporate

Governance in a Small State-the Case of Malta".

He finalised this latter study in March.

As one would expect, the thesis stemmed from

selected academic research following his MPhil.

It presents a portfolio of fourteen papers offering

insights on major issues affecting the accountancyrelated

areas of external auditing and corporate

governance in the small state of Malta.

The portfolio contributes to literature notably by its

original highlighting of the significance of a number

of sub-themes on various aspects of external

auditing and corporate governance in a small

state. Furthermore, the portfolio impacts Maltese

external auditing and corporate governance

practices, particularly by emphasising the need to

go beyond the adoption of imported regulatory

frameworks. For those interested, links to most

papers included in the thesis are found on Peter's

pages on ResearchGate and Linkedin.

Peter J Baldacchino is the Head of the Department

of Accountancy in the Faculty of Economics,

Management and Accountancy, as well as Advisor

to Rector - Financial Affairs at the University of

Malta. He teaches auditing, corporate governance

and financial strategy in postgraduate professional

and business programs. His research publications in

various international journals focus on auditing, its

regulation and relationship to corporate governance.

He is also Director at the Central Bank of Malta

and Chairman of its Audit Committee, Director

at the University Group of companies as well as

Chairman of the Maltese Accountancy Board. He

has extensive experience in the governance of

Maltese listed entities, with past positions including

chairmanships and memberships of audit and risk

management committees in large organisations.

08 Spring 2018

Members are invited to inform the Institute about their appointments for due consideration, to be included in this section of the journal.


LOOKING TO GROW?

Career Opportunities at BDO Malta

There are many world-class accounting firms. Far fewer that offer a culture so rich

in professional opportunity, personal fulfillment, and long-term growth. At BDO,

we understand that exceptional service to our clients begins – and ends – with

exceptional regard for our people. Because at its core, our business is not about

numbers or spreadsheets, euros or cents, but about people working with, for, and

in service of others. In short, because relationships matter.

Due to its continuous investment and growth, BDO Malta is seeking to recruit for

the following roles:

VAT Senior

VAT Assistant

Compliance Officer

IT Auditor

Junior Accountant

For a list of benefits offered to BDO staff members and for further information,

please visit our website on www.bdo.com.mt/careers

Tower Gate Place

Tal-Qroqq Street,

Msida

MSD 1703

Telephone: 2131 3060

Email: info@bdo.com.mt

www.bdo.com.mt

BDO Malta, a Maltese civil partnership, is a member of BDO International Limited, a UK company limited by

guarantee, and forms part of the international BDO network of independent member firms. BDO Consult

Limited and BDO Services Limited are companies registered in Malta and form part of the BDO Malta group.

BDO is the brand name for the BDO network and for each of the BDO member firms.


ECONOMY

Sustainability of Malta’s economic

growth and the role of SMEs

DR AARON GRECH

DR AARON GRECH IS THE CHIEF

OFFICER OF THE CENTRAL

BANK’S ECONOMICS DIVISION

AND DEPUTY CHAIRMAN OF THE

MALTA STATISTICS AUTHORITY.

In recent years, the Maltese economy has

expanded very strongly. Since 2010, Malta’s

gross domestic product has grown by 46%,

whereas in the European Union the increase

was of just 10%. Furthermore since 2012 Malta

has consistently had the highest growth in

employment amongst all European Union

countries, such that the unemployment rate

has fallen below 4%.

This growth has been accompanied by a significant

turnaround in the country’s balance of payments, which

now features a considerable surplus which contrasts

with the deficits that had characterised previous years.

At the same time, rapid growth has also resulted in a

large fiscal surplus, as buoyant revenue has offset rising

government expenditure.

Malta was largely unaffected by the financial crisis of

2007-08 and the subsequent European sovereign debt

crisis. One of the main reasons for this was that Malta’s

economic growth is based on a significant restructuring of

the islands’ economic structure. Whereas in countries like

Ireland, Cyprus and Spain, high economic growth before

the crisis was due to the accumulation of macroeconomic

imbalances, such as fast credit growth and a significant rise

in consumption, in Malta most of growth has reflected

an increase in exports. The latter reflected the fact that

after accession to the European Union, a number of new

high value added export oriented services were attracted,

which complemented the islands’ strong manufacturing

and tourism sectors. Access to the European Union’s

single market, combined with flexible, well-trained and

competitively priced labour resources and a businessfriendly

environment, led to increased foreign direct

investment, while reforms to liberalise the economy

strengthened existing sectors. The resulting diversification

of economic activity made the country more resilient

and less dependent on sectors such as semiconductor

manufacturing and package tourism, which are more

prone to cyclical fluctuations in demand.

When analysing recent economic developments, there

has been a tendency to overemphasise the contribution

of certain large foreign direct investments and particular

sectors. However a closer look at official statistics

paints a rather different picture where small and

medium-sized entities accounted for the lion’s share

of growth.

Between 2012 and 2016, the number of enterprises

in Malta grew from just over 72,000 to nearly 95,000.

This reflects the fact that the rate of new businesses

being established nearly doubled to more than

11,000 a year, while the rate of business closures

remained relatively stable.

Data published by the National Statistics Office 1

indicates that the bulk of the increase in business

units in Malta was due to small- and medium-sized

entities. In fact, 99% of the overall increase was

amongst firms that employ fewer than 10 persons,

so-called micro firms. Overall the number of firms in

this category grew by 32% in just four years. That said,

there has also been significant growth in the amount

of firms employing between 10 and 49 employees,

which was up by 16%, and in the number of firms

employing more than 250 employees, which was up

by 22%. By contrast the number of firms employing

between 50 and 249 employees rose by just 2%.

Official statistics show that small and medium sized

entities in Malta are very diverse. Micro enterprises

are dominated by the wholesale and retail sector,

which comprises nearly a fifth of all micro firms. This

is followed by the financial and insurance sector, at

16%, and the professional, scientific and technical

activities sector, at 12%. While micro wholesale and

retail firms have continued to grow healthily, rising

by nearly 16% between 2012 and 2016, the largest

relative growth has been amongst administrative and

support services micro firms, whose numbers were

up by close to 69% over their 2012 level. The number

of financial and insurance micro firms, together with

professional, scientific and technical micro firms also

grew very strongly, with growth rates of 62.8% and

56.1%, respectively. Other services sectors, such as

information, communication, education, remote

gaming and real estate, also showed strong double

digit growth in the amount of operating firms.

1

https://nso.gov.mt/en/News_Releases/View_by_Unit/Unit_B4/Business_Registers/Documents/2017/News2017_075.pdf

10 Spring 2018


ECONOMY

Growth in the number of small-sized entities, i.e.

those employing between 10 and 49 employees, was

also fairly spread across sectors. The largest growth

appears to have been in the accommodation and

food services sector, followed by remote gaming,

wholesale and retail, professional, scientific and

technical sectors. By contrast, growth in the number

of medium-sized entities, i.e. those employing

between 50 and 249 employees, was nearly equally

divided between the education and the remote

gaming sectors.

Besides information on the number of firms by

employment size, the Eurostat database also gives

a lot of additional data on their performance. For

instance, it indicates that the value added of micro

firms in Malta nearly doubled between 2011 and

2015 (the latest year for which data are available).

In fact, Eurostat data suggest that while in 2011

micro firms generated 29% of all the value added of

the business economy sector, by 2015, their share

had risen to 37%. By contrast the value added of

large firms, i.e. those employing more than 250

employees, rose by just 10% during the same period

and their share of value added fell from 28% in 2011

to 21%. This indicates that over time, the relative

contribution of small- and medium-sized entities to

the generation of value added has risen greatly.

A recent survey carried out by the European Investment

Bank amongst Maltese firms indicates that micro

and small firms 2 in Malta are planning to focus their

investment much more to be able to launch new

products. They are also planning to focus much more

than large firms to invest on software and information

technology. This suggests the potential for further

growth in this sector. However, the survey shows that

micro and small firms are relying to a large extent on

internal financing, on account of high cost of financing

and the need for collateral.

Further innovation and diversification are key to the

sustainability of Malta’s economic growth. Small and

medium-sized firms have a big role to play, possibly

even more than in recent years. Taking steps to

ensure that they operate in an optimal business

environment, particularly good access to finance, is

therefore very important.

Small and medium-sized entities have also been

the main generator of jobs according to Eurostat’s

annual enterprise statistics for Malta. Between

2011 and 2015 there was an increase of 13,595

persons employed in the business economy sector.

Out of this growth, less than 14% was due to firms

employing more than 250 persons. Micro firms

registered an increase in employment that was

nearly double that observed amongst the largest

firms. That said, while employment in micro firms

grew by nearly 9%, in small- and in medium-sized

entities the increase in employment was at 16% and

14%, respectively.

These trends show how vital the contribution of

small- and medium-sized entities has been to the

success of the Maltese economy. While largescale

investments are undoubtedly important, the

reality on the ground is that a lot of the dynamism

of the islands’ economy is due to the efforts of

entrepreneurs and relatively small-scale operators.

These have created the bulk of jobs and played a key

role of the diversification of the islands’ economy.

2

https://www.centralbankmalta.org/file.aspx?f=61763

theaccountant.org.mt

11


FEATURE

GOING PUBLIC

DR ADRIAN ATTARD TREVISAN

DR ADRIAN ATTARD TREVISAN IS

A NEUROPHYSIOLOGIST WITH

A WIDE EXPERIENCE IN THE

FIELD OF HUMAN PHYSIOLOGY

AND MEDICAL DEVICES. HE WAS

FOUNDER, CHIEF EXECUTIVE

OFFICER AND CHIEF SCIENTIFIC

OFFICER OF AAT RESEARCH,

A GROUP OF COMPANIES

INVOLVED IN THE DEVELOPMENT

OF CERTIFIED MEDICAL

DEVICES. THE COMPANY HAS

SINCE REBRANDED ITSELF AS

NEUROTECH INTERNATIONAL,

BECOMING A PUBLICLY LISTED

COMPANY ON THE AUSTRALIAN

SECURITIES EXCHANGE (ASX),

OF WHICH ADRIAN IS STILL A

NON-EXECUTIVE DIRECTOR. HE

IS A CO-FOUNDER AND CHIEF

EXECUTIVE OFFICER OF UMANA

MEDICAL TECHNOLOGIES, A

DEVELOPER AND MANUFACTURER

OF PATENTED TEMPORARY

TATTOO SENSORS THAT

ENABLE PATIENTS AND

MEDICAL PROFESSIONALS

TO MONITOR VITAL SIGNS OF

PATIENTS, WITHOUT THE USUAL

RESTRICTIONS OF CABLES AND

WIRES THAT EFFECT QUALITY

OF LIFE.

The technical team of the Malta Institute

of Accountants, interviews co-founder

and Chief Executive Officer of Umana

Medical Technologies.

1. How would you describe yourself in 3 words?

I believe I am very persistent, focused and a risk taker.

2. What led to the change from a researcher

to an entrepreneur?

This was very easy, I hate stalling a good project when

the research funds finish, and unfortunately that is

very often the case when working in academia. I

wanted to be in a position where I could follow an

idea/ concept from start to finish.

3. Considering that the setup of both companies

are based on two innovative ideas, what is the

key to generating new ideas?

In this field it is a combination of the need to help

others and being in the right place at the right time.

The idea of the first research project started from

the desire to help a child when living in France. In

the case of the other project I was approached by

two professors, who had developed a material, but

needed someone to develop it into a commercial

product. In the medical world only 3 in 100 medical

technology start-ups succeed, therefore there is a lot

of pressure in order to make it work.

a market for the product and that its features

distinguished it to the other available products.

5. What are your responsibilities as a business

owner?

The heftiest responsibility is towards the patients.

In view of the fact that we produce medical

devices it is a highly regulated environment. We

are subject to a number of EU Directives and legal

requirements. Other responsibilities include the

usual legal and financial responsibilities and meeting

the expectations of the investors. Another important

responsibility is the well-being of my employees and

the security of their jobs.

6. When you started the first company what

where the main challenges that you had to

overcome?

At the beginning it was very difficult, yet it was also

a very exciting period. Together with a colleague of

mine we started developing medical devices from

home. Obtaining finance was one of the initial

challenges and often meant not earning a salary for a

number of months.

It is unfortunate that even though you would like to

help people, feasibility of the project is key. If the

product will only help a few people then it cannot be

developed and if possible we try to find alternative

ways how to help the people involved. On the other

hand, if it affects 10-15% of the population, then the

project is viable.

7. In your opinion what was the catalyst for

the company’s growth?

A catalyst for the company’s growth is vision. You

need to execute the vision you set at the outset.

Although one also has to be realistic. In our sector

another important thing is the technology and

product appeal.

12 Spring 2018

4. What is unique about your business?

It is a niche market. Before starting out the project

we performed the necessary research and feasibility

studies. This enabled us to ensure that there is

8. At what stage did you engage people to

help you execute your ideas?

Knowing one’s strengths and limitations is important.

I believe that my greatest strength is that of an


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GOING PUBLIC

entrepreneur. During the initial stages the input of

the entrepreneur is idea generation and risk taking.

As the company matures the role of the entrepreneur

changes to that of a CEO, with more focus on setting

up an appropriate structure for the company. I do not

believe in starting big, but a company has to grow

steadily. However I believe that the right people need

to be involved with the adequate expertise starting

from the early stages of a company.

9. Finance for SMEs is challenging. How did you

overcome this and obtain investment for your

ventures?

One of the crucial points is establishing a good

relationship with your bankers and building

a relationship of trust. In depth research and

preparation is key to obtain other sources of finance.

This enabled us to identify potential investors and

meet with the prospective investors.

Other sources of finance included obtaining support

from EU funding. Although it involves time and resources

to apply for the requested funds. However this was vital

particularly in the early stages of the start-up.

10. Considering the fierce competition in today’s

business world, how do you highlight your

company’s competitive advantage?

What we do is analyse our competitor’s product,

study it and make ours better. In the case of our

first the product was unique. However this time

it is different nonetheless the product is also very

innovative and is protected via patent legislation.

11. How do you promote your business and

build a successful customer relation?

At the outset I start by getting an understanding the

operating environment within a specific country.

This is necessary to determine whether it is viable

to enter the market in that country and to identify

eligible distributors. We operate using a network

of distribution partners. Once the possible

distributing partners are identified, they are asked

whether they are interested in selling the product

and are thereafter requested to submit a three-year

marketing plan.

12. How do you define success and what is

the best way to achieve long term success?

It’s all a matter of culture and client loyalty. One

of our values is that whatever we do is targeted

towards the end user. If you actually build a company

based on the wellbeing of your end customer and

instil that culture in your employees, it will lead to

long-term success.

13. What do you feel is your greatest

entrepreneurial achievement?

In the case of the first company the first important

achievement was actually managing to get the

necessary certification considering all the challenges

we had to face and the lack of experience. The other is

when after a lot of hard work we managed to go public

on one of the largest stock exchange in the world.

14. What is your greatest support when facing

up hardships in business?

No doubt - family.

15. What is your greatest fear when it in running

an SME?

Relevance. Will my product be relevant to the user?

