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SMALL AND MEDIUM<br />
ENTERPRISES<br />
The importance of their<br />
sustainability and growth<br />
Spring 2018<br />
NEWSPAPER POST<br />
20. MANAGING TALENT WITHIN SMES<br />
By Cathy Peric<br />
24. SME GOING DIGITAL – THE WAY TO<br />
TRANSFORM THE BUSINESS<br />
By Reuben Portanier<br />
57. BUSTING THE BITCOIN MYTHS<br />
by Michael Sciculuna
Is your consolidation process heavy on your resources?<br />
Delivering Strategic Value through Internal Audit<br />
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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”),<br />
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”),<br />
© 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”),<br />
a Swiss entity. All rights reserved.
CONTENTS<br />
spring 2018 | theaccountant.org.mt p.03<br />
p.04<br />
PRESIDENT’S ADDRESS<br />
news<br />
p.05<br />
MIA NEWS<br />
p.06<br />
MIA NEWS AND FORTHCOMING EVENTS<br />
p.08<br />
LOCAL NEWS<br />
FEATURES<br />
COVER<br />
Issued quarterly,<br />
The Accountant is<br />
published by<br />
MBR Publications Ltd<br />
on behalf of<br />
The Malta Institute of<br />
Accountants<br />
EDITOR<br />
Michelle Spiteri Bailey<br />
mspiteribailey@miamalta.org<br />
DESIGN<br />
MBR Design<br />
Sales Manager<br />
Margaret Brincat<br />
margaret@mbrpublications.net<br />
All correspondence, articles for<br />
publication and enquiries are to<br />
be addressed to:<br />
The Editor<br />
MIA Services Limited<br />
Level 1, Tower Business Centre<br />
Tower Street, Swatar<br />
BKR 4013<br />
Malta<br />
p.10<br />
SUSTAINABILITY OF MALTA’S ECONOMIC GROWTH AND THE ROLE OF SMES<br />
by Aaron Grech<br />
p.12<br />
GOING PUBLIC – DR ADRIAN ATTARD TREVISAN<br />
by Claudia Vella Schembri<br />
p.15<br />
DIRECTORS AND SMALL COMPANIES – A DISCUSSION PAPER<br />
by Dr David Fabri<br />
p.18<br />
GETTING READY FOR GDPR<br />
by Matina Massa<br />
p.20<br />
MANAGING TALENT WITHIN SMES<br />
by Cathy Peric<br />
p.24<br />
SMES GOING DIGITAL – THE WAY TO TRANSFORM THE BUSINESS<br />
by Reuben Portanier<br />
p.26<br />
IS BUSINESS PLANNING RELEVANT FOR SMEs<br />
by Chris Meilak<br />
p.28<br />
INVESTING WISELY DIVERSIFICATION AND PICKING THE RIGHT FUND<br />
by Joseph Portelli<br />
p.30<br />
REDISCOVERING THE VALUE OF SME AUDIT<br />
by Accountancy Europe<br />
p.34<br />
THE START-UP JOURNEY IN MALTA – HOW FRIENDLY IS THE FRAMEWORK<br />
FOR BUDDING ENTREPRENEURS?<br />
by Chris Cachia<br />
p.48<br />
THE INSURANCE DISTRIBUTION DIRECTIVE (IDD) – ARE YOU READY?<br />
by Matthew Micallef<br />
p.54<br />
TRANSFORMING CHALLENGES INTO OPPORTUNITIES – FEE PRESSURE<br />
by Christopher Arnold and Mats Olsson<br />
p.57<br />
BUSTING THE BITCOIN MYTHS<br />
by Michael Scicluna<br />
p.60<br />
RECENT AMENDMENTS FOR SMES AND STARTUPS<br />
By Malta Enterprise<br />
TECHNICAL<br />
ADVERTISING INQUIRIES<br />
Margaret Brincat<br />
(+356) 9940 6743<br />
margaret@mbrpublications.net<br />
The Institute does not necessarily concur<br />
with the views expressed in the articles<br />
published in this journal. Articles are<br />
published without responsibility on the<br />
part of the publishers or authors for<br />
loss occasioned in any person acting or<br />
refraining from action as a result of any<br />
view expressed therein. The Accountant<br />
can also be accessed from the website at<br />
www.theaccountant.org.mt<br />
LOOKING BEYOND THE GOVERNMENT PENSION-SOME RECENT TAX DEVELOPMENTS<br />
IMPACTING THE LOCAL PENSIONS’ ARENA<br />
by Bernard Attard and Victoria Muscat<br />
p.38<br />
p.42<br />
GETTING IT RIGHT - RELATED PARTY DISCLOSURE FOR SMES<br />
by Roberta West Falzon<br />
p.44<br />
VAT FOR SMALL BUSINESS – EXISTING RULES AND CURRENT DEVELOPMENTS<br />
by Matthew Zampa<br />
LIFESTYLE<br />
p.64<br />
LIFESTYLE- REACHING CAMBODIA<br />
by Elaine Marie Debono
PRESIDENT’S ADDRESS<br />
WILLIAM SPITERI BAILEY<br />
PRESIDENT’S ADDRESS<br />
WILLIAM SPITERI BAILEY<br />
Dear Members,<br />
In Europe, there are approximately 23million SME’s, which<br />
is about 98% of the business and provides 2/3 of the<br />
private employment. The number of enterprises in Malta,<br />
grew from just over 72,000 in 2012 to nearly 95,000 in<br />
2016. The National Statistics Office indicated that the bulk<br />
increase in business units in Malta was due to small- and<br />
medium-sized entities. In fact, 99% of the overall increase<br />
was amongst firms that employ fewer than 10 persons,<br />
so-called micro firms. Thus, contributing significantly to<br />
countries’ gross domestic product. SMEs are crucial to the<br />
health, stability, and sustainable economic growth of both<br />
developed and developing economies.<br />
SMEs speed up economic growth. They are more flexible<br />
and have simpler structures, making them more responsive<br />
to change. Yet despite this, it is important that they keep<br />
up to speed when it comes to the advancements and<br />
implementation in relation to new developments such as<br />
digitalisation, as this enables them to remain competitive.<br />
Statistics clearly indicate that SMEs are still in the early<br />
stages when it comes to ICT adoption and usage in their<br />
business, with no real alignment to their business objectives,<br />
and limited applicability to their business processes. There<br />
are many areas that are of concern to SMEs, but when<br />
taken seriously and exploited wisely they can translate into<br />
significant opportunities. An SME should initially assess the<br />
business situation and identify ways how going digital will<br />
improve the entity’s status, thereafter an entity.<br />
A very important regulation that will come into effect<br />
on the 25 May is the GDPR. This is not optional and is a<br />
business concern that can have significant repercussions<br />
if not abided with. It must be seen as an integral part of<br />
businesses, it is all about good business and the obligation<br />
to respect and protect personal data. Any organisation that<br />
conducts business within the EU that collects, or processes<br />
personal data needs to be GDPR compliant, regardless of<br />
its size.<br />
A key element for the success of an enterprise is talent<br />
management. As a business owner, one must learn to<br />
attract, select, develop, reward and retain people. Research<br />
confirms that SMEs can provide a creative environment<br />
that encourages new ideas and innovation. It also states<br />
that employees perceive working in an SME as better job<br />
quality, less bureaucracy, higher flexibility leading to better<br />
job satisfaction and a better working environment. These<br />
are all key points that SMEs must use in their favour, as<br />
talent management in SMEs is valid and valuable.<br />
Malta is rapidly gaining international recognition as a<br />
brand denoting excellence in several sectors, including the<br />
pharmaceuticals, life sciences, advanced manufacturing,<br />
fintech, aviation and ICT amongst others. In order to<br />
assist enterprises, particularly SMEs to improve their<br />
competitive edge, Malta Enterprise has developed various<br />
incentives for the promotion and expansion of industry<br />
and the development of innovative enterprises. A series of<br />
new schemes have been launched and a number of other<br />
schemes are work in progress.<br />
SMEs’ demand for advice is influenced by various factors,<br />
which include external factors, such as competition and<br />
regulation, and internal factors, such as the size and nature<br />
of the entity, and the relationship and level of trust between<br />
the small and medium-sized practices (SMP) and the<br />
SME owner-manager. SMPs are considered an important<br />
part of the profession. The vast majority of accountancy<br />
practices worldwide are believed to be SMPs and it is well<br />
recognized that professional accountants are often the<br />
preferred source of advice for SMEs, typically forming longterm<br />
relationships founded on trust. Here in Malta we are<br />
no different and having myself been for a long time an SMP,<br />
I can confirm that SMPs are a preferred source of advice to<br />
SMEs and the more the work relationship grows and the<br />
SMP understands and assists the SME through his advice<br />
to develop his aspirations, the more the SMP will become<br />
the Trusted Advisor of the SME.<br />
Finally, I am happy to say that the Institute wants to be a<br />
catalyst and help its membership with these challenges.<br />
In this regard, our SMP Committee is organising the<br />
annual SME Forum which amongst other topics will deal<br />
with GDPR issues. We are also slowly building up to the<br />
Biennial Conference which will this year revolve around<br />
Digitisation and how this will be affecting our work. I would<br />
like to encourage all SMPs to participate and be active in<br />
our activities. With your help we will continue to make the<br />
Institute relevant to you, its members in today’s world. We<br />
want all activities, communications, and events to focus<br />
on adding value to our members, but also on ensuring<br />
that our members add value to their clients. However, let<br />
us not forget our values of independence, diligence and<br />
integrity when we are offering our services and in our lives<br />
as professional accountants. If values are not given their<br />
due importance we cannot on the other hand add value.<br />
Participate, call us and speak to us about your concerns or<br />
needs. The Institute is there to serve all its members and<br />
professional accountants.<br />
William Spiteri Bailey<br />
04 Spring 2018
MIA NEWS<br />
MIA NEWS<br />
Women’s day Conference<br />
The Malta Institute of Accountants organised its<br />
first conference dedicated to women titled ‘Inspire<br />
to Achieve’ on 9 March 2018. The conference was<br />
held under the auspices of H.E. Marie-Louise Coleiro<br />
Preca, President of Malta.<br />
During the conference the President of Malta Marie-<br />
Louise Coleiro Preca noted that:<br />
“According to the European Commission's Report,<br />
women across the European Union are still a long<br />
way off from achieving full economic independence.<br />
In comparison to men, women still tend to be<br />
employed less;<br />
they are employed in lower-paid sectors;<br />
they work, on average, 6 hours longer per week than<br />
men and have fewer paid hours; and<br />
women also face fewer and slower promotions.”<br />
She encouraged all to find ways to empower women<br />
as well as men, which would enable everyone to<br />
work together for the advantage of all.<br />
The Institute will drive to push the profession in terms of<br />
the openings it provides for women who want to achieve<br />
and be part of creating value to society by building on the<br />
values of equality, empowerment and achievements.<br />
To press for progress the Institute will be investigating<br />
the issue of possible pay gap within the accounting<br />
profession. This study will be conducted with the<br />
help of MISCO, a recognised leader in independent<br />
marketing, research and HR consultancy in Malta.<br />
theaccountant.org.mt<br />
05
MIA NEWS<br />
Anti-Money Laundering Conference<br />
The European Union’s 4th Anti-Money Laundering Directive was enacted into Maltese legislation earlier this<br />
year bringing with it some fundamental changes to the anti-money laundering procedures.<br />
National Public Procurement<br />
Regulations (1)<br />
Anthony Cachia, Lorraine Mangion<br />
Duca, Dr Franco Agius<br />
08 May 2018<br />
National Public Procurement<br />
Regulations (2)<br />
Lorraine Mangion Duca, Dr Franco<br />
Agius, Ninette Gatt, David Gatt<br />
18 May 2018<br />
The Malta Institute of Accountants chose to discuss this topic during its first conference organised in 2018<br />
because it believes that it is an important and vital issue for our country. As mentioned by the Institute’s CEO,<br />
Ms Maria Cauchi Delia in her opening speech “This isn’t just a regulatory issue but one of national concern”.<br />
The conference brought together a number of leading experts to provide the latest information on the<br />
current anti-money laundering and counter terrorist financing developments and requirements. Sessions<br />
and a panel discussion gave first-hand knowledge discussing topics such as changes brought about by<br />
the 4th Anti-Money Laundering Directive, the upcoming Moneyval inspection, the Beneficial Ownership<br />
Register, and the interaction of GDPR and Blockchain on AML.<br />
Rules and Regulations applicable<br />
for Corporate Service Providers<br />
Dr Joseph Saliba & Dr Nicole Demicoli<br />
22 May 2018<br />
Value drivers and controls in<br />
health sector<br />
Jacqueline Camilleri & Jonathan Dingli<br />
29 May 2018<br />
Collective Investment Schemes<br />
and the Investment Management<br />
Process (1)<br />
Stephen Tedesco<br />
31 May 2018<br />
Block Chain and Smart Contracts<br />
Dr Ian Gauci, Dr Cherise Abela Grech<br />
and Dr Emma Portelli Bonnici<br />
06 June 2018<br />
Collective Investment Schemes<br />
and the Investment Management<br />
Process (2)<br />
Stephen Tedesco<br />
12 June 2018<br />
The formation and support of<br />
shipping and aviation companies - A<br />
legal Aspect<br />
Dr Denise Abela & Dr Nicholas Valenzia<br />
15 June 2018<br />
Introduction to cryptocurrencies<br />
and their tax implications<br />
Josef Mercieca & Dr Chris Agius<br />
19 June 2018<br />
VAT for financial services<br />
Graziella Demanuele Bianco<br />