16. In your opinion, what do you think are the

5 key skills needed to manage an SMEs in the

best possible way and enable its growth and

expansion?

The primary skill is to set a clear vision. This needs to

be set before the inception of the SME.

Another is to be hands-on and not role specific.

Flexibility is crucial for the success of an SME

Determination and persistence are extremely important,

because it’s so easy to give up when all the obstacles start

crossing your path, you need to persevere to succeed.

You have to accept criticism and be willing to learn.

17. Do you believe there is a winning formula

for running an SME? And what is yours?

No I do not think so. Everyone has their own way

of doing it. The reason why you would succeed is

because in the end you did it your way. Although I

do believe that being passionate about what you do

is essential.

14 Spring 2018


DIRECTORS

DIRECTORS AND SMALL COMPANIES

– a discussion paper

The company was an extraordinary invention.

It helps to remember how the notion of the

company started and how it grew. The company

as we know it today evolved over centuries from

the joint stock company which first started being

properly regulated in the early 19th century. The

original company was typically a big, hugely

expensive and risky enterprise. Buying and fitting

out vessels often for cross-oceanic expeditions,

or the building of canals and railroads. The

creation of the company and the benefit of

official incorporation had its critics and caused

controversy. Objections and concerns increased

extensively when the great concession of

shareholder limited liability was added.

That is now history, but it is an instructive and

interesting story. Today, the main legislation on

companies in Malta is the Companies Act 1995.

Companies are legal fictions and the creation of

law; they exist because the Companies Act allows it.

Today the corporate form is used as a vehicle for less

ambitious objectives, even for single transactions or

to hold an asset.

A company is an artificial legal person which enjoys

the rights of human persons without many of the

disadvantages. It has proved extremely flexible and

resilient and can undertake any business whatsoever.

The company can be used for simple as well as

complex transactions and has served business

growth well. It can issue shares to investors who

benefit from limited liability. Unfortunately it has

also protected fraudsters, speculators, tax evaders

and sundry wrongdoers, as well as dodgy directors.

In Maltese economic experience, the company is by

far the most popular and the most important form of

business organization. So it is our business as lawyers

and accountants to understand it well. Today some

85,000 companies exist on the official company

register held at the MFSA which has housed it since

1997. Most are private limited liability companies.

Public companies are fewer in number, possibly

about 80.

Our first modern company law was the Commercial

Partnerships Ordinance (CPO) which was drawn up in

the late 1950’s by Maltese legal experts and brought

into force in 1965. The Ordinance was a good law

for its time and proved particularly successful in

promoting the private limited liability company. On

the other hand, the Ordinance (CPO) was eventually

found to be very lacking in such areas as the winding

up of companies, the duties of liquidators and the

duties and responsibilities of directors.

An area which has attracted much merited scholarly

and judicial attention during these past twentyfive

years is directors’ duties and personal liability.

Whole books have been written about the subject.

Companies are primarily led and directed by the

directors. The CPO more or less allowed directors to

be largely unregulated and shareholders and directors

were allowed too much power and discretion to

determine the direction and destiny of the company

very often at the expense of third parties. This led to

the abuse of the corporate form and of the benefit of

limited liability given to the shareholders. In fact, this

unregulated situation led to much abuse by directors

and shareholders at the expense of the company’s

creditors, customers and employees. Directors (and

shareholders) felt immune, and in practice, to a large

extent, they probably were.

DAVID FABRI

DAVID FABRI HEADS THE

DEPARTMENT OF COMMERCIAL

LAW AT THE UNIVERSITY OF

MALTA. HIS MAIN AREAS OF

INTEREST AND RESEARCH

ARE REGULATION, FINANCIAL

SERVICES LEGISLATION,

CONSUMER POLICY AND

PROTECTION, CORPORATE

LAW, WHISTLE-BLOWING AND

BUSINESS ETHICS.

theaccountant.org.mt

15


DIRECTORS

16 Spring 2018

The substantial abuse of the lack of adequate regulation

of directors under the CPO framework was therefore

evidence, if any was needed, that companies and their

operators needed to be adequately regulated and

monitored and provision should also be made to punish

wrongdoers where appropriate. Self-regulation has not

worked and more detailed regulation was necessary to

protect creditors, employees and other third parties. The

law is now clearer and in 1995 the Registrar was assigned

significant powers of intervention and investigation.

Having proper legislation and higher standards should

lead to the added benefit that more people will be

prepared to place their trust into dealing with companies,

small and big.

For many purposes, the Companies Act does not

distinguish between small and big companies. It does

however draw important distinctions between public

and private companies. The distinction between listed

and unlisted public companies is also significant because

listed companies are more strictly regulated. Indeed, the

directors of listed companies have to adhere to a whole

set of additional rules and responsibilities arising under

the Financial Markets Act and the Prevention of Financial

Markets Abuse Act and other rules arising thereunder.

It is probably correct to say that the Companies Act

seems more concerned with the distinction between

private and public companies, than between big and

small companies. This fundamental issue was addressed

when important amendments to the Companies Act

were being considered in 2003. Let us focus on just three

of these provisions. Article 329A which introduced a new

duty on directors was made applicable to all companies

which may find themselves in financial distress, and a

suggestion that it should apply solely to public companies

was discarded. On the other hand, the new Company

Recovery Procedure introduced by article 329B was only

applied to companies which were not “small companies”

as therein defined.

And finally, the very important article 136A which

introduced a general statement of directors’ duties,

even before UK law did, drew no distinctions and was

made applicable to directors of all companies. This

was founded on a clear policy intent to lay down one

common standard of conduct for all directors of all

companies, big or small, private or public. The aim was

to close the hatches and let now one out, with little room

for quibbling or playing with words. If you are a director

then you have the responsibilities of a director. With

such responsibilities come potential liabilities for breach

of those duties as set out in the law, including potential

civil and criminal liabilities. Article 136A tried to put a halt

to the usual half-baked excuses and whinging by directors

trying to escape liability for their dereliction of duties and

wrongdoing. It was no longer possible to plead one’s own

incompetence or ignorance, which was often another

fashionable attempt to escape culpability. The intention

was to simplify matters by having one principle apply

to all companies equally. On the other hand, criticism

predictably was directed against the one-size-fits-all

approach. Some confusion and a race to the bottom

could have arisen had the law opted to differentiate

between different types of directors: directors of small

as against big companies, or of private and public

companies; or between the so-called non-executive and

executive directors, a distinction which today seems to

enjoy a certain unmerited popularity.

Good and ethical corporate governance should be

adhered to irrespective of the size and type of company.

Good governance is not the preserve of public or listed

companies. If it falls upon smaller companies to set

a standard in how they are run or should be run, then

so be it. Companies and their employees, customers

and creditors enjoy a better run in the long term if they

are properly and ethically administered and operated.

Employees would better serve an honest employer and

consumers respond favourably to a company which

takes their concerns seriously and whose directors are

perceived to be fair and honest.

Companies, whatever their size, should not be

set up to cheat one’s spouse, partner, business

associates, customers and creditors, or to break

the law in opaque ways. This has happened and

will probably continue to happen, but companies

big or small should conduct themselves as good

corporate citizens, safeguarding not just the place

of work but the broader environment outside.

Companies should have more ethically defined

objectives based on a culture favouring lawful

and correct behaviour. In this context, the role to

be played by the directors is pivotal and crucial.

As the leading officials of the company, directors

should lead by example setting the ethical tone

which employees will discern and follow.


GDPR

Getting ready for GDPR

MATINA MASSA

MATINA MASSA IS THE MANAGING

PARTNER OF M2 BUSINESS

FRAMEWORKS, A BOUTIQUE

CONSULTING FIRM BASED

OUT OF MALTA. SHE WORKS

CLOSELY WITH ARQ GROUP

MALTA IN THEIR GDPR PRACTICE

PROVIDING GDPR FRAMEWORKS,

ASSESSMENTS, IMPLEMENTATION

PLANNING AND SUPPORT.

18 Spring 2018

What do Facebook, Uber and Delta Airline all have

in common? All have been impacted by massive

data protection breaches in the past 6 months which

have resulted in millions of personal records being

compromised. The news, when exposed, has resulted in

damaging brand reputation and significant financial loss.

So why is Data Protection important, and what does it

have to do with your business? What do you need to

do to be ready for the May 25th, 2018 GDPR deadline?

This article attempts to answer some of these

important questions.

Below is a recap of the important points that you need

to be aware of:

• GDPR comes into effect on the 25th May 2018 and

there will be no transitional period as organisations

have already have had over two years to adjust

• The GDPR fines are steep and can range up to 4% of

annual worldwide gross revenue or up to 20 million

euro depending on the category of violation

• Any organisation that conducts business within the

EU that collects or processes personal data needs to

be GDPR compliant. This is regardless of company

location and also applies to any organisation that is

outside of the EU but targets (‘sells to’), monitors or

does business with individuals within the EU. This is

regardless of company size and includes SMEs as well.

• One of the most fundamental aspects of the GDPR is

the need to ensure that you have ‘explicit’ consent.

This means that the individual providing consent

must do an ‘explicit’ action to provide consent,

such as ticking a box. This consent must be given

for a specific purpose and must be presented in a

manner which is clear, accessible, transparent and

in plain language.

• The GDPR now has strict obligations for ‘processors’

of data, even though they may not be the

controllers of the data. In the past, under the EU

Data Protection Directive (95/46/EC), processors

had limited obligations leaving them free from fines

and responsibilities.

• The GDPR has strengthened the definition of

processing, as well as expanded the definition of

Personally Identifiable Information (personal data)

including what constitutes sensitive or ‘special’

personal data. Under the GDPR, biometric data

is now also considered sensitive personal data,

resulting in new obligations for organisations

that use biometric data for access control and

authentication. If you collect or process any form

of sensitive personal data your obligations are now

stricter, such as the requirement to have a Data

Protection Officer and conducting Data Protection

Impact Assessments on high risk processing.

• GDPR also includes strengthened obligations

around Technical and Organisational measures with

stronger links to IT security practices. While there is

no ‘silver bullet’ on what these measures are, they

do require a more comprehensive view of physical

and data security controls as well as implementing

measures such as pseudonymisation, encryption,

archiving, data deletion and minimization.

• GDPR is not about ‘ticking’ the boxes or a ‘one off’

inventory, it is about embedding strong privacy

management practices across the organisation

including training, awareness, policy and procedural

changes and a clear understanding of process and

risk areas where personal data can be exposed.

• GDPR brings with it a culture change in terms of how

employees handle personal data. Employees need

to think twice when they are processing personal

data in day to day activities, such as the simple

sending of an email with a resume to potential

interviewers. Equally, organisations need to ensure

that processes and controls are in place to protect

all personal data.

As such, GDPR has now become one of the most

significant global data security regulations with far

reaching implications beyond the EU.

Given the above, you may be struggling with ‘how to

start’ and ‘what to do’ to rapidly move up the GDPR

maturity curve.

GDPR readiness is best done within the construct of a

Data Protection and Privacy Framework. This will provide

you will the right structures for your GDPR activities and

will enable a strong framework for measuring compliance


GDPR

and implementation progress. There are 3 core aspects

of a Data Protection and Privacy Framework:

A. What are the measures that need to be put in place?

Measures are those activities that are required

to protect personal data, respect the rights of the

individual and comply with the GDPR obligations.

Over 45 out of the 99 articles within the GDPR

translate to specific measures for compliance for a

standard business. You need to define what activities

need to be implemented to be GDPR compliant and

these become your implementing ‘measures’.

B. What records do you need to keep or evidence do

you need to show to demonstrate compliance? The

‘accountability’ principle of GDPR sets out clearly that

all organisations need to demonstrate compliance,

no matter what size. Smaller organisations (under

250 employees) may have reduced reporting

responsibilities based on their processing, however

are still accountable for compliance. As such, ensuring

that you are capturing, storing and reporting your

‘proof points’ is important. Approximately 40 of

the GDPR measures above require evidence of

compliance, this number changes depending on the

size and nature of your business, however in general

the more you monitor, the stronger your GDPR

practices and maturity will be.

C. It is essential to have clear accountability for GDPR, not

only within the business areas where data is collected

and processed, but also across the organisation. Most

importantly clear accountability is essential at senior

levels, ensuring regular reviews, dialogue, governance

and reporting. Accountability also links to your GDPR

implementation roadmap, outlined in more detail

below, where you need to establish clear ownership

for completion of tasks in the plan.

Once you have established your Data Protection and

Privacy Framework, you will have a good understanding

of what needs to be in place for your organisation - not

only to become compliant but also to demonstrate a long

term sustainable practice.

So where to start?

1. First of all, you will need to baseline your

GDPR compliance. This involves assessing and

documenting the status of your GDPR compliance

across your business processes, reviewing

your policies and procedures, data, customer

communication, consent language, contracts,

governance and reporting. This will define your gaps

and risks and you can then prioritise what needs to

be done to address these gaps.

2. Second, you need to develop a plan and assign

ownership of the plan. You need to define what

needs to be done to mitigate the gaps and risks.

This might require embedding new procedures,

reviewing consent language or mapping out data

flows. These activities will comprise your roadmap,

which should also include activities that ensure

ongoing capability.

3. Third, you need to keep a steady progress as you

implement the various activities and deliverables.

Put together a team to deliver on the plan with

an engaged and accountable owner. Ensure that

the team has the resources and support to ensure

implementation. Establish how you will measure

progress and report regularly to the senior team

to ensure that roadblocks are addressed, and

deliverables effectively implemented.

4. Finally, you need to maintain and sustain your

efforts to become GDPR compliant. This involves

establishing key roles within your organisation, such

as a Data Protection Officer or compliance roles

matrixed in the lines of business. It also requires

ongoing awareness, training and reporting and

establishing ways of working such as embedding

‘data protection by design and default’, which

means that data protection obligations are taken

into consideration for all new projects and / or

commercial relationships.

Companies with good data governance and data

management practices, that are proactive can benefit

from increased business, higher levels of consumer

confidence and improved security.

GDPR Readiness is about a structured framework and

its systematic implementation. It is about your ‘ways of

working’ and needs to become an integral part of your

business, it is all about good business practice.

Most importantly, it is about the fundamental rights and

freedoms of individuals, to their protection regarding the

processing of their personal data and your obligations to

respect and protect this fundamental right.

theaccountant.org.mt

19


MANAGING TALENT

Managing Talent

within SMEs

Organisations are social so understanding and managing the people in them is

critical to successful business leadership. As owners or managers we need to know

how to attract, select, develop, reward and retain people. Within organisations

these processes are referred to as Talent Management. The emphasis falls on the

interaction between the people and business, interaction that supports the fulfillment

of its purpose and the achievement of its strategic objectives.

CATHY PERIĆ

CATHY IS AN EXECUTIVE COACH

AND PARTNER AT MULTIPLEX

PARTNERS, A BOUTIQUE OD

CONSULTANCY THAT FOCUSES

ON ACTIVATING TALENT

THROUGH THE DEVELOPMENT OF

COACHING AND ACCOUNTABILITY

FRAMEWORKS.

There are many definitions of the term Talent

Management, for instance, should talent

management include all staff or should it be

more exclusive focusing on a select group of high

performers or high potential employees? For the

purposes of this article I refer to an inclusive approach

to talent management as research suggests that

this is a common approach taken by SMEs. In this

approach ‘talent’ refers to the set of knowledge, skills

and behaviours that each employee has.

IT’S ALL ABOUT THE PEOPLE

Paradoxically, as people we are unique and yet we

are the same. Whilst each and every one of us is

different, we have certain common, generic needs

that we strive to satisfy in various areas of our lives.

Being aware of what these needs are within the work

context and understanding how they can be satisfied

gives us insight about how to relate to people as they

enter and then work in organisations – it gives us

insight about how to manage the talent within.

As you read through the needs below, think about

how they relate to your own experience. Certain

needs may be stronger than others however it is

likely some of them will feature to some extent:

• To have clarity of what our role entails and

what is expected of us

• To have clarity of what our role entails and

what is expected of us

• To be given feedback on our progress

• To learn, grow and develop

• To feel aligned with the organisational

purpose and culture

• To contribute to the organisation’s mission

• To be remunerated fairly

• To be acknowledged and recognised

• To have a collegial working environment

• To be treated fairly

When these needs are satisfied people feel engaged

at work and are motivated to give their best and

perform at their highest level.

IT’S ALL ABOUT THE BUSINESS

What about the needs of the organisation? Individual

business needs vary according to factors such as

industry, size and goals. However in general, the

business needs to fulfill its purpose and mission;

it needs to achieve its strategic objectives, be they

financial sustainability or growth focused; it needs to

recruit talented people, it needs its people to be on

board with the organisation’s objectives and to work

together towards achieving them. The organisation

needs its people to be engaged.

Talent management provides a potential win-win

situation for both the business and the individual in

all enterprises, be they large, medium or small. Skillful

talent management offers the possibility of fulfilling

the needs of both the individual and the business.

THE SME CONTEXT - SATISFYING PEOPLE

& BUSINESS NEEDS

We’ve established that we need to know how to attract,

select, develop, reward and retain our people, we need

to know how to satisfy our people’s needs in these areas

and we need to know how to achieve our organisation’s

purpose and objectives through our people. The question

is, how do we do all this within the SME context?

Larger organisations have certain advantages over SMEs

in areas such as brand visibility, professionalised functions

and deeper pockets. However research has shown that

the SME context presents a number of advantages that

could help attract and retain people.

20 Spring 2018


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MANAGING TALENT

“SMEs can provide a creative environment where

new ideas and innovation flourish (Zenger & Lazzarini,

2004). Research highlights a number of advantages

of working in a SME organisation from the employee

perspective including perceptions of better job

quality and less bureaucracy (Storey et al., 2010),

better job satisfaction due to higher flexibility, a

better working atmosphere (Iddson, 1990) and more

informality in the workplace (Dundon & Wilkinson,

2009).” (Krishnan & Scullion, 2017).

How an owner or manager activates each area of talent

management can vary, what is critical is that talent

management is carried out deliberately with a clear

vision of what it hopes to achieve – engaged people

working within the organisation. In July 2014, CIPD,

which is a UK-based professional body for HR and people

development published a research report that examines

the different approaches that SMEs can take to recruit

and develop their people and includes some useful

insights for organisations.

Informality in the workplace however can be

a double-edged sword in all areas of talent

management. Whilst it is one of the advantages, it

can also work against the SME’s need to engage its

people. Informality is great when it comes to the

atmosphere at the office and when it describes

the ease of relating to one another, however it can

become detrimental if we take an informal approach

towards recruitment, development and retention.

Each area of talent management needs thought and

consideration in the planning and follow-through

stages no matter how big or small the organisation is.

The individual needs are present in whatever context.

I can work with the largest organisation in Malta or I

can work with the smallest one, my needs for role

clarity, feedback, connection and fairness; my desire

for professional growth, are present in all contexts.

Two concrete examples of how to make talent

management deliberate are role profiling and taking

a coaching approach with staff. Role profiling provides

clarity about what the role entails and the competencies

needed to fulfill the role and at the same time creates an

accountability structure. These can be updated regularly

to cater for evolving needs of the small and medium

enterprises. You can’t begin to manage your people

unless you clarify in a meaningful way what you expect

of them and this is different from a job description in the

form of a task list. When there isn’t the internal expertise

to set up such structures such as role profiles, SMEs have

the option to turn outside the organisation for support.

Another example of deliberate talent management is

taking a coaching approach with staff. This ticks many

of the boxes for satisfying our people’s needs within

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the work context. It is considered best practice to

have ongoing coaching conversations with staff

and this is one practice that serves people well in

both large and small organisations. Research has

repeatedly found that giving people the opportunity

to learn and grow increases their satisfaction,

motivation and engagement making them more likely

to stay with the organisation and taking a coaching

approach is a key enabler of a person’s growth. It is

a cost-effective way of developing and engaging staff

that has exponential returns.

THE ROLE OF CULTURE, TRUST AND

THE LEADER

Any talent management initiative takes place within

the wider context of the culture of the organisation.

Culture is about how people think and act on a daily

basis (Connors & Smith, 2011). The now famous

saying “culture eats strategy for breakfast” sums

it up nicely. Effective talent management is more

than a strategy, it goes deeper into the DNA of the

organisation; it is about culture; it is about values …

and it starts at the top of every organisation. It has

to be recognised though that in order to grapple

with the idea and practice of talent management,

leadership has to believe that its people are good,

motivated and that they have potential. In an

organisation led by an autocrat who believes that

people are essentially driven by their managers rather

than themselves, talent management is doomed to

fail. The leader plays a critical role in embedding a

healthy culture based on trust and accountability

that in turn provides the rich foundation from which

effective talent management can really happen in a

meaningful way that delivers tangible results and a

healthy ROI.

CONCLUDING THOUGHTS

Talent management in SMEs is valid and valuable.

Are you leveraging the benefits?

References

• Talent management and dynamic view of talent in

small and medium enterprises. TN Krishnan & Hugh

Scullion, Human Resource Management Review 27

(2017) 431-441.

• Recruiting and developing talented people for SME

growth. J Miller, CIPD Research Report (2014)

• Change the culture, change the game by R Connors &

T Smith, (2011)

• The new rules of talent management: HR Goes Agile,

P Cappelli & A Tavis; Co-Creating the Employee

Experience, L Burrell; One Bank’s Agile Team

Experiment, D Barton, D Carey & R Charan, Harvard

Business Review March-April 2018 issue

theaccountant.org.mt

23


DIGITAL

SMES GOING DIGITAL

the way to transform the business

REUBEN PORTANIER

Small and medium-sized enterprises (SMEs) represent 99% of all businesses in the EU (and Malta). SMEs are

defined (or rather described) in the EU recommendation 2003/361, with the description of what constitutes

to fall under the definition of an SME being mainly quantitative in terms of headcount and, turnover size

and/or balance sheet total.

REUBEN PORTANIER IS THE

CO-FOUNDING PARTNER

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Entity Category

Medium Sized

Small

Micro

Staff Headcount


DIGITAL

budgets to invest in digital technology, particularly as

they may have easier access to finance. However,

a counter argument, which is equally valid, relates

to the fact that larger enterprises should on paper

provide a high return to SMEs terms of shifting them

to radically change the way SMEs conducted their

business and thus being in a position to keep up with

the pace of the large enterprises.

be less swift than SMEs to change their modus

operandi and become more digital, due to the size

and complexity of their operation and processes,

and thus SMEs should have a higher propensity

to be digital. The truth may be mid-way between

these two schools of thought, both of which may be

rather simplistic arguments. Comparing the 1% of

European enterprises versus the 99%, which involve

SMEs is in reality comparing apples with oranges,

as the nature of micro and small enterprises within

the SME cohort skews the comparative assessment

due to the intrinsic business nature of most micro

enterprises and the majority of small enterprises.

The latter include enterprises based on single

practitioners, (such as notaries, family doctors,

lawyers, hair dressers, etc), which business model is a

traditional, personalised and very localised, together

with micro enterprises based on traditional trades

Addressing the supply chain is key for the survival

of small enterprises in order to avoid the large

enterprises squeezing them out of the market with

their aggressive marketing actions. For instance,

the bedroom furniture manufacturer employing

25 people can compete with the likes of IKEA by

using digital technology in allowing their customers

build their own design, rather than choose from

a preset digital catalogue. In the case of medium

sized firms addressing the supply chain is critical

for their growth strategies, where for instance the

concept of distributed warehousing has taken off,

whereby medium sized retail enterprises with cross

border sales use networked ordering systems in

order to ship orders from warehouses which are

geographically closer to their customer in order to

reduce distribution costs and time.

which the very reason of their existence is not based

on volumes, but on personalised products/services. However, the application of DSC may also apply for

micro enterprises. The cases of UBER and Airbnb

The European Union has since 2003, embarked on

a journey to provide SMEs with more possibilities

to exploit digital technology. In 2003 it founded the

European e-Business Support Network for SMEs,

with the scope to create awareness amongst SMEs

show how even micro enterprises such as selfemployed

chauffeur driven car services and owners

of small tourist rental apartments can exploit DCS

technologies (albeit using the digital platform of a

third party) in order to maximise their orders books.

on the benefits of going digital, together with spearheading

policies that gave life to various co-financing

programmes to allow SMEs join the digital era, by

promoting internet connectivity, the use of ICT and

Although the take up of digital technologies for

SMEs may not yet be what may be expected,

however SMEs with the ambition of EU cross border

supporting SME have a web presence. In 2006, sales can exploit the opportunities presented by

European e-Business Support Network shifted its

attention towards promoting the use of digital supply

chain technologies (DSC) for SMEs as it identified

that DSC would be the digital technology that would

Digital Technology to re-engineer their processes,

and thus be more efficient, whilst for those who

are more bold and innovative potentially become

market disruptors.

Five tips for going digital:

1. Before investing in digital technology, re-assess your business objectives and strategy, and align

your planned investment accordingly, and not vice versa

2. Assess which business and operational processes need to change, be swifter or more customer

oriented. Following this assess which processes can be re-designed and which should turn to

digital technology

3. Assess which areas of your business is too laborious, and refocus that area by using digital

applications and solutions that can allow you to shift resources to other areas of need, such as

supplier relationship management

4. Do not go digital simply because it may be in ‘fashion’ to do so, but do it because you have

assessed how doing so would improve your business situation. Identify the medium to long term

return or savings, then go for it.

5. Keep on the look out for opportunities that could assist you in going digital, in terms of local and

EU assistance schemes – or look out as to how to join upcoming digital platforms that can push

your business outside our shores.

theaccountant.org.mt

25


BUSINESS PLAN

Is Business Planning relevant for SMEs?

A

2015 report by Barclays Bank

revealed that about 25% of UK

SMEs admitted to not having any

business plan or any strategy in place to

support their business growth. On the

other hand, less than half of the UK’s small

businesses had a formal business plan in

place that was written down or recorded,

while the remaining 25% had an informal,

verbal plan. Furthermore, only one in two

UK small businesses had a succession

plan in place.

CHRIS MEILAK

CHRIS MEILAK IS A CPA,

ECONOMIST AND ASSOCIATE

PARTNER AT EY MALTA, LEADING

THE VALUATION, BUSINESS

MODELLING AND ECONOMIC

ADVISORY PRACTICE.

These statistics are shocking, to say the least. As

individuals, we are taught to plan ahead in most life

situations – choosing a career, planning a holiday or

event (think of a wedding and all the trouble a couple

goes through), ensuring we maximise our study time

before an important exam, or making sure our finances

enable us to afford a new car or home mortgage. We plan

our day and week, listing down things to do and priority

tasks, and time needed. So one would expect individuals

to transfer these skills to their workplace – but it seems

this is not always the case.

Developing a business plan is a vital tool for any business,

of any size. Large corporates plan to reorganize or

streamline their enterprise, plan for growth, to be able

to tap new opportunities (from internal expansion to

foreign markets), raising finance for new projects, or

identifying exit strategies such as IPOs.

And SMEs? Actually, one could argue that such a plan is

of greater value in smaller businesses, because they are

exposed to higher risks, which could significantly impact on

the owner of the entity. SMEs often face limited resources,

with few individuals covering more than one function or

role. Hence, there is a need to prioritise on time, in order

to sustain the business, but also the individual. In other

words, time management is key, if the owner of an SME

wants to achieve an acceptable work-life balance.

SMEs might fall in the trap of preparing a business

plan just because it was requested externally (e.g. for

government or EU grants; bank financing), but the actual

truth is that benefits are primarily internal. The plan

formalises the strategy of the owner to try to tap market

opportunities with resources at hand, but also with

resources that need to be acquired, a business plan is in

this respect helpful because it helps to identify such gaps.

Besides there is no such thing as an “internal” plan and an

“external” plan to present to third parties – if there was

such a thing, eventually only the external plan would end

up being executed.

A business plan helps entities to stay on the right

track during its growth and it assists the entity when

approaching investors for funding. A business plan is

what keeps companies focused on their goals and what

moves them through hurdles. Hence it is fundamental

for a small business. It defines what the company wants

to achieve, how it plans to achieve it across a set time

period and is a tool that monitors growth targets and

execution of plans. Plans can make small businesses feel

more confident about their future and ensure they have

the necessary tools in place for growth.

Business plans can be developed internally, but there

is always the option to ask for professional external

expertise. In this regard the Government, through the

Malta Enterprise or other funds administered by the local

EU Managing Authority, offers grant incentives related

to business plans/ feasibility studies. Independently of

who prepares the business plan, it ultimately needs to

be “owned” by the SME Management/ owners – as it

outlines the entity’s strategy, so one would expect the

owners to address any questions on the strategy, not

an external consultant. This is especially the case, since

business plans should be viewed as a dynamic document,

hence they should be revisited and adjusted as the

business develops.

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The typical steps one undertakes when preparing an

SME business plan include:

a. Identifying the audience/ readers of the plan,

which will include the owner/ management

and possibly external parties (e.g. applications

for finance from a business loan to alternative

forms of finance and investment).

b. Identifying the circumstances and the purpose

for the development of the plan, which could

include growth into new areas, or new markets.

c. Tackling the key components of a business plan,

which could include (but are not necessarily

limited to):

• The company or founders’ history

• The vision and objectives

• Explanation of the range of product/

services being offering/ the idea/ project

• Identification of the target market and

customer segments

• Provision of the economic context and an

overview of the competitive environment

(e.g. competitor or competing products)

• Outlining the company strategy and growth

options

• Drawing up marketing action points

• Delineating the financial projections and

related financial plan/ funding sources

• Assessing the risks and issues related to the

business/ idea/ project

Some of the components above will require additional

research in order to be able to collect the necessary

information to be able to populate the plan. It is also

highly recommended to include a brief (2-3 page)

executive summary highlighting the salient points of

the business plan.

Many local businesses unfortunately do not spend

the time to formalise their business plan. Given the

evolving nature of business and the economy in

which we operate, the absence of a business plan can

itself represent a risk. Regardless of size or age, any

venture should have a clearly delineated plan which

helps guide the company’s strategic focus, sets out its

mission and vision as well as providing the analytical

context by which future performance and changes

can be benchmarked and managed. While you can

still be successful without a business plan, you are

more likely to be successful if a plan is in place – in

fact, business planning is the backbone of most

successful business.

theaccountant.org.mt

27


INVESTING WISELY

INVESTING WISELY

Diversification and Picking the Right Fund.