26 June 2018<br />
Access our website for a continuous update<br />
of events<br />
06 Spring 2018
25th May 2018<br />
MIA NEWS<br />
08:15 - 17:00 Intercontinental<br />
3rd July 2018<br />
Save the date<br />
the yearly MIA/ACCA<br />
Joint Event
LOCAL NEWS<br />
Two new partners at RSM Malta<br />
RSM, one of Malta's leading audit, tax and advisory firms<br />
has announced the appointment of Timothy Zammit<br />
and Gordon Micallef as partners with the firm. Given<br />
their experience, Timothy and Gordon’s appointment<br />
will further strengthen RSM’s corporate structure.<br />
Timothy will be responsible for the tax and corporate<br />
services unit while Gordon will be responsible for the<br />
technology consulting practice of the firm.<br />
Together with a team of financial and legal professionals,<br />
Timothy will be assisting clients with enhancing their<br />
fiscal efficiencies through the setting up of companies,<br />
special purpose vehicles and corporate restructuring<br />
while providing transactional support in acquisitions,<br />
mergers and divisions. Together with his team, Timothy<br />
also works on business succession planning while<br />
ensuring clients’ full compliance with their tax and<br />
corporate obligations. Prior to joining RSM Malta as<br />
a tax lawyer in 2010, Timothy served as the head of<br />
corporate and tax services at mid-tier firms specialising<br />
in international structuring and cross border companies.<br />
Timothy read law at the University of Malta having<br />
graduated as a doctor of laws in 2005 and called to the<br />
bar in 2006. Timothy subsequently read for a Master of<br />
Arts in Financial Services from the University of Malta.<br />
He is also a member of the Malta Institute of Taxation<br />
and Institute of Financial Services Practitioners, sitting<br />
on the Tax & EU Affairs Sub-Committee.<br />
As the leader of the technology consulting practice of<br />
the firm, Gordon assists organisations in addressing<br />
their digital agenda by guiding board of directors and<br />
executives to develop and execute transformation<br />
strategies enabled by technology. Together with<br />
his multidisciplinary team of technology, business<br />
analysists, and legal specialists, he also delivers<br />
managed services to various industries including<br />
cyber security, privacy, regulatory technology, and<br />
data management. He joined the firm in 2014 and is a<br />
Certified Public Accountant (CPA), Certified Information<br />
Systems Auditor (CISA) and holds other certifications<br />
in governance of IT (CGEIT), risk management (CRISC),<br />
and project management (Prince2).<br />
Peter J Baldacchino<br />
Twenty-five years ago, Peter J Baldacchino, Head<br />
of the Department of Accountancy, was the first<br />
member of staff at the University of Malta who,<br />
after graduating as a chartered certified accountant,<br />
decided to undertake a postgraduate research<br />
degree in accountancy - at the time this involved a<br />
Master of Philosophy thesis based on Malta at the<br />
University of Loughborough titled "The Auditor-<br />
Management Relationship in a Microstate". Recently<br />
Peter decided to undertake another research study<br />
in a related area, this time a Doctor of Philosophy<br />
(Ph.d) with a thesis titled "Auditing and Corporate<br />
Governance in a Small State-the Case of Malta".<br />
He finalised this latter study in March.<br />
As one would expect, the thesis stemmed from<br />
selected academic research following his MPhil.<br />
It presents a portfolio of fourteen papers offering<br />
insights on major issues affecting the accountancyrelated<br />
areas of external auditing and corporate<br />
governance in the small state of Malta.<br />
The portfolio contributes to literature notably by its<br />
original highlighting of the significance of a number<br />
of sub-themes on various aspects of external<br />
auditing and corporate governance in a small<br />
state. Furthermore, the portfolio impacts Maltese<br />
external auditing and corporate governance<br />
practices, particularly by emphasising the need to<br />
go beyond the adoption of imported regulatory<br />
frameworks. For those interested, links to most<br />
papers included in the thesis are found on Peter's<br />
pages on ResearchGate and Linkedin.<br />
Peter J Baldacchino is the Head of the Department<br />
of Accountancy in the Faculty of Economics,<br />
Management and Accountancy, as well as Advisor<br />
to Rector - Financial Affairs at the University of<br />
Malta. He teaches auditing, corporate governance<br />
and financial strategy in postgraduate professional<br />
and business programs. His research publications in<br />
various international journals focus on auditing, its<br />
regulation and relationship to corporate governance.<br />
He is also Director at the Central Bank of Malta<br />
and Chairman of its Audit Committee, Director<br />
at the University Group of companies as well as<br />
Chairman of the Maltese Accountancy Board. He<br />
has extensive experience in the governance of<br />
Maltese listed entities, with past positions including<br />
chairmanships and memberships of audit and risk<br />
management committees in large organisations.<br />
08 Spring 2018<br />
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?<br />
Career Opportunities at BDO Malta<br />
There are many world-class accounting firms. Far fewer that offer a culture so rich<br />
in professional opportunity, personal fulfillment, and long-term growth. At BDO,<br />
we understand that exceptional service to our clients begins – and ends – with<br />
exceptional regard for our people. Because at its core, our business is not about<br />
numbers or spreadsheets, euros or cents, but about people working with, for, and<br />
in service of others. In short, because relationships matter.<br />
Due to its continuous investment and growth, BDO Malta is seeking to recruit for<br />
the following roles:<br />
VAT Senior<br />
VAT Assistant<br />
Compliance Officer<br />
IT Auditor<br />
Junior Accountant<br />
For a list of benefits offered to BDO staff members and for further information,<br />
please visit our website on www.bdo.com.mt/careers<br />
Tower Gate Place<br />
Tal-Qroqq Street,<br />
Msida<br />
MSD 1703<br />
Telephone: 2131 3060<br />
Email: info@bdo.com.mt<br />
www.bdo.com.mt<br />
BDO Malta, a Maltese civil partnership, is a member of BDO International Limited, a UK company limited by<br />
guarantee, and forms part of the international BDO network of independent member firms. BDO Consult<br />
Limited and BDO Services Limited are companies registered in Malta and form part of the BDO Malta group.<br />
BDO is the brand name for the BDO network and for each of the BDO member firms.
ECONOMY<br />
Sustainability of Malta’s economic<br />
growth and the role of SMEs<br />
DR AARON GRECH<br />
DR AARON GRECH IS THE CHIEF<br />
OFFICER OF THE CENTRAL<br />
BANK’S ECONOMICS DIVISION<br />
AND DEPUTY CHAIRMAN OF THE<br />
MALTA STATISTICS AUTHORITY.<br />
In recent years, the Maltese economy has<br />
expanded very strongly. Since 2010, Malta’s<br />
gross domestic product has grown by 46%,<br />
whereas in the European Union the increase<br />
was of just 10%. Furthermore since 2012 Malta<br />
has consistently had the highest growth in<br />
employment amongst all European Union<br />
countries, such that the unemployment rate<br />
has fallen below 4%.<br />
This growth has been accompanied by a significant<br />
turnaround in the country’s balance of payments, which<br />
now features a considerable surplus which contrasts<br />
with the deficits that had characterised previous years.<br />
At the same time, rapid growth has also resulted in a<br />
large fiscal surplus, as buoyant revenue has offset rising<br />
government expenditure.<br />
Malta was largely unaffected by the financial crisis of<br />
2007-08 and the subsequent European sovereign debt<br />
crisis. One of the main reasons for this was that Malta’s<br />
economic growth is based on a significant restructuring of<br />
the islands’ economic structure. Whereas in countries like<br />
Ireland, Cyprus and Spain, high economic growth before<br />
the crisis was due to the accumulation of macroeconomic<br />
imbalances, such as fast credit growth and a significant rise<br />
in consumption, in Malta most of growth has reflected<br />
an increase in exports. The latter reflected the fact that<br />
after accession to the European Union, a number of new<br />
high value added export oriented services were attracted,<br />
which complemented the islands’ strong manufacturing<br />
and tourism sectors. Access to the European Union’s<br />
single market, combined with flexible, well-trained and<br />
competitively priced labour resources and a businessfriendly<br />
environment, led to increased foreign direct<br />
investment, while reforms to liberalise the economy<br />
strengthened existing sectors. The resulting diversification<br />
of economic activity made the country more resilient<br />
and less dependent on sectors such as semiconductor<br />
manufacturing and package tourism, which are more<br />
prone to cyclical fluctuations in demand.<br />
When analysing recent economic developments, there<br />
has been a tendency to overemphasise the contribution<br />
of certain large foreign direct investments and particular<br />
sectors. However a closer look at official statistics<br />
paints a rather different picture where small and<br />
medium-sized entities accounted for the lion’s share<br />
of growth.<br />
Between 2012 and 2016, the number of enterprises<br />
in Malta grew from just over 72,000 to nearly 95,000.<br />
This reflects the fact that the rate of new businesses<br />
being established nearly doubled to more than<br />
11,000 a year, while the rate of business closures<br />
remained relatively stable.<br />
Data published by the National Statistics Office 1<br />
indicates that the bulk of the increase in business<br />
units in Malta was due to small- and medium-sized<br />
entities. In fact, 99% of the overall increase was<br />
amongst firms that employ fewer than 10 persons,<br />
so-called micro firms. Overall the number of firms in<br />
this category grew by 32% in just four years. That said,<br />
there has also been significant growth in the amount<br />
of firms employing between 10 and 49 employees,<br />
which was up by 16%, and in the number of firms<br />
employing more than 250 employees, which was up<br />
by 22%. By contrast the number of firms employing<br />
between 50 and 249 employees rose by just 2%.<br />
Official statistics show that small and medium sized<br />
entities in Malta are very diverse. Micro enterprises<br />
are dominated by the wholesale and retail sector,<br />
which comprises nearly a fifth of all micro firms. This<br />
is followed by the financial and insurance sector, at<br />
16%, and the professional, scientific and technical<br />
activities sector, at 12%. While micro wholesale and<br />
retail firms have continued to grow healthily, rising<br />
by nearly 16% between 2012 and 2016, the largest<br />
relative growth has been amongst administrative and<br />
support services micro firms, whose numbers were<br />
up by close to 69% over their 2012 level. The number<br />
of financial and insurance micro firms, together with<br />
professional, scientific and technical micro firms also<br />
grew very strongly, with growth rates of 62.8% and<br />
56.1%, respectively. Other services sectors, such as<br />
information, communication, education, remote<br />
gaming and real estate, also showed strong double<br />
digit growth in the amount of operating firms.<br />
1<br />
https://nso.gov.mt/en/News_Releases/View_by_Unit/Unit_B4/Business_Registers/Documents/2017/News2017_075.pdf<br />
10 Spring 2018
ECONOMY<br />
Growth in the number of small-sized entities, i.e.<br />
those employing between 10 and 49 employees, was<br />
also fairly spread across sectors. The largest growth<br />
appears to have been in the accommodation and<br />
food services sector, followed by remote gaming,<br />
wholesale and retail, professional, scientific and<br />
technical sectors. By contrast, growth in the number<br />
of medium-sized entities, i.e. those employing<br />
between 50 and 249 employees, was nearly equally<br />
divided between the education and the remote<br />
gaming sectors.<br />
Besides information on the number of firms by<br />
employment size, the Eurostat database also gives<br />
a lot of additional data on their performance. For<br />
instance, it indicates that the value added of micro<br />
firms in Malta nearly doubled between 2011 and<br />
2015 (the latest year for which data are available).<br />
In fact, Eurostat data suggest that while in 2011<br />
micro firms generated 29% of all the value added of<br />
the business economy sector, by 2015, their share<br />
had risen to 37%. By contrast the value added of<br />
large firms, i.e. those employing more than 250<br />
employees, rose by just 10% during the same period<br />
and their share of value added fell from 28% in 2011<br />
to 21%. This indicates that over time, the relative<br />
contribution of small- and medium-sized entities to<br />
the generation of value added has risen greatly.<br />
A recent survey carried out by the European Investment<br />
Bank amongst Maltese firms indicates that micro<br />
and small firms 2 in Malta are planning to focus their<br />
investment much more to be able to launch new<br />
products. They are also planning to focus much more<br />
than large firms to invest on software and information<br />
technology. This suggests the potential for further<br />
growth in this sector. However, the survey shows that<br />
micro and small firms are relying to a large extent on<br />
internal financing, on account of high cost of financing<br />
and the need for collateral.<br />
Further innovation and diversification are key to the<br />
sustainability of Malta’s economic growth. Small and<br />
medium-sized firms have a big role to play, possibly<br />
even more than in recent years. Taking steps to<br />
ensure that they operate in an optimal business<br />
environment, particularly good access to finance, is<br />
therefore very important.<br />
Small and medium-sized entities have also been<br />
the main generator of jobs according to Eurostat’s<br />
annual enterprise statistics for Malta. Between<br />