JOSEPH PORTELLI

JOSEPH PORTELLI IS THE

CHAIRMAN OF THE MALTA STOCK

EXCHANGE

In Malta it’s common to know someone who’s

had a bad experience investing in the stock

market. As a result many of us have become

averse to investing in anything other than real estate,

government bonds or capital guaranteed products –

investments deemed “safe”.

At first glance investing exclusively in bond and real

estate holdings may seem prudent – but for many

of us it’s not the way to go. An investment portfolio

lacking shares of good quality companies, with

good earnings prospects, is a portfolio lacking the

necessary diversification and “fire power” to assure

good long-term investment returns.

much of it, relative to our net worth. Imagine Investor

A and Investor B, both having an investment portfolio

worth €10,000 and both buying XYZ Ltd. Let’s say,

Investor A foolishly places all his cash into XYZ, yet

Investor B puts just five per cent or €500 into it. Next

day, XYZ announces very bad news and the stock

plunges 50 per cent. Investor A anxiously loses half

his account value, whereas Investor B calmly loses a

meagre 2.5 per cent. Although both investors owned

the same stock, Investor B mitigated the pain of the

selloff by managing risk effectively, and not owning

too much of it. It’s critical we manage the size of all

our bets and invest in a portfolio of perhaps 10 to 20

stocks to diversify our holdings and spread out risk.

Nutritionists often tout the health benefits of eating

a well-balanced diet. A diet full of proteins, with few

carbohydrates, will leave you lethargic. All four of the

major food groups play some part in sustaining us in

a healthy and productive way.

The same can be said of an investment portfolio. A

balanced portfolio including the four major asset

classes – equity, bonds, real-estate and commodities

– is to the investor what a well-balanced diet is to the

competitive athlete: essential.

Just as the grain complex gives the body energy,

owning a broad and diversified portfolio of equities

over time will energise your portfolio towards solid

returns. Few appreciate that equities are the best

performing asset class historically. The S&P500 for

example, a diversified index of 500 of the largest US

stocks has returned about 10 per cent annually, solidly

beating, bond, real-estate and commodity returns. A

portfolio devoid of shares will underperform during

periods of economic expansion and corporate

earnings growth. An underperforming portfolio may

keep you from fulfilling your retirement dreams.

Owning shares of companies implies having a right to

a portion of the companies’ earnings; and of course

as a company’s earnings grow, generally so too does

the value of its shares. Many of us have gotten into

trouble owning shares, not necessarily because we

bought the wrong stock, but because we bought too

Risk management is by far the most essential

element to successful investing! We often buy stocks

at prices which already reflect good news - leaving

them little impetus to rally further. Also we buy

shares after significant rallies, instead of on dips as

prices experience normal corrections. Warren Buffet,

the legendary billionaire US investor, only buys good

quality companies having a competitive advantage,

which are priced at a significant discount to intrinsic

or fair value. An analogy is to buy an excellent product

on sale at a 50 per cent discount to its full price. Savvy

investors always buy good companies on sale!

Investing in shares can be tricky if a disciplined

approach to screening inexpensive companies with

good earnings growth potential isn’t utilised. However,

investing with a long-term horizon, managing the size

of your bets and having a diversified portfolio should

improve the odds of your success significantly.

INVESTING IN FUNDS

When we invest in actively-managed funds few

of us appreciate that less than 10-20 per cent of

a fund manager’s annual performance beats the

underlying index the manager tracks. This is not

necessarily due to the managers’ competence, but

is a function of the fees associated with actively

managing a fund.

A majority of funds are actively managed, meaning

the fund manager actively buys and sells stocks or

bonds, attempting not only to generate profits, but

28 Spring 2018


INVESTING WISELY

to outperform an index and competitors. Although

a portfolio manager is typically well trained, the

rude reality is that few managers can consistently

generate enough profits to overcome the expenses

associated with managing a fund.

If you invest with an experienced low-cost fund,

with a track record of managing risk effectively, you

should be in a good position to benefit from investing

in funds. As an example, imagine you invest in a fund

which invests in large capitalisation US corporate

shares. The fund manager will aim to either finish

the year in line or preferably beat the index, which

mirrors the fund he manages. If the underlying index

finishes the year up 15 per cent, and the fund charges

two per cent in total fees, the manager must on a

gross basis return 17 per cent just to match the index.

Besides a fund’s management fees, investors often

have to pay a load (sales commissions), sometimes

as high as five per cent, just to purchase such a fund.

Because so few funds can overcome the high

expenses associated with active fund management,

Wells Fargo Bank established the first index fund in

1971. The index fund concept today popularised by

US fund manager Vanguard suggests that investing

in low-cost passive funds is preferable to expensive

actively-managed funds. Passive funds manage

portfolios which significantly mimic the index they

track, thus lowering the cost of managing assets. As

a result, most index funds will post returns very close

to the underlying index the fund tracks.

Most funds are created as open-ended funds with

shares which are constantly bought or sold, usually at

the day’s closing net asset value (NAV). A fund’s NAV

measures the net worth or value of each share. Openended

funds are continuously open to new investors,

unlike closed-ended funds (CEF), which have a fixed

number of outstanding shares. CEFs trade like shares

on exchanges, and their value is set by the market.

Sometimes their values deviate from the fund’s NAV

and as a result could trade at significant premiums or

discount. Investors should avoid buying CEFs trading

at significant premiums to NAV.

CEFs, like their open-ended counterparts, could use

leverage to magnify returns. It is also common for

CEFs to make periodic distributions to shareholders,

however, they may on occasion have high distribution

yields as they could pay out part of their funds’

principal to meet their distribution goals.

Do the required due diligence prior to investing in

funds. This includes scrutinising all fund fees and

expenses. Also consider the funds’ age and size. A fund

with a long track record is easier to analyse. Ensure

the fund management company is well managed

and regulated in a trusted domicile. Consider a fund

not so large, whereby managing fund assets is too

cumbersome, thus jeopardising returns. On the other

hand smaller funds will have higher expense ratios. If

you invest with an experienced low-cost fund, with a

track record of managing risk effectively, you should be

in a good position to benefit from investing in funds.

theaccountant.org.mt

29


ACCOUNTANCY EUROPE

REDISCOVERING THE VALUE OF SME AUDIT:

Recent developments in Sweden and Denmark | An information paper by Accountancy Europe

Introduction

This information paper reports on the current

developments in Sweden and Denmark,

where national authorities are assessing the

consequences of exempting small and mediumsized

enterprises (SMEs) from mandatory audit.

Findings

The main findings of the impact assessment

outline numerous downsides of abolishing the SME

audit obligation and show that the companies’

competitiveness and growth have not been enhanced

by the reform:

1. Slower growth

Those companies which opt out of audit do not

have higher growth, rather the opposite. They

report weaker subsequent growth, both in net

sales and staff numbers.

SMEs are the backbone of the EU economy.

They represent 99.8% of all enterprises which

operate in the non-financial sector of the 28 EU

Member States. SMEs account for 66.6% of total

employment and generate 56.8% of value added

in this sector 1 . These figures are comparable with

the contribution of large enterprises. Therefore,

policy instruments that also instil confidence and

trust in this part of the market are indispensable.

An audit of the financial statements (audit) is

one of these policy instruments; it ensures that

financial information is reliable, which is crucial

for the functioning of the economy and its growth.

However, policy-makers seem to focus on audit

of large or listed companies rather than SMEs.

In recent years, the requirement for auditing

SMEs has been increasingly perceived as an

administrative burden. As a result, regulators

in some countries have introduced an audit

exemption for SMEs. At the same time, Sweden

has just evaluated the impact of one such

reform abolishing the SME audit requirement,

concluding that the reform was unsuccessful as

its costs outweigh the benefits.

Swedish impact assessment

In 2010, Sweden abolished a regulatory requirement for

audit of small limited liability companies. In December

2017, the Swedish National Audit Office (NAO), an

independent body of the Swedish Parliament 2 , published

a report Abolition of audit obligation for small limited

companies – a reform where costs outweigh benefits 3 that

put this abolition into question. The report demonstrates

through an impact assessment that audit of small entities

is valuable to both SMEs and the public good.

2. Smaller savings

The cost savings made by the companies that opt

out of audit are small, profitability does not improve.

3. Lack of transparency and control

Without audit, overall transparency is reduced

and authorities have less information to exercise

control and enforcement in various areas.

4. Increased risk of economic crime including

tax evasion

The inclination to opt out of audit is greater in

industries with a high risk of economic crime

and tax evasion. The slowing rate of growth may

indicate that companies that opt out of audit

withhold more tax than before.

5. More mistakes in the accounting

Without audit, the number of errors in the

financial statements increases.

Recommendation and next steps

Based on the conclusion that this reform’s costs

outweigh its benefits, the Swedish NAO recommends

to the Swedish Government to reintroduce the audit

obligation for small limited liability companies. The

Government will respond to the report’s findings at a

plenary meeting in early April 2018.

Denmark follows suit

The Swedish NAO’s report has sparked a debate on

the consequences of the SME audit exemption in

Denmark. The Danish audit exemption threshold

has been raised three times in the last twelve years

- in 2006, 2010 and 2013. The Danish Ministry of

30 Spring 2018

1

These data relate to micro, small and medium-sized enterprises and are based on the European Commission’s Annual Report on European SMEs 2016-2017; available at

https://ec.europa.eu/growth/smes/business-friendly-environment/performance-review_en?pk_source=ec_newsroom&pk_medium=link&pk_campaign=spr17

2

The Swedish National Audit Office is an independent agency charged with the audit of government institutions and the oversight of the state finances through financial

and performance-based audits of state agencies, state-owned companies and the Government of Sweden. It operates directly under the Swedish Parliament (Riksdag) and is

independent of political or other stakeholder interests. More information is available at https://www.riksrevisionen.se/en/Start/About-us/

3

A summary of the report in English is available at https://www.riksrevisionen.se/PageFiles/27902/RiR_2017_35_REVISIONSPLIKT_SUMMARY.pdf

The full report is available in Swedish at https://www.riksrevisionen.se/PageFiles/27733/RiR_2017_35_REVISIONSPLIKT_ANPASSAD.pdf


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Business has now announced to carry out a study

into the consequences of easing the audit obligation.

Risks of audit exemption for SMEs

Exempting SMEs from audit increases a number

of risks to the economy. The Swedish report has

highlighted in particular the risk of accounting errors,

tax evasion and economic crime.

Accounting errors

As demonstrated by the Swedish example, without

audit, SMEs tend to have more errors in their

accounting. This undermines the reliability of their

financial statements and reduces users’ trust in them.

Negative impact on Tax collection

The Swedish assessment indicates that exempting

SMEs from the audit obligation may increase tax

evasion and impair the ability of authorities to detect

such crime. Without being audited, companies run

a smaller risk that tax evasion will be discovered. It

is easier for companies to deliberately report lower

economic activity and so reduce the profit to lower

their tax.

Fraud, corruption, money laundering and

terrorist financing

Audit serves as a deterrent to fraudulent and criminal

behavior. For instance, it helps deter crime such as

fraud, corruption and money laundering in companies.

Given today’s heightened risk of terrorism in Europe,

the deterrence effect of audit is critical in particular

for SMEs as it reduces the risk that they are used for

terrorist financing.

Business insolvency

SMEs have a corporate responsibility to third parties

such as their suppliers, creditors, investors, employees

and the state itself. If a company is not audited, these

stakeholders’ confidence in the financial statements

and accuracy of business performance diminishes.

Subsequently, the lack of confidence makes it more

difficult for SMEs to operate and flourish.

Limitations on access to funding

Access to credit/loans and financing enables SMEs to

grow, which is in every country’s interest. According

to a European Central Bank’s survey 4 , in recent

years, SMEs’ demand for external financing has

been increasing in Europe. However, the availability

of this financing still poses a challenge to SMEs. This

challenge might become even greater if a company

has not had an audit which provides more credibility

to its financial statements.

Conclusion

There are diverging national policies and views

on SME audit. Given this backdrop, it is interesting

to see countries like Sweden and Denmark taking

an empirical facts-based approach to evaluate the

effectiveness of reforms abolishing the SME audit

requirement. Policy-makers will further discuss the

policy implications of the assessment findings.

The Swedish example is a good practice of sound

policy-making. It is important to be pragmatic in policymaking

and to be able to adapt or even revert a policy

if it proves unsuccessful or worse, counterproductive.

In the context of SME audit, we encourage all policymakers

to take informed decisions based on facts and

evidence and to consider the benefits of SME audit,

both for SMEs themselves and for other stakeholders.

Accountancy Europe has formed a group of experts

to enhance the debate at European level on how

best to respond to the challenges of SME audit. We

will also keep analysing national developments in the

area of SME audit policy.

About Accountancy Europe

Accountancy Europe unites 51 professional organisations

from 37 countries that represent 1 million professional

accountants, auditors and advisors. They make numbers

work for people. Accountancy Europe translates their

daily experience to inform the public policy debate in

Europe and beyond.

Accountancy Europe is in the EU Transparency Register

(No 4713568401-18).

Many SMEs enjoy the privilege and protection of a

‘limited liability’. This poses a risk for creditors in case

a limited liability company cannot pay its debts. Audit

may reduce this risk and provide more security to

creditors and other users of the financial statements.

Without audit, this counterbalance disappears.

4

Survey on the Access to Finance of Enterprises in the euro area; available at

https://www.ecb.europa.eu/pub/pdf/other/ecb.accesstofinancesmallmediumsizedenterprises201705.en.pdf?17da4ff2a730b7ababea4037e4ce8cae

32 Spring 2018


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• Guarantee all operational aspects and accuracy in the administrative, fiscal and

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• Manage relationships with other key players in the industry including auditors, law

firms, custodians and prime brokers

• Drive a number of internal strategic projects for our office in Malta

Visit www.alterdomus.jobs to apply online and to know more about these

vacancies or send your CV together with a cover letter to the HR Senior Manager

Amanda Cini on Amanda.Cini@alterDomus.com

YOUR CAREER, OUR PROMISE.


PROJECT MANAGEMENT

The Start-Up Journey in Malta –

how friendly is the framework for budding entrepreneurs?

CHRIS CACHIA

CHRIS CACHIA IS A SERVICE

MANAGER AT ALTER DOMUS. HE

IS A LAWYER AND CHARTERED

ACCOUNTANT

INTRODUCTION

It is common in literature nowadays to read stories of successful

start-ups. Occasionally this has unfortunately led to the idolisation of

entrepreneurship, giving it a sheen of glamour but glossing over the

hard hours of work and sacrifice. The latter are necessary if the business

is to succeed. Another consequence is that people are induced to

start their own business at the beginning of their career path.

The start-up phase can be as complicated as it is exciting, especially

when one considers the different building blocks, legal requirements

and interactions with different governmental entities to start off the

business.

In a local context, what is the state of play when launching a small

business? Is the environment, business friendly or is it mired by too

many strands of information which entrepreneurs need to grapple

with before seeing their project take off? This article will try to provide

a very brief overview of the landscape faced by an entrepreneur

when launching a start-up in Malta.

WHAT IS A “SMALL BUSINESS” OR “SMALL

ENTERPRISE”?

A definition of micro, small and medium enterprises

is found in Commission Recommendation 2003/361/

EC of 6 May 2003 . Under the recommendation, “An

enterprise is considered to be any entity engaged in

an economic activity, irrespective of its legal form.

This includes, in particular, self-employed persons

and family businesses engaged in craft or other

activities, and partnerships or associations regularly

engaged in an economic activity.”

The recommendation further applies two

benchmarks to define the category of small and

medium size enterprises, namely, staff headcount

and financial ceilings.

Broadly, enterprises considered to fall under

the grouping of micro, small and medium-sized

enterprises (SMEs) are those employing less than

250 persons, which have an annual turnover of not

more than EUR 50 million, and/or an annual balance

sheet total not exceeding EUR 43 million.

34 Spring 2018


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COMMERCIAL LEASE

document at this stage is the Memorandum & Articles

of Association, as this contains the basic information

of the company as well as the procedures to follow in

specific circumstances, such as process at meetings

and transfers of shares.

ACCOUNTING AND FINANCIAL REPORTING

Maltese law provides for the General Accounting

Principles for Small and Medium-Sized Entities

(GAPSME) as the default regime for financial

reporting for small or medium-sized entities.

In turn, a small enterprise is an enterprise employing

less than 50 persons and whose annual turnover

and/or annual balance sheet total does not exceed

EUR 10 million. Whereas a microenterprise is an

enterprise which employs fewer than 10 persons and

whose annual turnover and/or annual balance sheet

total does not exceed EUR 2 million.

FINANCING AND INCORPORATION OF THE

ENTITY

Having established the aim of the business, the

next step is to start trading and grow the business.

The selection of the right form of entity for doing

business, the manner in which the entity operates,

and financing considerations need to be determined.

The founders, family members or friends of the

founders usually provide the initial sources of finance.

Other forms of financing at this stage may be hard to

come by. Angel investing or banks may be looking at a

more mature business, and even then would require

detailed business plans and forecasting. Start-ups

may benefit from Government grants and rebates

which will be discussed further in the article.

Furthermore entrepreneurs have to choose the

legal form for operation under Maltese law. One can

select the traditional routes of trading in their own

name, setting up a partnership or incorporating a

company with a separate legal identity. The article

will focus on the latter, specifically the private

limited liability company.

Incorporating a private limited liability company is a

relatively straightforward process once all required

submissions are in hand. The most important

GAPSME allows small enterprises to draw up

accounting records allowing for straightforward

and basic reporting without having to go into the

complexity of the more comprehensive International

Financial Reporting Standards (IFRS) framework.

Directors’ reports are also not required on submission

of a statutory form.

The choice of using IFRS and as a result more detailed

disclosures would become more relevant when the

start-up grows or possibly when trying to attract more

financing, through new investors or via bank loans,

which might require a more granular level of detail.

GRANT SCHEMES

Several grant schemes are available, aimed at

supporting SME investments in different sectors.

These include but are not limited to the provision

of non-repayable grants for research, development

and innovation actions, part-financing of the

eligible expenditure related to initial productive

investment costs in tangible and intangible assets

when implementing their business growth strategies,

and part-financing of costs for external consultancy

services to assess and evaluate their operations,

processes and systems.

The company would need to compile an application

and adhere to certain conditions to qualify for such

schemes. These applications have to be supported by

backing documentation including business plans and

also forecasts.

OTHER REQUIREMENTS

The incorporation of the company in and of itself is

only the start.

The entrepreneurs would then need to proceed with

the registration of the company for VAT purposes,

36 Spring 2018


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opening of a bank account and registration of a PE

number. Company registration, VAT registration and

application of PE number can nowadays be performed

through Business First. Attention needs to be given

to the registration of the VAT number as this involves

different options depending on the service offered

or product sold. The opening of a bank account is

subject to on-boarding requirements, and can be

time consuming.

require professional help as this can be seen as a

barrier to entry for entrepreneurs with the counter

effect of leading them not to incorporate a business

in Malta in the first place. This could also signal

inefficiencies in the way different government entities

interact with one another, or the total absence

thereof, leading to time wastage, repetition of work,

delays and a general feeling of an uncoordinated

approach to this delicate stage of a business.

ROLE OF PROFESSIONAL ADVISORS AND

INCUBATORS

Obtaining professional help aids in the launch of a

successful start-up. The environment should not

however be so complicated as to invariably always

Business incubators, whether private or governmentbacked,

are an available option in Malta and can be

critical in providing initial guidance and a support

network to young entrepreneurs. They also provide

training and business support.

CONCLUSION

Professionals should strive to provide the value added to start-up

businesses in all cases, and one notes that a number of options

are available which create a business friendly environment. There

is however room for more development such as less laws and

regulations, access to financing and education.

theaccountant.org.mt

37


PENSIONS

Looking beyond the Government Pension -

Some recent tax developments impacting the local pensions' arena

The Maltese pension system has been the subject

of public consultation and debate for a long

number of years. The Government-funded twothirds

pension remains thus far the main source of

future pension income for the vast majority of the

Maltese workforce, and it is no secret that there are

serious doubts about the financial adequacy and

sustainability of the Government pension.

The said legal notices are the Personal Retirement

Scheme Rules, which were introduced in 2014 by

virtue of Legal Notice 468 of 2014 (as subsequently

amended), and the Voluntary Occupational Pension

Scheme Rules, introduced in September 2017 by

virtue of Legal Notice 228 of 2017. The focus of

this article is on the Voluntary Occupational Pension

Scheme Rules.

BERNARD ATTARD

BERNARD ATTARD IS A TAX

PARTNER AT PWC. HE HAS WIDE

EXPERIENCE IN MALTESE TAX AND

SOCIAL SECURITY MATTERS AND

LECTURES AT THE UNIVERSITY

OF MALTA.

VICTORIA MUSCAT

VICTORIA MUSCAT IS A TAX

SENIOR MANAGER AT PWC. SHE

HAS EXPERIENCE IN PENSIONS

REGULATORY AND TAX MATTERS,

AND HAS ADDRESSED VARIOUS

TECHNICAL SEMINARS AND

CONFERENCES

Various factors are cited in this respect, amongst

which is the fact that the Maltese population is

an ageing population - people are living longer

while birth rates have fallen. Very broadly, this

means that the number of individuals below

retirement age who are paying contributions

to fund Government pensions is increasingly

becoming lower than the number of individuals

subsisting on such pensions. In addition, the

two-thirds pension (the maximum amount of

which currently stands at just over €12,000) to

which one may eventually be entitled, may not be

considered as sufficient to provide an adequate

standard of living throughout retirement.

Taking these and other factors into consideration,

it is evident that the Maltese pension system can

no longer remain one that is primarily dependent

on the Government pension.

Regulation and fiscal measures go hand in hand

The regulatory framework for the setting up and

administration of occupational and personal pension

schemes has been in existence since 2002 by virtue of

the Special Funds (Regulation) Act, which has since

been repealed and replaced by the Retirement Pensions

Act (“RPA”), and supporting Pension Rules issued by

the MFSA. Yet, the lack of adequate fiscal measures

addressing contributions into such pension schemes and

the taxation of income derived therefrom, has meant

that there was no real impetus for the introduction,

locally, of occupational and personal pension schemes.

Indeed, over the more recent years, we have seen steps

in the right direction with the introduction of two legal

notices and supplementary amendments to Maltese tax

law, in an attempt to provide a workable tax framework

(including certain tax incentives) for occupational and

personal pension schemes.

The Voluntary Occupational Pension Scheme

Rules (“the Rules”)

Main conditions and definitions

The Rules came into force on 1 January 2017 and

introduce a number of tax measures for both

employers and employees contributing towards an

occupational pension scheme.

In order for the provisions to apply, there are

essentially three main conditions to be satisfied:

1. The pension scheme into which contributions

are paid should be a qualifying scheme. Firstly,

as the name of the Rules implies, it needs to

be a scheme established in the context of an

employment relationship. In addition, it can

be in one of two forms: either a retirement

scheme registered under the RPA (or any law

substituting such Act), or a long term contract of

insurance that has certain features and terms for

benefit withdrawal mirroring those applicable to

retirement schemes registered under the RPA.

2. The employer making contributions for the

benefit of its employees should be a qualifying

employer. This essentially requires the employer

to be registered as a payer under the Final

Settlement System Rules. The employer

can be any person, whether corporate or

unincorporate, and whether vested with legal

personality or not, and can include self-occupied

persons i.e. persons who are not employed but

are engaged in an economic activity.

3. The individual for the benefit of whom the

contributions are paid should be a qualifying

employee. The relevant criteria in this respect

are set out in Rule 4 of the Rules and provide

that the individual:

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PENSIONS

A. Should be registered for Maltese tax

purposes and should derive chargeable

income in terms of Article 4(1)(b) of the

Income Tax Act, i.e. employment income;

B. Should be employed by a qualifying

employer; and

C. Should not be a beneficiary of the Highly

Qualified Persons Rules.

Criteria (a) and (b) are important in that they

require the contributions to be paid by or on

behalf of an employee. This implies that selfoccupied

persons can only qualify for the tax

measures provided under the Rules on the

contributions they make for the benefit of their

employees, and not on the contributions paid

for their own benefit. (The latter contributions

could possibly qualify under the rules issued for

Personal Retirement Schemes.) This implied

restriction is intended to avoid the same

contribution qualifying for more than one benefit.

amount paid. The tax credit can be offset against

the tax charge for the year but unlike the tax credit

applicable to employers, any unutilised portion

cannot be carried forward to subsequent years.

Some other provisions in the Rules

1. Payments from the scheme: Whether the

scheme is a retirement scheme registered under

the RPA or a long term contract of insurance,

the withdrawal of income therefrom should

in general constitute pension income for the

recipient and chargeable to tax accordingly.

However, the Rules provides exceptions where

payments received in certain circumstances

may either be exempt from tax, or considered as

other (i.e. not pension) chargeable income.

Fiscal measures for employers

• An annual tax credit amounting to the lower of

15% of the contribution paid for each employee

and €150 per employee per annum, which may

be utilised as a deduction from the tax due on the

employer’s chargeable income for the year. Further

provisions are made for the carrying forward of

unutilised tax credits to subsequent years, and the

tax accounting of such relieved profits in order to

ensure that the benefit is not lost upon distributions

of the relieved profits to shareholders.

• Furthermore, Rule 9 of the Rules provides for

the tax deductibility of qualifying contributions

paid by employers into an occupational pension

scheme. Where the contribution paid for any

employee exceeds €2,000 in a year, the tax

deduction is capped at €2,000.

Fiscal measures for employees

The Rules specify that employer contributions made

for the benefit of employees do not constitute taxable

fringe benefits in the hands of such employees. This

is in clear contrast with salaries, which are taxable for

the employees.

The Rules also cater for those circumstances where

employees voluntarily and out of post-tax income

make contributions into the scheme. In such cases,

an employee qualifies for an annual tax credit

amounting to the lower of €150 and 15% of the

2. Social security contributions: Employer

contributions into an occupational pension

scheme do not form part of the basic weekly

salary on which social security contributions are

due i.e. such employer contributions are not

subject to social security.

3. Administrative matters, including reporting

and compliance requirements for employers

and service providers (retirement scheme

administrators or insurance providers depending

on the form of qualifying scheme).

Other aspects of occupational pension schemes

The concept of occupational pension schemes in

practice triggers a lot of questions dealing with

different fact circumstances that can exist within one’s

40 Spring 2018


PENSIONS

workforce. While the answers to a number of these

questions can be derived from the tax / regulatory laws

(including the Income Tax Act, RPA and Pension Rules),

it is yet to be seen whether the fiscal measures and the

regulatory framework are attractive enough to make

occupational pension schemes successful and ultimately

serve the purpose of making Malta’s pension system

more adequate.

But should one focus only on tax/ regulatory outcomes?

Can other benefits flow to an employer and an employee

as a result of an occupational pension scheme? Today’s

reality is that it is an employees’ market and every

additional staff benefit, no matter how big or small, is likely

to have an impact on employee loyalty and satisfaction,

and the ability of an employer to attract and retain staff.

With this future looking perspective, we leave you

with some open questions which should hopefully

serve as ‘food for thought’, with the prospect of

building further on this step towards the evolvement

of occupational pension schemes in Malta.

• The framework for occupational pension

schemes provides for a voluntary scheme rather

than a mandatory one. This is in keeping with

the ideology of encouraging people to save for

their retirement, rather than obliging them. But

will a voluntary pension system really have the

desired take-up? Perhaps making the system

mandatory (for both employer and employee)

is not a straightforward call but could there

possibly be a middle-of-the-road approach?

For instance, the UK and New Zealand both

have adopted systems whereby employees

are automatically enrolled in their employer’s

pension scheme when they are first employed,

but they can choose to opt out.

Additionally, an occupational pension scheme can have

a corporate social responsibility and public relations

perspective - by introducing an occupational pension

scheme, an employer will be contributing towards a

better standard of living for its employees at a time when

they are no longer part of its workforce.

Looking ahead

The introduction of the tax rules for occupational

pension schemes is certainly an important step in the

right direction. Now is really the time to put these rules

in practice and also, from such practical experience,

be bold and nimble enough to identify areas (both tax

and regulatory) which can be further enhanced for the

better use of such schemes. This is what will ultimately

make these occupational pension schemes successful

and ensure that they reach their purpose.

• The local regulatory framework does not

allow the full withdrawal of one’s pension

pot upon retirement. Such a methodology is

understandable since, after all, the pension fund

should be there to provide income for life after

retirement. However, should this apply across

the board? Would this work in the context of a

lower pension value? To make such occupational

pension schemes more wide reaching, should we

therefore consider introducing some flexibility

for withdrawal, such as ‘triviality provisions’,

similar to the UK system, which essentially

allow the cashing in as one lump sum (or over a

shorter number of years) pensions with small or

‘trivial’ values?

There are many more points to think about and the

debate over retirement planning and the funding

of pensions in the Maltese economy will certainly

continue. All key stakeholders have a very important

role to play, not only to promote financial literacy

but also to drive important changes. The pension

system cannot remain stagnant but has to evolve

to deal with economic, social and demographic

trends. For many people, the pensions they are

counting on to finance their old-age needs may be

facing serious challenges and we cannot afford to

be complacent.

theaccountant.org.mt

41


GETTING IT RIGHT

GETTING IT RIGHT

RELATED PARTY DISCLOSURES FOR SMEs

ROBERTA WEST FALZON

ROBERTA WEST FALZON IS A

CERTIFIED PUBLIC ACCOUNTANT

AND HOLDS A PRACTISING

CERTIFICATE IN AUDITING. SHE

IS AN AUDIT MANAGER AT RSM

MALTA LEADING SEVERAL AUDIT

ASSIGNMENTS FOR NATIONAL

AND INTERNATIONAL CLIENTS

OPERATING IN DIFFERENT FIELDS.