2011 and 2015 there was an increase of 13,595<br />
persons employed in the business economy sector.<br />
Out of this growth, less than 14% was due to firms<br />
employing more than 250 persons. Micro firms<br />
registered an increase in employment that was<br />
nearly double that observed amongst the largest<br />
firms. That said, while employment in micro firms<br />
grew by nearly 9%, in small- and in medium-sized<br />
entities the increase in employment was at 16% and<br />
14%, respectively.<br />
These trends show how vital the contribution of<br />
small- and medium-sized entities has been to the<br />
success of the Maltese economy. While largescale<br />
investments are undoubtedly important, the<br />
reality on the ground is that a lot of the dynamism<br />
of the islands’ economy is due to the efforts of<br />
entrepreneurs and relatively small-scale operators.<br />
These have created the bulk of jobs and played a key<br />
role of the diversification of the islands’ economy.<br />
2<br />
https://www.centralbankmalta.org/file.aspx?f=61763<br />
theaccountant.org.mt<br />
11
FEATURE<br />
GOING PUBLIC<br />
DR ADRIAN ATTARD TREVISAN<br />
DR ADRIAN ATTARD TREVISAN IS<br />
A NEUROPHYSIOLOGIST WITH<br />
A WIDE EXPERIENCE IN THE<br />
FIELD OF HUMAN PHYSIOLOGY<br />
AND MEDICAL DEVICES. HE WAS<br />
FOUNDER, CHIEF EXECUTIVE<br />
OFFICER AND CHIEF SCIENTIFIC<br />
OFFICER OF AAT RESEARCH,<br />
A GROUP OF COMPANIES<br />
INVOLVED IN THE DEVELOPMENT<br />
OF CERTIFIED MEDICAL<br />
DEVICES. THE COMPANY HAS<br />
SINCE REBRANDED ITSELF AS<br />
NEUROTECH INTERNATIONAL,<br />
BECOMING A PUBLICLY LISTED<br />
COMPANY ON THE AUSTRALIAN<br />
SECURITIES EXCHANGE (ASX),<br />
OF WHICH ADRIAN IS STILL A<br />
NON-EXECUTIVE DIRECTOR. HE<br />
IS A CO-FOUNDER AND CHIEF<br />
EXECUTIVE OFFICER OF UMANA<br />
MEDICAL TECHNOLOGIES, A<br />
DEVELOPER AND MANUFACTURER<br />
OF PATENTED TEMPORARY<br />
TATTOO SENSORS THAT<br />
ENABLE PATIENTS AND<br />
MEDICAL PROFESSIONALS<br />
TO MONITOR VITAL SIGNS OF<br />
PATIENTS, WITHOUT THE USUAL<br />
RESTRICTIONS OF CABLES AND<br />
WIRES THAT EFFECT QUALITY<br />
OF LIFE.<br />
The technical team of the Malta Institute<br />
of Accountants, interviews co-founder<br />
and Chief Executive Officer of Umana<br />
Medical Technologies.<br />
1. How would you describe yourself in 3 words?<br />
I believe I am very persistent, focused and a risk taker.<br />
2. What led to the change from a researcher<br />
to an entrepreneur?<br />
This was very easy, I hate stalling a good project when<br />
the research funds finish, and unfortunately that is<br />
very often the case when working in academia. I<br />
wanted to be in a position where I could follow an<br />
idea/ concept from start to finish.<br />
3. Considering that the setup of both companies<br />
are based on two innovative ideas, what is the<br />
key to generating new ideas?<br />
In this field it is a combination of the need to help<br />
others and being in the right place at the right time.<br />
The idea of the first research project started from<br />
the desire to help a child when living in France. In<br />
the case of the other project I was approached by<br />
two professors, who had developed a material, but<br />
needed someone to develop it into a commercial<br />
product. In the medical world only 3 in 100 medical<br />
technology start-ups succeed, therefore there is a lot<br />
of pressure in order to make it work.<br />
a market for the product and that its features<br />
distinguished it to the other available products.<br />
5. What are your responsibilities as a business<br />
owner?<br />
The heftiest responsibility is towards the patients.<br />
In view of the fact that we produce medical<br />
devices it is a highly regulated environment. We<br />
are subject to a number of EU Directives and legal<br />
requirements. Other responsibilities include the<br />
usual legal and financial responsibilities and meeting<br />
the expectations of the investors. Another important<br />
responsibility is the well-being of my employees and<br />
the security of their jobs.<br />
6. When you started the first company what<br />
where the main challenges that you had to<br />
overcome?<br />
At the beginning it was very difficult, yet it was also<br />
a very exciting period. Together with a colleague of<br />
mine we started developing medical devices from<br />
home. Obtaining finance was one of the initial<br />
challenges and often meant not earning a salary for a<br />
number of months.<br />
It is unfortunate that even though you would like to<br />
help people, feasibility of the project is key. If the<br />
product will only help a few people then it cannot be<br />
developed and if possible we try to find alternative<br />
ways how to help the people involved. On the other<br />
hand, if it affects 10-15% of the population, then the<br />
project is viable.<br />
7. In your opinion what was the catalyst for<br />
the company’s growth?<br />
A catalyst for the company’s growth is vision. You<br />
need to execute the vision you set at the outset.<br />
Although one also has to be realistic. In our sector<br />
another important thing is the technology and<br />
product appeal.<br />
12 Spring 2018<br />
4. What is unique about your business?<br />
It is a niche market. Before starting out the project<br />
we performed the necessary research and feasibility<br />
studies. This enabled us to ensure that there is<br />
8. At what stage did you engage people to<br />
help you execute your ideas?<br />
Knowing one’s strengths and limitations is important.<br />
I believe that my greatest strength is that of an
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GOING PUBLIC<br />
entrepreneur. During the initial stages the input of<br />
the entrepreneur is idea generation and risk taking.<br />
As the company matures the role of the entrepreneur<br />
changes to that of a CEO, with more focus on setting<br />
up an appropriate structure for the company. I do not<br />
believe in starting big, but a company has to grow<br />
steadily. However I believe that the right people need<br />
to be involved with the adequate expertise starting<br />
from the early stages of a company.<br />
9. Finance for SMEs is challenging. How did you<br />
overcome this and obtain investment for your<br />
ventures?<br />
One of the crucial points is establishing a good<br />
relationship with your bankers and building<br />
a relationship of trust. In depth research and<br />
preparation is key to obtain other sources of finance.<br />
This enabled us to identify potential investors and<br />
meet with the prospective investors.<br />
Other sources of finance included obtaining support<br />
from EU funding. Although it involves time and resources<br />
to apply for the requested funds. However this was vital<br />
particularly in the early stages of the start-up.<br />
10. Considering the fierce competition in today’s<br />
business world, how do you highlight your<br />
company’s competitive advantage?<br />
What we do is analyse our competitor’s product,<br />
study it and make ours better. In the case of our<br />
first the product was unique. However this time<br />
it is different nonetheless the product is also very<br />
innovative and is protected via patent legislation.<br />
11. How do you promote your business and<br />
build a successful customer relation?<br />
At the outset I start by getting an understanding the<br />
operating environment within a specific country.<br />
This is necessary to determine whether it is viable<br />
to enter the market in that country and to identify<br />
eligible distributors. We operate using a network<br />
of distribution partners. Once the possible<br />
distributing partners are identified, they are asked<br />
whether they are interested in selling the product<br />
and are thereafter requested to submit a three-year<br />
marketing plan.<br />
12. How do you define success and what is<br />
the best way to achieve long term success?<br />
It’s all a matter of culture and client loyalty. One<br />
of our values is that whatever we do is targeted<br />
towards the end user. If you actually build a company<br />
based on the wellbeing of your end customer and<br />
instil that culture in your employees, it will lead to<br />
long-term success.<br />
13. What do you feel is your greatest<br />
entrepreneurial achievement?<br />
In the case of the first company the first important<br />
achievement was actually managing to get the<br />
necessary certification considering all the challenges<br />
we had to face and the lack of experience. The other is<br />
when after a lot of hard work we managed to go public<br />
on one of the largest stock exchange in the world.<br />
14. What is your greatest support when facing<br />
up hardships in business?<br />
No doubt - family.<br />
15. What is your greatest fear when it in running<br />
an SME?<br />
Relevance. Will my product be relevant to the user?<br />
16. In your opinion, what do you think are the<br />
5 key skills needed to manage an SMEs in the<br />
best possible way and enable its growth and<br />
expansion?<br />
The primary skill is to set a clear vision. This needs to<br />
be set before the inception of the SME.<br />
Another is to be hands-on and not role specific.<br />
Flexibility is crucial for the success of an SME<br />
Determination and persistence are extremely important,<br />
because it’s so easy to give up when all the obstacles start<br />
crossing your path, you need to persevere to succeed.<br />
You have to accept criticism and be willing to learn.<br />
17. Do you believe there is a winning formula<br />
for running an SME? And what is yours?<br />
No I do not think so. Everyone has their own way<br />
of doing it. The reason why you would succeed is<br />
because in the end you did it your way. Although I<br />
do believe that being passionate about what you do<br />
is essential.<br />
14 Spring 2018
DIRECTORS<br />
DIRECTORS AND SMALL COMPANIES<br />
– a discussion paper<br />
The company was an extraordinary invention.<br />
It helps to remember how the notion of the<br />
company started and how it grew. The company<br />
as we know it today evolved over centuries from<br />
the joint stock company which first started being<br />
properly regulated in the early 19th century. The<br />
original company was typically a big, hugely<br />
expensive and risky enterprise. Buying and fitting<br />
out vessels often for cross-oceanic expeditions,<br />
or the building of canals and railroads. The<br />
creation of the company and the benefit of<br />
official incorporation had its critics and caused<br />
controversy. Objections and concerns increased<br />
extensively when the great concession of<br />
shareholder limited liability was added.<br />
That is now history, but it is an instructive and<br />
interesting story. Today, the main legislation on<br />
companies in Malta is the Companies Act 1995.<br />
Companies are legal fictions and the creation of<br />
law; they exist because the Companies Act allows it.<br />
Today the corporate form is used as a vehicle for less<br />
ambitious objectives, even for single transactions or<br />
to hold an asset.<br />
A company is an artificial legal person which enjoys<br />
the rights of human persons without many of the<br />
disadvantages. It has proved extremely flexible and<br />
resilient and can undertake any business whatsoever.<br />
The company can be used for simple as well as<br />
complex transactions and has served business<br />
growth well. It can issue shares to investors who<br />
benefit from limited liability. Unfortunately it has<br />
also protected fraudsters, speculators, tax evaders<br />
and sundry wrongdoers, as well as dodgy directors.<br />
In Maltese economic experience, the company is by<br />
far the most popular and the most important form of<br />
business organization. So it is our business as lawyers<br />
and accountants to understand it well. Today some<br />
85,000 companies exist on the official company<br />
register held at the MFSA which has housed it since<br />
1997. Most are private limited liability companies.<br />
Public companies are fewer in number, possibly<br />
about 80.<br />
Our first modern company law was the Commercial<br />
Partnerships Ordinance (CPO) which was drawn up in<br />
the late 1950’s by Maltese legal experts and brought<br />
into force in 1965. The Ordinance was a good law<br />
for its time and proved particularly successful in<br />
promoting the private limited liability company. On<br />
the other hand, the Ordinance (CPO) was eventually<br />
found to be very lacking in such areas as the winding<br />
up of companies, the duties of liquidators and the<br />
duties and responsibilities of directors.<br />
An area which has attracted much merited scholarly<br />
and judicial attention during these past twentyfive<br />
years is directors’ duties and personal liability.<br />
Whole books have been written about the subject.<br />
Companies are primarily led and directed by the<br />
directors. The CPO more or less allowed directors to<br />
be largely unregulated and shareholders and directors<br />
were allowed too much power and discretion to<br />
determine the direction and destiny of the company<br />
very often at the expense of third parties. This led to<br />
the abuse of the corporate form and of the benefit of<br />
limited liability given to the shareholders. In fact, this<br />
unregulated situation led to much abuse by directors<br />
and shareholders at the expense of the company’s<br />
creditors, customers and employees. Directors (and<br />
shareholders) felt immune, and in practice, to a large<br />
extent, they probably were.<br />
DAVID FABRI<br />
DAVID FABRI HEADS THE<br />
DEPARTMENT OF COMMERCIAL<br />
LAW AT THE UNIVERSITY OF<br />
MALTA. HIS MAIN AREAS OF<br />
INTEREST AND RESEARCH<br />
ARE REGULATION, FINANCIAL<br />
SERVICES LEGISLATION,<br />
CONSUMER POLICY AND<br />
PROTECTION, CORPORATE<br />
LAW, WHISTLE-BLOWING AND<br />
BUSINESS ETHICS.<br />
theaccountant.org.mt<br />
15
DIRECTORS<br />
16 Spring 2018<br />
The substantial abuse of the lack of adequate regulation<br />
of directors under the CPO framework was therefore<br />
evidence, if any was needed, that companies and their<br />
operators needed to be adequately regulated and<br />
monitored and provision should also be made to punish<br />
wrongdoers where appropriate. Self-regulation has not<br />
worked and more detailed regulation was necessary to<br />
protect creditors, employees and other third parties. The<br />
law is now clearer and in 1995 the Registrar was assigned<br />
significant powers of intervention and investigation.<br />
Having proper legislation and higher standards should<br />
lead to the added benefit that more people will be<br />
prepared to place their trust into dealing with companies,<br />
small and big.<br />
For many purposes, the Companies Act does not<br />
distinguish between small and big companies. It does<br />
however draw important distinctions between public<br />
and private companies. The distinction between listed<br />
and unlisted public companies is also significant because<br />
listed companies are more strictly regulated. Indeed, the<br />
directors of listed companies have to adhere to a whole<br />