The changes to the Maltese Companies Act as

a result of the transposition of the EU Single

Directive into Maltese law, which came into effect

on 1st January 2016, had an impact on small and

medium-sized entities. The option under Article

185 of the Companies Act for small companies

to prepare abridged accounts has been removed

and consequently a small company must deliver to

the Registrar of Companies its full set of financial

statements including the notes to the accounts.

One note that was not required to be included in

abridged accounts, hence not made public, was with

respect to the disclosure of emoluments granted

to the directors of a company for their services as

directors and for their services in connection with

the management of the affairs of the company. This

included all fees, percentages, gifts, compensation

for loss of office and other similar payments together

with any commitments arising or entered into in

respect of retirement pensions or other similar

commitments for former directors of the company.

This increased level of disclosure to be made public

is encouraging businesses to look into the two

accounting frameworks allowed to be adopted by

Maltese small and medium-sized entities (GAPSME

and IFRSs as adopted by the EU) and assess the

disclosure requirements of the two.

The objective of Section 20 of GAPSME, similarly

to IAS 24, is to ensure that an entity’s financial

statements contain the disclosures necessary to draw

attention to the possibility that its financial position

and profit or loss may have been affected by the

existence of related parties, and by transactions and

outstanding balances, including commitments, with

such parties. Both frameworks define a related party

transaction as “a transfer of resources, services or

obligations between a reporting entity and a related

party, regardless of whether a price is charged”. 1,2

what constitutes a related party, which is in line with

that given by IAS 24. A related party is a person or an

entity that is related to the entity that is preparing its

financial statements. Related parties include:

• Persons with control, joint control or significant

influence over the entity (and close members of

their families)

• Parent company

• Subsidiaries

• Fellow subsidiaries

• Associates of the entity and other members of

the group

• Joint ventures of the entity and other members

of the group

• Members of key management personnel of the

entity or of a parent of the entity (and close

members of their families)

• Entities (or any of their group members)

providing key management personnel services

to the entity or its parent

• Post-employment benefit plans

DISCLOSURE REQUIREMENTS

As for GAPSME, the disclosure requirements

distinguish between a small company and a

medium-sized company. However, small and

medium-sized entities opting for IFRS as adopted

by the EU have to disclose the same information

as that required by large entities. Under

GAPSME, small companies have lesser disclosure

requirements as evidenced in Table 1 below. But

it is important to note that small companies (both

those adopting IFRS as adopted by the EU and

those adopting GAPSME) are required to make

disclosures concerning directors’ remuneration.

Small companies under GAPSME are required to

disclose only transactions with specific categories

of related parties and these include the reporting

entity’s board of directors.

GAPSME in comparison to the previous GAPSE

regulations provides more detail in the definition of

One of the major differences in the disclosure

requirements between IFRS and GAPSME is that

42 Spring 2018


GETTING IT RIGHT

IAS 24 requires the disclosure of the identity of the ultimate controlling party. No such disclosure is

required by GAPSME if the ultimate controlling party is an individual.

Table 1 below highlights the disclosure requirements between IFRS and small and medium-sized entities for GAPSME.

Table 1: Disclosure requirements under GAPSME (small and medium-sized entities) and IFRSs as adopted

by the EU (adapted from 1,2 )

GAPSME

IFRS

Small Companies

Medium - sized

Companies

The name and registered office of its immediate parent

company.


The name and registered office of its ultimate parent

company and if neither the parent nor the ultimate parent

prepare consolidated financial statements, the name and

registered office of the entity which draws up the

consolidated financial statements of the largest body of

entities of which it forms part as a subsidiary entity and the

place where copies of these consolidated financial

statements may be obtained, provided they are available.



The name of the ultimate controlling party.

For transactions with related parties to disclose:

• The nature of the related party relationship.

• The amount of transactions in aggregate for each

significant category of transactions.

• The amount of outstanding balances and their terms and

conditions, including whether they are secured, and the

nature of the consideration to be provided in settlement;

and details of any guarantees given or received.

• Provisions for doubtful debts related to the amount of

outstanding balances.

• The amount charged to profit or loss during the period in

respect of bad or doubtful debts due from related parties.

# #

Shall include:

parties having

control, joint

control or

significant

influence over the

entity,

• subsidiaries,

• associates,

• jointly controlled

entities of the

entity, and

• directors of the

entity

For all related

parties


For all related

parties

An entity shall also disclose the following in relation to

members of the entity’s board of directors and other

members of its administrative, managerial and supervisory

bodies:

a. The amount of advances and credits granted with

indications of the interest rates, main conditions and any

amounts repaid or written off or waived; and


b. Any commitments entered into on their behalf by way of

guarantees of any kind.




c. The amount of the emoluments granted in respect of the

financial year by reason of their responsibilities;

d. Any commitments arising or entered into in respect of

retirement pensions of former member of the entity’s board

of directors.

(As detailed in

paragraph 20.7)



An entity shall disclose key

management personnel

compensation in total and for

each of the following categories:

(a) short-term employee benefits,

(b) post-employment benefits,

(c) other long-term benefits,

(d) termination benefits, and

(e) share-based payment.

# Under GAPSME entities are exempt from disclosing related party transactions with other group companies

provided that such group companies are wholly owned by a member of the group.

Globally there is a greater interest in related party transactions given the need for more transparency in financial

reporting. Hence, management should ensure that they have the necessary tools to collect the information to

meet the disclosure requirements requested by the regulations.

1

L.N. 289 of 2015. Accountancy Profession Act (CAP. 281) Accountancy Profession (General Accounting Principles for Small and Medium-Sized Entities) Regulations, 2015.

Section 20: Related party disclosures.

2

International Accounting Standard 24 Related Party Disclosures.

theaccountant.org.mt

43


VAT

VAT for small business:

existing rules and current development

MATTHEW ZAMPA

MATTHEW ZAMPA IS ONE OF

THE FOUNDING PARTNERS OF

ZAMPA DEBATTISTA. HE HAS

BEEN SPECIALISING IN VAT FOR

TEN YEARS AND HAS EXTENSIVE

EXPERIENCE ON VAT MATTERS

APPLICABLE TO DIFFERENT

INDUSTRIES.

44 Spring 2018

When it comes to VAT, small and large businesses alike are

generally bound by the same set of rules and regulations.

This implies that the compliance burden derived from the

need to observe such rules and regulations represents

a compliance cost to tax payers, which in view of their

limited resources, is to a certain extent larger in the case

of small businesses.

For the purposes of alleviating this administrative burden,

the VAT Directive 1 allows Member States to adopt a special

scheme for small enterprises, which by and large, provides

for simplified procedures for charging and collecting VAT

and furthermore in certain cases exempt businesses

with an annual turnover below a certain threshold from

charging and deducting input VAT. Such measures are

optional at the level of the Member State and moreover

are optional at the level of the taxpayer. What is pertinent

to note in the case of the small businesses regime, is

that the rules regulating the regime specifically apply to

businesses who are established in a particular Member

State and consequently do not extend to supplies carried

out beyond the territorial boundary within which the

taxable person is established. This implies that taxable

persons registered as small businesses and who carry out

supplies which are treated as taking place in a Member

State other than that in which they are established, may

still have to follow and comply with obligations in that

other Member State, to the extent they are liable for the

payment of the VAT in that Member State.

SMALL UNDERTAKINGS

Malta, has adopted the above mentioned small business

threshold scheme which differentiates between three

broad categories of economic activities, each having

its distinct entry threshold. Taxable persons who opt to

benefit from such a scheme may avail themselves of the

scheme by registering under article 11 of the VAT Act, as

a result of which they would not be required to charge

and collect output VAT on supplies carried out thereby

while at the same time they cannot recover any input VAT

incurred on their expenses.

Category

Economic Activities consisting

principally in the supply of goods

Economic Activities consisting

principally in the supply of services

with a low value added

Other Economic Activities -

High value added

1

Directive 2006/112

2

Art. 17(3)

3

L.N. 14 of 1999 – Subsidiary legislation 406.02

Example

Distributors of products

Plumber; Mechanic

Lawyer; Accountant

The other economic activities threshold indicated

above is proposed to be increased to EUR20,000. In

fact, by means of Council Implementing Decision

(EU) 2018/279 of 20 February 2018, the Council of

the European Union has authorised Malta to apply a

special measure derogating from Article 287 of the

VAT Directive consisting in raising the threshold for

supplies of services by small businesses to €20,000.

The implementation thereof would require an

amendment to Item 8 of Part One of the Sixth Schedule

to the VAT Act which would be made by a legal notice.

ANNUAL ACCOUNTING REGIME

In terms of the enabling provision 2 in the VAT Act and

the implementing provisions in the legal notice 3 , small

businesses whose turnover does not exceed certain

specific amounts as prescribed in the Sixth Schedule

to the said Act, and who are registered under Article

10 of the VAT Act, are, unless the Commissioner

decides otherwise, allocated a twelve month tax

period. This measure, of itself is intended to alleviate

the taxpayer (and also the tax administration)

from the administrative burden of preparing and

submitting the VAT return on a quarterly basis as is

typically required by persons registered under Article

10 of the VAT Act.

CASH ACCOUNTING

While not specifically a small business scheme,

accounting for VAT on a cash basis is a scheme which

is applicable to certain categories of persons whose

turnover, does not exceed a predetermined amount

of two million Euro. Such businesses, account for VAT

upon receipt of payment for a supply, irrespective

of the day of delivery of a good or performance of a

service. However, for the purposes of ensuring fiscal

neutrality to such supplies, input VAT incurred on

expenses may only be recovered to the extent it is

paid to the supplier. This implies that businesses who

adopt the cash accounting regime are not faced with

cash flow issues relating to VAT.

Turnover

€35,000

€24,000

€14,000


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VAT

to charge their customers VAT which is different from

that of the Member State in which they are established.

The principle of destination-based taxation requires VAT

to be charged and accounted for in the Member State

where the customer is established (Member State of

‘destination’) rather than in the Member State where the

small business is established (Member State of ‘origin’).

This infers that in principle, small businesses involved

in cross border trade cannot in theory benefit from the

exemption in Member States other than where they are

established. As a result, there is no level playing for small

business to trade and do business within the EU.

SMALL BUSINESSES OPERATING WITHIN A CROSS

BORDER CONTEXT

While the small undertaking rules apply within a local

context, where the business is established, a lacuna in

the legislation exists where such businesses also operate

within a cross border context. However, what are the

implications in this case? Are small businesses offering

cross border supplies being compliant?

The Malta Vat Act, unlike the VAT Directive 4 excludes

small businesses from the obligation to be identified

for VAT under the standard VAT registration in the

cases where such persons carry out supplies to other

taxable persons established in other Member States and

such transactions fall be to taxed in the country where

the customer is established. Therefore, no additional

obligations are imposed on small undertakings offering

supplies of services falling within the scope of the general

place of supply of services rules to taxable persons

identified for VAT in other jurisdictions, and consequently

it is not possible for such persons to file recapitulative

declarations for such supplies.

Furthermore, the small undertaking thresholds do not

hold water in the context of an electronically supplied

service carried out by a small undertaking established

in Malta to a private consumer established in another

Member state. As a result, given that the transaction

is treated as taking place in the Member State of the

customer, in line with the place of supply rules, and to the

extent that the transaction is taxable in that jurisdiction,

then, the small undertaking has to charge VAT at the

applicable rate in that jurisdiction.

This issue is set to deteriorate with the shift towards

destination-based taxation under the proposed definitive

VAT system whereby many small businesses may have

EU PROPOSAL FOR SMALL BUSINESSES

For the purposes of addressing challenges and limitations

present within the existing small business scheme and in

order to enhance exploitation of the single market, the

EU Commission has submitted a proposal amending

Directive 2006/112/EC on the common system of

value added tax as regards the special scheme for small

enterprises. In particular, the proposal includes measures

which seek to:

(i) reduce VAT compliance costs for small businesses

both domestically and at EU level;

(ii) reduce distortions of competition both domestically

and at EU level;

(iii) reduce the negative impact of the threshold effect;

and

(iv) facilitate administrative burden on small businesses

and tax administrations.

Essentially, the proposal opens up the exemption for

small enterprises to all EU eligible businesses, whether

or not established in the Member State where the

VAT will apply and the exemption will be available.

Furthermore, it establishes an updated value for the

maximum level of national exemption thresholds and

additionally introduces a transitional period during which

small enterprises that temporarily exceed the exemption

threshold will be able to continue using the exemption.

Salient considerations for small businesses

Do not charge VAT on supplies carried out

Do not recover VAT on purchases made

Rules apply in the country where the small

business is established

From a Malta perspective, not obliged to do anything

in respect of cross border supplies;

May still have VAT obligations in a MS other than

that where they are established

File VAT returns on annual basis

Small Business who opt to be registered under Article 10

of the VAT Act may be granted an annual tax period

Proposal to modernize the existing regime is underway

46 Spring 2018

4

Art. 214(1)(e) of Directive 2006/112 EC


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INSURANCE

The Insurance Distribution Directive (IDD)-

Are you ready?

You name it, you insure it. In today’s world, one can obtain an insurance policy to cover almost everything,

ranging from the compulsory car insurance to a decent health policy. The increase in the use of information

technology made the exchange of information and access for potential policyholders much easier. As a

result, alternative distribution channels started to rise. With insurance policy types designed to protect

one’s life, or the ability to earn income, it is a process where individuals might realise that it is only some

coverage that is actually relevant and meets their needs.

MATTHEW MICALLEF

MATTHEW MICALLEF IS AN

ACCOUNT MANAGER AT USA RISK

GROUP MALTA

Variety is the spice of life, but it can also be a

stumbling block. This ‘variety’, in addition to the

comprehensive range of insurance products available

to choose from, makes it difficult for the men in the

street to understand the products, especially when

these include contracts of an investment nature. It

comes as no surprise that prospective policyholders

find both the insurance terminology and the

information itself the most difficult to understand

when compared to other financial sectors, such as

banking. Moreover, the perils of small print continue

to make it challenging for customers to understand

the products they are actually buying.

date of the IDD by seven months to 1 October 2018

and subsequently will repeal the IMD. A review and

evaluation report is expected to be submitted to the

European Parliament by February 2021.

The scope of the IDD

While the IMD regulates insurance intermediaries

only, the new Directive applies to a wider regulation

of insurance distributors. The latter Directive does

not just regulate the distributors, but also sets the

activity of the distribution itself, whether carried out

directly by an insurance underwriter or through an

insurance intermediary.

What is the IDD?

The main focus of the Insurance Distribution Directive

(IDD) is to continue to develop the EU regulation

within the insurance and re-insurance market. It is

intended to establish equal opportunities between

participants when obtaining insurance products

while ensuring an increase in customer protection

and transparency. It is crucial for customers to be

provided with the right information. This ensures

that informed decisions on insurance purchases are

made. It is also designed to strengthen policyholder

protection and make it easier for firms to trade

cross-border. The IDD will eventually bring the

insurance industry in line with customer protection

rules, recently adopted in other financial sectors,

at the same time as improving the consistency

between the regimes operating in different EU

Member States.