set of additional rules and responsibilities arising under<br />
the Financial Markets Act and the Prevention of Financial<br />
Markets Abuse Act and other rules arising thereunder.<br />
It is probably correct to say that the Companies Act<br />
seems more concerned with the distinction between<br />
private and public companies, than between big and<br />
small companies. This fundamental issue was addressed<br />
when important amendments to the Companies Act<br />
were being considered in 2003. Let us focus on just three<br />
of these provisions. Article 329A which introduced a new<br />
duty on directors was made applicable to all companies<br />
which may find themselves in financial distress, and a<br />
suggestion that it should apply solely to public companies<br />
was discarded. On the other hand, the new Company<br />
Recovery Procedure introduced by article 329B was only<br />
applied to companies which were not “small companies”<br />
as therein defined.<br />
And finally, the very important article 136A which<br />
introduced a general statement of directors’ duties,<br />
even before UK law did, drew no distinctions and was<br />
made applicable to directors of all companies. This<br />
was founded on a clear policy intent to lay down one<br />
common standard of conduct for all directors of all<br />
companies, big or small, private or public. The aim was<br />
to close the hatches and let now one out, with little room<br />
for quibbling or playing with words. If you are a director<br />
then you have the responsibilities of a director. With<br />
such responsibilities come potential liabilities for breach<br />
of those duties as set out in the law, including potential<br />
civil and criminal liabilities. Article 136A tried to put a halt<br />
to the usual half-baked excuses and whinging by directors<br />
trying to escape liability for their dereliction of duties and<br />
wrongdoing. It was no longer possible to plead one’s own<br />
incompetence or ignorance, which was often another<br />
fashionable attempt to escape culpability. The intention<br />
was to simplify matters by having one principle apply<br />
to all companies equally. On the other hand, criticism<br />
predictably was directed against the one-size-fits-all<br />
approach. Some confusion and a race to the bottom<br />
could have arisen had the law opted to differentiate<br />
between different types of directors: directors of small<br />
as against big companies, or of private and public<br />
companies; or between the so-called non-executive and<br />
executive directors, a distinction which today seems to<br />
enjoy a certain unmerited popularity.<br />
Good and ethical corporate governance should be<br />
adhered to irrespective of the size and type of company.<br />
Good governance is not the preserve of public or listed<br />
companies. If it falls upon smaller companies to set<br />
a standard in how they are run or should be run, then<br />
so be it. Companies and their employees, customers<br />
and creditors enjoy a better run in the long term if they<br />
are properly and ethically administered and operated.<br />
Employees would better serve an honest employer and<br />
consumers respond favourably to a company which<br />
takes their concerns seriously and whose directors are<br />
perceived to be fair and honest.<br />
Companies, whatever their size, should not be<br />
set up to cheat one’s spouse, partner, business<br />
associates, customers and creditors, or to break<br />
the law in opaque ways. This has happened and<br />
will probably continue to happen, but companies<br />
big or small should conduct themselves as good<br />
corporate citizens, safeguarding not just the place<br />
of work but the broader environment outside.<br />
Companies should have more ethically defined<br />
objectives based on a culture favouring lawful<br />
and correct behaviour. In this context, the role to<br />
be played by the directors is pivotal and crucial.<br />
As the leading officials of the company, directors<br />
should lead by example setting the ethical tone<br />
which employees will discern and follow.
GDPR<br />
Getting ready for GDPR<br />
MATINA MASSA<br />
MATINA MASSA IS THE MANAGING<br />
PARTNER OF M2 BUSINESS<br />
FRAMEWORKS, A BOUTIQUE<br />
CONSULTING FIRM BASED<br />
OUT OF MALTA. SHE WORKS<br />
CLOSELY WITH ARQ GROUP<br />
MALTA IN THEIR GDPR PRACTICE<br />
PROVIDING GDPR FRAMEWORKS,<br />
ASSESSMENTS, IMPLEMENTATION<br />
PLANNING AND SUPPORT.<br />
18 Spring 2018<br />
What do Facebook, Uber and Delta Airline all have<br />
in common? All have been impacted by massive<br />
data protection breaches in the past 6 months which<br />
have resulted in millions of personal records being<br />
compromised. The news, when exposed, has resulted in<br />
damaging brand reputation and significant financial loss.<br />
So why is Data Protection important, and what does it<br />
have to do with your business? What do you need to<br />
do to be ready for the May 25th, 2018 GDPR deadline?<br />
This article attempts to answer some of these<br />
important questions.<br />
Below is a recap of the important points that you need<br />
to be aware of:<br />
• GDPR comes into effect on the 25th May 2018 and<br />
there will be no transitional period as organisations<br />
have already have had over two years to adjust<br />
• The GDPR fines are steep and can range up to 4% of<br />
annual worldwide gross revenue or up to 20 million<br />
euro depending on the category of violation<br />
• Any organisation that conducts business within the<br />
EU that collects or processes personal data needs to<br />
be GDPR compliant. This is regardless of company<br />
location and also applies to any organisation that is<br />
outside of the EU but targets (‘sells to’), monitors or<br />
does business with individuals within the EU. This is<br />
regardless of company size and includes SMEs as well.<br />
• One of the most fundamental aspects of the GDPR is<br />
the need to ensure that you have ‘explicit’ consent.<br />
This means that the individual providing consent<br />
must do an ‘explicit’ action to provide consent,<br />
such as ticking a box. This consent must be given<br />
for a specific purpose and must be presented in a<br />
manner which is clear, accessible, transparent and<br />
in plain language.<br />
• The GDPR now has strict obligations for ‘processors’<br />
of data, even though they may not be the<br />
controllers of the data. In the past, under the EU<br />
Data Protection Directive (95/46/EC), processors<br />
had limited obligations leaving them free from fines<br />
and responsibilities.<br />
• The GDPR has strengthened the definition of<br />
processing, as well as expanded the definition of<br />
Personally Identifiable Information (personal data)<br />
including what constitutes sensitive or ‘special’<br />
personal data. Under the GDPR, biometric data<br />
is now also considered sensitive personal data,<br />
resulting in new obligations for organisations<br />
that use biometric data for access control and<br />
authentication. If you collect or process any form<br />
of sensitive personal data your obligations are now<br />
stricter, such as the requirement to have a Data<br />
Protection Officer and conducting Data Protection<br />
Impact Assessments on high risk processing.<br />
• GDPR also includes strengthened obligations<br />
around Technical and Organisational measures with<br />
stronger links to IT security practices. While there is<br />
no ‘silver bullet’ on what these measures are, they<br />
do require a more comprehensive view of physical<br />
and data security controls as well as implementing<br />