The IDD was published on 22 February 2016, updating

the 2002 Insurance Mediation Directive (IMD) which

regulates EU insurance brokers, agents, and other

intermediaries. Although EU Member States are

still required to transpose IDD into national law by

the original date, 23 February 2018, the European

Commission has proposed to push back the application

Article 2 of the IDD defines ‘insurance distribution’ as:

‘the activities of advising on, proposing, or carrying

out other work preparatory to the conclusion of

contracts of insurance, of concluding such contracts,

or of assisting in the administration and performance

of such contracts, in particular in the event of a claim,

including the provision of information concerning

one or more insurance contracts in accordance with

criteria selected by customers through a website or

other media and the compilation of an insurance

product ranking list, including price and product

comparison, or a discount on the price of an insurance

contract, when the customer is able to directly or

indirectly conclude an insurance contract using a

website or other media’.

The new wording of ‘insurance distribution’ within

the IDD comprises more or less of the same activities

as ‘mediation’ under the IMD, including the assistance

of giving advice, the day-to-day administration and

performance of the insurance contract.

The IDD makes reference and applies its rules to three

types of insurance distributors listed below, all of

which are licensed to operate under their respective

regulatory rules:

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INSURANCE

1. Re/ insurance intermediaries (including tiedinsurance

intermediaries): any person (natural

or legal) who is engaged in the activity of re/

insurance distribution in return for remuneration;

2. Ancillary insurance intermediaries: any person

(natural or legal) whose primary activity is not

insurance distribution but is engaged in the

activity of insurance distribution in return for

remuneration and only distributes insurance

products that are complementary to their goods

or services;

3. Re/ insurance undertakings: any direct life or

non-life insurance undertaking authorised and

regulated by the supervisory authority of the

respective Member State. This type of insurance

distributor was not covered under the IMD;

Insurance comparison sites, or insurance introducers,

popular concepts mainly in the UK, are not subject to

the provisions of the IDD, provided that they do not

earn any remuneration of any kind or offer the option

to conclude an insurance contract via a website or

other media which is authorised and regulated by

the supervisory authority.

Professional requirements 1

The IDD lays specified that all customer-facing

employees (of all types of insurance distributors)

require a sound reputation. Each employee

must at least have a clean criminal record as per

police conduct certification and never filed for

bankruptcy. In addition to this, the employee must

attend professional training on a regular basis;

the IDD requires at least 15 hours of training and

development each year. The training must be verified

by a certificate, depending on the type of insurance

products sold, the license of the distributor itself and

the type of insurance activities performed. However,

it not yet clear as to how these hours should be

recorded and the different levels of training.

Also, the IDD requires insurance intermediaries to hold

professional indemnity insurance (or similar guarantee

against liability arising from negligence) for at least

€1.25 million (previously €1 million under the IMD)

per claim and €1.85 million (previously €1.5 million

under the IMD) in aggregate per year for all claims.

Conduct of Business Rules

Article 17 of the new Directive highlights that

insurance distributors must ‘always act honestly,

fairly and professionally in accordance with the best

interests of customers’ and that information, including

any marketing material delivered by the insurance

distributor must be ‘fair, clear and not misleading’.

Other information must be disclosed by the insurance

distributor to the customer depending on the type

of insurance distributors, whether it is an insurance

intermediary, ancillary insurance intermediary or

insurance undertaking. The information which must

be disclosed before the conclusion of an insurance

contract includes, but not limited to the identity and

address of the insurance distributor and whether it

provides any advice on the insurance product sold in

the market.

There are specific remuneration disclosure

requirements for insurance intermediaries, which

include:

• The nature of the remuneration received in

relation to the insurance contract; and

• The basis of remuneration (e.g. fee paid by

policyholder, commission included in the

insurance premium or other economic benefit

offered in connection with the insurance

contract. Both fee or commission, whether

included within the premium or as a percentage

of the premium are still to be determined by

means of the IDD Rules).

Any other payments made by the customer in

addition to the above mentioned under the insurance

contract must also be disclosed.

Cross-selling

Cross-selling in insurance is the practice of offering a

potential policyholder an insurance product together

with an ancillary product, which is not insurance but

still a complementary product. This is sold as one

package. In a cross-selling scenario, the insurance

distributors must give their customers a detailed and

adequate description of the package, including the

benefits and costs of such package.

When an insurance product is sold together with

an ancillary product as a package to other goods

or services, the insurance distributor must offer

the customers an opportunity to purchase the

products separately. Examples of ancillary products

include the Road Side Assistance, the Motor Vehicle

Licenses and forthcoming services like Transfers

of Vehicles. Moreover, the IDD will introduce a

detailed standardised Insurance Product Information

Document (IPID) for all non-life insurance products.

1

Details to be determined by means of the IDD Rules

50 Spring 2018


INSURANCE

Exemptions

The IDD applies to any person (natural or legal) who

is established within the EU and sells insurance

and reinsurance products. However, Article 1 of

the IDD specifically excludes ancillary insurance

intermediaries if the following conditions are met:

a. The insurance is complimentary to the good

or service supplied by a provider, where such

insurance covers:

(i) risk of breakdown, loss of, or damage to,

the good or the non-use of the service

supplied by that provider; or

(ii) damage to, or loss of, baggage and other

risks linked to travel booked with that

provider;

b. The amount of the premium paid for the

insurance product does not exceed EUR 600

calculated on a pro-rata annual basis;

c. By way of derogation from point (b), where

the insurance is complementary to a service

referred to in point (a) and the duration of that

service is equal to, or less than, three months,

the amount of the premium paid per person

does not exceed EUR 200.

What do we know so far?

Although it is difficult to calculate the exact amounts

at this stage, the changes brought about by the

new Directive will bring higher costs for insurance

distributors, which eventually will be passed on to

policyholders. Moreover, both governments and

respective regulatory authorities are expected to

incur increased costs as a result of increased checks

and controls.

The new Directive is expected to bring the following

benefits to the market:

• An improved information distribution which

helps potential policyholders to make better

informed decisions on the insurance products

presented to them;

• Increased transparency on both prices and costs

for insurance products. The aim of the IDD is to

provide the customer with clear information

about whether the insurance distributor has

personal economic incentives to sell one

product from the other; and

• Rules of transparency and the overall business

conduct will prevent customers from obtaining

products that do not meet their needs.

The IDD does not restrict a specific business

model for the sale of insurance products. The new

Directive will bring about new concepts of which the

requirements are not yet clear, both at a local and

EU level. The introduction of these requirements

will probably have a huge impact on the insurance

market, given that significant changes are expected

in the day-to-day business of insurance distributors.

Further discussions are expected in the coming days,

together with additional guidelines and rules to be

released by the European Commission.

52 Spring 2018


THE POWER OF BEING UNDERSTOOD

AUDIT TAX CONSULTING


FEES

Transforming Challenges into

Opportunities: Fee Pressure

The recent IFAC Global SMP Survey identified key challenges many small- and medium-sized

practices (SMPs) face. This article is one in a series that breaks down the data from the survey

and provides information, ideas, and tips to help SMPs address these challenges as well as best

practice examples from IFAC SMP Committee members, together with the range of other tools and

resources available.

CHRISTOPHER ARNOLD

CHRISTOPHER ARNOLD IS

THE HEAD OF SME/SMP AND

RESEARCH AT IFAC. HE WAS

PREVIOUSLY AN AUDIT MANAGER

FOR DELOITTE AND QUALIFIED AS

AN ACCOUNTANT IN A MID-TIER

ACCOUNTANCY PRACTICE IN

LONDON (NOW CALLED PKF-

LITTLEJOHN). CHRISTOPHER

STARTED HIS CAREER AS A SMALL

BUSINESS POLICY ADVISER AT

THE ASSOCIATION OF CHARTERED

CERTIFIED ACCOUNTANTS (ACCA).

MATS OLSSON

MATS OLSSON IS PARTNER AND

ONE OF THE FOUNDERS OF

ADRIAN & PARTNERS AB. ADRIAN

& PARTNERS IS A MEDIUM-SIZED

PRACTICE IN GOTHENBURG,

SWEDEN, THAT WORKS PRIMARILY

WITH SMALL- AND MEDIUM-SIZED

OWNER-LED CLIENT COMPANIES.

HE HAS HIGHER EDUCATION

IN ACCOUNTING AS WELL AS

BUSINESS LAW. MR. OLSSON

IS ALSO THE DEPUTY CHAIR OF

THE IFAC SMPC AND CHAIR OF

ITS TASK FORCE FOR SMALL

BUSINESS SUPPORT.

Pressure to Lower Fees

The third highest challenge small- and mediumsized

practices face globally is pressure to lower

fees. Practitioners are fully aware of the importance

of providing quality services, but it is clear that

some clients remain reluctant to pay for such

services. Technological advances, globalization, and

outsourcing to less-expensive offshore contractors

may also prompt clients to keep up the heightened

fee pressure.

The Guide to Practice Management for Small- and

Medium-Sized Practices includes a section on coping

with pricing pressures.

• Adopt new approaches to pricing.

Instead of billing an hourly rate, set prices for

services such as business advisory services

based on perceived or estimated value to your

client. Also, packaging more desirable services

with services that are essential but less desirable

allows for a broader range of services for a larger

fee.

• Stress the value of services offered.

Talk to clients regularly about the benefits of

the services they receive. Communication is an

important part of value pricing.

• Focus efforts on most valuable clients.

Evaluate clients, group them, and offer

different service levels to different groups,

especially for non-audit services such as

business advisory or tax. This technique,

referred to as yield management, is used

in the airline industry to price seats by the

level of service in first class, business class,

or economy sections. Some clients will

appreciate, and pay for, first class service.

Others will prefer the economy rate.

• Leverage technology.

Maximize technology to improve processes and

lower costs in the face of stagnant or declining

fees. Cloud computing solutions deliver the same

services, like payroll and bookkeeping, for less

cost, email costs less than regular postal services,

and Skype is less expensive than telephone or inperson

meetings.

• Re-examine service offerings.

Consider combining value with additional services

for little extra cost, or provide the same for less

cost. To set your practice apart in the marketplace,

consider specializing in niche markets or services.

• Fee breakdown.

Break invoices into smaller parts. For example,

instead of charging a total amount for “Services

Rendered,” an invoice can show separate

services and each cost, such $X Tax Return, $X

Annual Report, etc. This clearly demonstrates

each individual service and makes it harder for

clients to complain.

• Find less expensive sources of supply.

Review your practice’s suppliers and look for

competitors offering benefits that may warrant

switching. Competitive pricing and choice

of suppliers, from internet service providers

to computer hardware vendors, may have

improved considerably since your practice first

chose its suppliers.

• Tackle overheads.

Seek to minimize waste and make the most

efficient use of human and environmental

resources, including workspace, energy, and

54 Spring 2018


IFRS


FEES

consumables. To optimize expensive office

space, practices may encourage staff to perform

work at clients’ premises or at home and prebook

a desk space when in the office. Similarly,

practices could find staff efficiencies through

improved workload distribution, adequate

planning and supervision of engagements,

and delegating work to the appropriate

levels. Flexible working hours may avoid staff

redundancies, which erode morale and make

it difficult to recruit new staff. Shifting routine

work to more junior staff can also help cut costs,

but staff assignments need to be managed

carefully to maintain quality results and avoid

damage to your practice’s brand.

The Global Knowledge Gateway also includes a number

of articles, videos, and resources on these topics.

Value Pricing

• Pricing on Purpose: How to Implement Value

Pricing in Your Firm, Parts I-III

• Tomorrow’s Firm and the Role of Value Pricing

• How to implement value-based billing

• Are Your Fees Too Low?

• How to Negotiate Higher Fees

• Setting Fees When Starting Up in Practice

• Fee Rates: Communicate Your Value

• Advisory Service Fees – The Numbers Do Stack Up...

• How to Manage Audit Fee Increases–and Even

Reduce Them

Please see previous articles on attracting new clients

and keeping up with new regulations and standards

for further information and guidance.

This article originally appeared on the IFAC Global Knowledge

Gateway: www.ifac.org/Gateway. Visit the Gateway to

find additional content on a variety of topics related to the

accountancy profession.

Copyright September 2017 by the International Federation

of Accountants (IFAC). All rights reserved. Used with

permission of IFAC. Contact permissions@ifac.org for

permission to reproduce, store, or transmit this document.

Fees

• Ethical Considerations Relating to Audit Fee

Setting in the Context of Downward Fee Pressure

56 Spring 2018


BITCOIN

BUSTING THE BITCOIN MYTHS

It’s fair to say that Bitcoin and Blockchain

have become mainstream talking points

over the last 12 months. While Blockchain,

the technology that underpins Bitcoin,

has received near universal acclaim, the

cryptocurrency itself continues to be mired

in a debate over its validity as a digital

asset. I find that most of the confusion

surrounding Bitcoin stems from a lack of

understanding the wheels and cogs under

the hood and can be broadly categorised

into five main misconceptions.

HOW AND WHY BITCOIN WAS CREATED

Bitcoin was created by Satoshi Nakamoto, an as yet

unidentified programmer using a pseudonym, as a

result and in the aftermath of the 2007/08 financial

crisis. Satoshi published and deployed the Bitcoin

protocol as open source software. The first two lines

of Satoshi’s whitepaper read as follows:

“A purely peer-to-peer version of electronic cash

would allow online payments to be sent directly

from one party to another without going through

a financial institution.”

In essence Satoshi Nakamoto’s motivation was to

devise a financial system independent and free from

the mismanagement of banks and central banks as well

as the inflationary monetary policies of governments.

Anyone willing to participate in the network simply

needs to download and run the software. The software

itself is being constantly updated. Although Satoshi’s

last recorded involvement was at the end of 2010,

various developers and cryptographers collaborate

full-time to propose and write improvements to the

bitcoin protocol.

HOW ARE NEW BITCOINS CREATED AND WHY

THE NETWORK WASTES SO MUCH ENERGY

One of the fundamental monetary policies of Bitcoin

embedded into the protocol software is a fixed supply

of bitcoins which is limited to 21 million coins (coins

are divisible up to 100 millionth of a coin). The number

of coins issued by the software diminishes every four

years until the 21 million coin limit is reached (at

some point in the year 2140). The diminishing supply

together with a forecast growth in user adoption gives

bitcoin its deflationary characteristic.

New coins are issued periodically (every 10

minutes) as a reward to miners for securing the

bitcoin network. Miners are competing with each

other to solve a mathematical puzzle in order to

claim the reward awarded by the software, together

with transaction fees, in exchange for providing

their computing power (mining costs incorporate

hardware and energy consumption). The winning

miner broadcasts their result, known as Proof-of-

Work, to the entire network thereby validating the

new bitcoin supply in circulation and simultaneously

adding a new block to the bitcoin blockchain,

incorporating new transactions to the network.

The transactions are now confirmed and form part

of the chain of blocks, with each successive block

being linked cryptographically to the previous

block, all the way back to the first block created by

Satoshi Nakamoto.

Detractors of Bitcoin point to the fact that creating

new bitcoins wastes energy, with estimates of as

much as a medium-sized nation consumes in a year.

This is somewhat of a false statement for two reasons.

The miners’ primary function by virtue of their staked

computational power is to provide security to the

network from malicious hackers. The reward in the

form of new bitcoin is simply a by-product of the

mining process. To elaborate this point further, when

new bitcoin ceases to be issued in the year 2140 the

mining process will carry on. Secondly, the critique

needs to be analysed against the costs to produce,

transact and store other forms of money (traditional

fiat currencies and gold) along with the burdensome

compliance and oversight.

WHO CONTROLS BITCOIN

A common fear with Bitcoin, which contrasts with

traditional banking, surrounds the overall control

of the software and by extension the bitcoins in

circulation. A fundamental aspect of the Bitcoin

protocol is the consensus mechanism which in a

nutshell requires a majority of the network to consent

to any changes to its code. As a result there is no

person or group of persons that can tamper with the

software code without majority consensus. While the

identity of Bitcoin’s creator remains unknown, should

Satoshi Nakamoto resurface he shall have no more

power to amend the protocol than any other single

MICHAEL SCICLUNA

MICHAEL SCICLUNA IS THE

MANAGING DIRECTOR OF EXCO

SERVICES LIMITED, A CORPORATE

SERVICES PROVIDER AND CFO

OF BITMALTA, A NOT-FOR-PROFIT

ADVOCACY GROUP FOCUSSED

ON CRYPTOCURRENCIES AND

BLOCKCHAIN.

theaccountant.org.mt

57


BITCOIN

user or contributor. Indeed his exclusion, whether

self-imposed or not, is considered a key feature of

Bitcoin’s decentralisation as there is no figurehead

that weaves significant influence, unlike most if not

all other cryptocurrencies out there.

The economic experiment presented by Bitcoin enables

us to compare the monetary regulation that is set in

code and fully democratised, with that of traditional

central bank policies which have arguably had mixed

results in setting monetary policy with various financial

panics attributed to misplaced oversight, contributory

policy or both. In summary, Bitcoin is controlled by its

code and mathematical rules. The fact that no one

controls Bitcoin provides certainty over the money

supply without any outside interference.

WHAT GIVES BITCOIN ITS VALUE

This is one of the most common questions and is

also one of the most difficult to answer as there

is no central authority that provides backing and

no apparent intrinsic value. It is just code after all

written by an unknown programmer. By comparison

gold itself has very limited industrial use while fiat

currencies have unlimited supply and are therefore

inflationary. One striking example of this effect is

the US Dollar, the world’s primary reserve currency

which has lost as much as 96%, in purchasing power

terms, of its value since 1913.

As with any asset, whether digital or physical, the

price is determined by the value at which it can be

exchanged between a willing buyer and seller.

Bitcoin’s primary features (fixed supply, decentralisation,

security, 24/7 network, speed and lower-cost

transaction fees) have attracted a steady stream of

adopters utilising it as both a medium of exchange

as well as a store of value. Market forces dictated by

growing demand and limited supply have seen the

price rise steadily (save for 1 or 2 speculative price

spikes) over the past 9 years.

Assuming continued adoption over the longer term,

including by institutional investors, the price of Bitcoin

is expected to rise until it reaches an equilibrium. As

both a technology and a monetary asset it is still at a

nascent stage, however confidence in this trajectory

will enable Bitcoin to maintain its value and compete

with gold as a store of value and with flat currencies

as a medium of exchange.

IT’S USED BY CRIMINALS AND MONEY LAUNDERERS

Yes it is. However in no greater percentage than

with cash or traditional methods. In the early days

a significant demand for Bitcoin was likely used in

the illicit drug trade. I would argue that this value

represented a tiny fraction of global illicit trades

and/or money laundering. As adoption has grown

along with a better understanding of blockchain and

the services provided atop the technology, use of

Bitcoin for illicit transactions have reduced as a total

percentage of transactions. Bitcoin is far from an

anonymous currency. Every transaction transmitted

on the network is permanently recorded on a public

blockchain and auditable. Forensic analysis of such

transactions allows intelligence services to identify

the source and destination of a flow of funds and

has been used successfully to apprehend criminal

actors 1 . Recently published research indicated that

less than 1% of bitcoin transactions were used for

the laundering of illicit funds 2 . If you were to argue

that Bitcoin should be made illegal to hinder the

ability of a few users to operate outside traditional

channels, the same argument can also be made of

cash and other payment gateways. I would argue that

the benefits of allowing the technology to flourish far

outweigh the costs of trying to stamp it out.

58 Spring 2018

1

A Wizsec, Breaking open the MtGox case 27 July, 2017

2

Bitcoin Laundering: An Analysis of Illicit Flows into Digital Currency Services, 12 January 2018

By Tom Robinson, D.Phil & Yaya Fanusie for Elliptic, Center on Sanctions & Illicit Finance


MALTA ENTERPRISE

Recent amendments for SMEs and start-ups

by Malta Enterprise

Malta is rapidly gaining international

recognition as a brand denoting

excellence in a number of sectors,

including the pharmaceuticals,

life sciences, advanced manufacturing, fintech,

aviation and ICT amongst others. In order to help

such enterprises, particularly SMEs to improve

their competitive edge further, Malta Enterprise,

as the country’s economic development agency,

tasked with attracting new foreign direct

investment as well as facilitating the growth

of existing operations, has developed various

incentives for the promotion and expansion of

industry and the development of innovative

enterprises. A series of new schemes have been

launched and a number of other schemes were

a work in progress.

Startup Advance

Following the success of the B.Start scheme, through

the Startup Advance scheme, Malta Enterprise will be

now extending its seed funding support to small startup

undertakings that are in the process of consolidating

a business operation that has demonstrated market

potential and is deemed as economically feasible and

innovative. The Corporation may award a maximum

grant of €100,000. Similarly to B.Start, the grant shall

be disbursed at three month intervals. Beneficiaries

are required to submit to the Corporation periodic

reports on the progress achieved highlighting any

changes to the original plan.

In order to be eligible, the applicant must employ a

minimum of two full-time employees at application

stage and must be proposing products and/or services

that have potential to be marketed and distributed

internationally. Moreover, products produced and/

or services offered must be new or substantially

improved compared to the state of the art in the local

industry. The activities of the start-up undertaking

must be linked to the knowledge of the Key Promoters.

It is expected that key persons engaged in the startup

have the academic background required and/

or hands on experience in the relevant sector. The

scheme is open to a number of industries which

include manufacturing, information technology, R&D,

biotechnology, pharmaceuticals, and the creative

industries amongst others.

Deduction for Transportation Cost of Employee

Together with Transport Malta and the Inland

Revenue, Malta Enterprise has collaborated on an

incentive for enterprises providing transport for

their own employees. Any enterprise may claim a

deduction against its income equivalent to 150% of

the employee transportation costs incurred in the

relative year.

In respect of any year of assessment, the deduction

referred to above may only be claimed on the lower

of: (i) €25,000 of the employee transportation costs

incurred by the undertaking in the year preceding

the year of assessment; or (ii) €300 per employee

whose transportation costs have been incurred by the

undertaking in the year preceding the year of assessment.

Amendments to the Micro Invest Scheme

The Micro Invest scheme is still one of the

most popular schemes to be implemented and

administered by Malta Enterprise Corporation. In

2018, only electronic application forms submitted

through the portal are being accepted.

With companies facing numerous challenges to

maximizing their potential and reducing costs,

the Micro Invest Scheme is a perfect aid to

entrepreneurs. Self-employed persons, companies

and partnerships will be supported through a tax

credit amounting to 45% (65% for undertakings

operating from Gozo) on the eligible expenditure.

However, as from 2018 the maximum assistance has

been increased by €20,000. Enterprises based in

Malta may benefit of up to €50,000 over any period

60 Spring 2018


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MALTA ENTERPRISE

of three consecutive fiscal years. This capping shall

also be increased by €20,000 to a total of €70,000

for enterprises operating from Gozo, familybusinesses,

and female-owned enterprises.

Moreover, as from 1st January 2018, all enterprises

that employ up to fifty persons (instead of thirty) on

full time contracts are now eligible for the scheme.

It is important to note that an enterprise with no

employees at application stage however is still not

entitled to the benefit.

Eligible expenses include furbishing, refurbishing and

upgrading of business premises, improvement on

machinery and technologies, increase in wage costs if

in 2017 such an increase exceeded 3% when compared

to the previous two years, investment costs such as

computer hardware, packaged software solutions,

and new or first time used in Malta machinery. As

from 2018, an eligible enterprise may also claim costs

for the purchase of more than one new commercial

vehicle as long as the second vehicle is new, replaces

another vehicle and has the latest European Emission

Standard rating. The list of eligible commercial

vehicles, amongst other terms and conditions, is

outlined within the Incentive Guidelines.

Assistance for the Catering Businesses

In 2017, Malta Enterprise in collaboration with

ITS, started assisting hospitality and catering

establishments interested in engaging a chef to

support in capacity building, innovation, and in the

development the operations. Enterprises (including

self-employed operators) may be supported

through a tax credit of up to €10,000 representing

a percentage of the eligible expenditure and wages

of the international experienced chefs. Moreover, in

the coming weeks, another scheme will be launched

whereby costs related to the renovation of the

restaurant may be eligible for a tax credit.

Other Schemes

During 2018, the Certify scheme and the Business

Advisory Services will be revamped and re-launched,

and the Qualifying Employment in Innovation and

Creativity (Personal Tax) has been extended until

December 2018.

the way their role as regional and industry innovation

providers could be improved. This is at the heart of

the Innova Foster project. This project falls under

Interreg Europe which amongst others is seeking to

strengthen the productivity of enterprises, as well

as boost research and innovation. An important part

of the project is to map out and understand the local

start-up and innovation ecosystem to identify strengths

and weaknesses at a national level and subsequently

address such weaknesses by improving local policies and

programmes to foster high-potential start=ups. Malta

Enterprise is participating in this project with European

partners from Spain, Ireland, UK, Poland, Slovenia and

Estonia. The project runs from 2017 to 2020.

Unfortunately the lack of complete applications

prolongs the administrative process so it is important

that the application is compiled properly and carefully

so to avoid any risks of getting a rejection

Here are three important points to remember before

applying for our incentives:

POINT 1#

Always go through the Incentive Guidelines to ensure

that you have understood the objective of the scheme.

Also make sure that you are referring to the latest

version of the Incentive Guidelines.

POINT 2#

Always use the checklist available on the application

itself. A check list is available to help you confirm that

all the required documents have been attached. Missing

information or uncertified documents will be rejected.

POINT 3#

An important document to observe is the de minimis

declaration form which is in line with the parameters

and criteria of the Commission Regulation. The applicant

will be required to complete and sign the de minimis

declaration form that they (and/or their shareholders)

have not received or has not applied for any de minimis

aid which would result in exceeding the de minimis

ceiling of €200K over a period of three fiscal years. Any

de minimis aid received in excess of €200K threshold will

have to be recuperated, with interest, from the single

undertaking receiving the aid.

Participation in EU Funded Projects

The Corporation is also participating in Innova Foster, a

European funded project. This project focuses on the

engagement of start=ups in the innovation process and

Contact Business First on 144 or send an email on

info@businessfirst.com.mt for more information

62 Spring 2018


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LIFESTYLE

Elaine Marie Debono shares

her volunteering experience in

Reaching Cambodia

ELAINE MARIE DEBONO

ELAINE MARIE DEBONO IS AN

FCCA QUALIFIED ACCOUNTANT.

SHE IS A SUPERVISOR WITHIN THE

TAXATION DIVISION AT MAZARS

IN MALTA

There is no definite reply about why I decided to embark in this

volunteering journey, but almost a year ago, I felt that I wanted

to do something more. I was skimming through the social media

pages of various voluntary organizations and after seeing some lovely

shots on Reaching Cambodia’s facebook page, I submitted my application

for a two-week placement. I had to commit myself to the dates for this

two week experience, which proved to be quite a challenge considering

the number of tax deadlines during the year and other lecturing

commitments. Consequently I had no other choice than opting for the

Christmas period. This not only meant stepping outside my comfort zone

but also spending the festive season away from my family.

The experience started off with various meetings led

by two very humble yet very inspirational individuals,

the founders Denise and Silvan. These meetings

included sessions with a historian, a teacher, a

doctor and a psychologist, who provided me with

information about our work in Cambodia, and other

useful tips about how to prepare ourselves both

physically and emotionally. This included information

giving details of the fund raising activities supporting

the projects of Reaching Cambodia. Reaching

Cambodia is a residential centre providing shelter

to approximately 60 children living at the orphanage

ranging in age from newly born to 24 years of age, to

enable orphans and vulnerable children to grow up in

a healthy environment and improve their education.

The following days involved several activities. The

children were given lessons in Maths and Science but

were also involved in a number of educational games.

All the children attend free schooling provided by

the local Government starting from the age of six

whereas additional schooling is provided at the

residential centre. Reaching Cambodia also sponsor

the children’s uniforms, stationery, school books,

bags and anything else which could be required.

The first day of placement at Reaching Cambodia was

Christmas Day. I was particularly excited to meet the

children. Slightly emotional too as I did not know what

to expect. Nonetheless it was a Christmas which I will

never forget. After a couple of hours, it was evident

that the children were at ease. All volunteers are

required to wear the turquoise ‘Reaching Cambodia’

T-shirt. This uniform identifies all Maltese volunteers

as family and as soon as we arrived the children called

out to us… “Reaching, reaching!” Our experience

started with a Christmas party for the children at the

residential centre.

64 Spring 2018


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affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved. Printed in Malta.


LIFESTYLE

Apart from helping at the Residential Centre, we

were also required to assist in Reaching Cambodia’s

XEMX project. This project’s aim is to help youths

and families to learn the tailoring trade. Items are

designed and produced by hand using materials

from Cambodia. Our work involved giving basic

English lessons to the students to enable them

to communicate with their future potential

international customers.

The background of some of the children seeking

help is unfortunate. Nonetheless they seemed to be

grateful and happy. Of course, my experience was

a minor insight of the poverty in Cambodia, which

helps you appreciate how fortunate we are.

The last day arrived too quickly. I brought with me a

number of papers with the words “I love you Elaine”,

handmade woollen bracelets and many memories

which I knew I would keep in my heart forever. Most

importantly I learnt a lot of lessons, about myself,

about the world and about life.

Coming back to Malta was not easy, as I missed the

children. However I felt reassured as within two

weeks following our departure, another Reaching

Cambodia Group was on its way. The kids would

once again be getting the love and affection from

their Maltese friends. My two weeks in Cambodia

were only a part of a bigger, long term project. I was

part of the tenth group for 2017 of the Reaching

Cambodia placements. Eight other groups are

planned for 2018, some of which are fully booked.

Another initiative of Reaching Cambodia is the

launch of a medical project in January 2018.

Over three months have passed since my return to

Malta. My minor contribution was minimal compared

to the wealth I received. The children of Cambodia

taught me to appreciate the little things in life, and

sometimes during stressful busy days, I just recall the

resilience of these children.

For more information about Reaching Cambodia and

how you could volunteer or donate, please visit http://

reaching-cambodia.com

66 Spring 2018


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