measures such as pseudonymisation, encryption,<br />
archiving, data deletion and minimization.<br />
• GDPR is not about ‘ticking’ the boxes or a ‘one off’<br />
inventory, it is about embedding strong privacy<br />
management practices across the organisation<br />
including training, awareness, policy and procedural<br />
changes and a clear understanding of process and<br />
risk areas where personal data can be exposed.<br />
• GDPR brings with it a culture change in terms of how<br />
employees handle personal data. Employees need<br />
to think twice when they are processing personal<br />
data in day to day activities, such as the simple<br />
sending of an email with a resume to potential<br />
interviewers. Equally, organisations need to ensure<br />
that processes and controls are in place to protect<br />
all personal data.<br />
As such, GDPR has now become one of the most<br />
significant global data security regulations with far<br />
reaching implications beyond the EU.<br />
Given the above, you may be struggling with ‘how to<br />
start’ and ‘what to do’ to rapidly move up the GDPR<br />
maturity curve.<br />
GDPR readiness is best done within the construct of a<br />
Data Protection and Privacy Framework. This will provide<br />
you will the right structures for your GDPR activities and<br />
will enable a strong framework for measuring compliance
GDPR<br />
and implementation progress. There are 3 core aspects<br />
of a Data Protection and Privacy Framework:<br />
A. What are the measures that need to be put in place?<br />
Measures are those activities that are required<br />
to protect personal data, respect the rights of the<br />
individual and comply with the GDPR obligations.<br />
Over 45 out of the 99 articles within the GDPR<br />
translate to specific measures for compliance for a<br />
standard business. You need to define what activities<br />
need to be implemented to be GDPR compliant and<br />
these become your implementing ‘measures’.<br />
B. What records do you need to keep or evidence do<br />
you need to show to demonstrate compliance? The<br />
‘accountability’ principle of GDPR sets out clearly that<br />
all organisations need to demonstrate compliance,<br />
no matter what size. Smaller organisations (under<br />
250 employees) may have reduced reporting<br />
responsibilities based on their processing, however<br />
are still accountable for compliance. As such, ensuring<br />
that you are capturing, storing and reporting your<br />
‘proof points’ is important. Approximately 40 of<br />
the GDPR measures above require evidence of<br />
compliance, this number changes depending on the<br />
size and nature of your business, however in general<br />
the more you monitor, the stronger your GDPR<br />
practices and maturity will be.<br />
C. It is essential to have clear accountability for GDPR, not<br />
only within the business areas where data is collected<br />
and processed, but also across the organisation. Most<br />
importantly clear accountability is essential at senior<br />
levels, ensuring regular reviews, dialogue, governance<br />
and reporting. Accountability also links to your GDPR<br />
implementation roadmap, outlined in more detail<br />
below, where you need to establish clear ownership<br />
for completion of tasks in the plan.<br />
Once you have established your Data Protection and<br />
Privacy Framework, you will have a good understanding<br />
of what needs to be in place for your organisation - not<br />
only to become compliant but also to demonstrate a long<br />
term sustainable practice.<br />
So where to start?<br />
1. First of all, you will need to baseline your<br />
GDPR compliance. This involves assessing and<br />
documenting the status of your GDPR compliance<br />
across your business processes, reviewing<br />
your policies and procedures, data, customer<br />
communication, consent language, contracts,<br />
governance and reporting. This will define your gaps<br />
and risks and you can then prioritise what needs to<br />
be done to address these gaps.<br />
2. Second, you need to develop a plan and assign<br />
ownership of the plan. You need to define what<br />
needs to be done to mitigate the gaps and risks.<br />
This might require embedding new procedures,<br />
reviewing consent language or mapping out data<br />
flows. These activities will comprise your roadmap,<br />
which should also include activities that ensure<br />
ongoing capability.<br />
3. Third, you need to keep a steady progress as you<br />
implement the various activities and deliverables.<br />
Put together a team to deliver on the plan with<br />
an engaged and accountable owner. Ensure that<br />
the team has the resources and support to ensure<br />
implementation. Establish how you will measure<br />
progress and report regularly to the senior team<br />
to ensure that roadblocks are addressed, and<br />
deliverables effectively implemented.<br />
4. Finally, you need to maintain and sustain your<br />
efforts to become GDPR compliant. This involves<br />
establishing key roles within your organisation, such<br />
as a Data Protection Officer or compliance roles<br />
matrixed in the lines of business. It also requires<br />
ongoing awareness, training and reporting and<br />
establishing ways of working such as embedding<br />
‘data protection by design and default’, which<br />
means that data protection obligations are taken<br />
into consideration for all new projects and / or<br />
commercial relationships.<br />
Companies with good data governance and data<br />
management practices, that are proactive can benefit<br />
from increased business, higher levels of consumer<br />
confidence and improved security.<br />
GDPR Readiness is about a structured framework and<br />
its systematic implementation. It is about your ‘ways of<br />
working’ and needs to become an integral part of your<br />
business, it is all about good business practice.<br />
Most importantly, it is about the fundamental rights and<br />
freedoms of individuals, to their protection regarding the<br />
processing of their personal data and your obligations to<br />
respect and protect this fundamental right.<br />
theaccountant.org.mt<br />
19
MANAGING TALENT<br />
Managing Talent<br />
within SMEs<br />
Organisations are social so understanding and managing the people in them is<br />
critical to successful business leadership. As owners or managers we need to know<br />
how to attract, select, develop, reward and retain people. Within organisations<br />
these processes are referred to as Talent Management. The emphasis falls on the<br />
interaction between the people and business, interaction that supports the fulfillment<br />
of its purpose and the achievement of its strategic objectives.<br />
CATHY PERIĆ<br />
CATHY IS AN EXECUTIVE COACH<br />
AND PARTNER AT MULTIPLEX<br />
PARTNERS, A BOUTIQUE OD<br />
CONSULTANCY THAT FOCUSES<br />
ON ACTIVATING TALENT<br />
THROUGH THE DEVELOPMENT OF<br />
COACHING AND ACCOUNTABILITY<br />
FRAMEWORKS.<br />
There are many definitions of the term Talent<br />
Management, for instance, should talent<br />
management include all staff or should it be<br />
more exclusive focusing on a select group of high<br />
performers or high potential employees? For the<br />
purposes of this article I refer to an inclusive approach<br />
to talent management as research suggests that<br />
this is a common approach taken by SMEs. In this<br />
approach ‘talent’ refers to the set of knowledge, skills<br />
and behaviours that each employee has.<br />
IT’S ALL ABOUT THE PEOPLE<br />
Paradoxically, as people we are unique and yet we<br />
are the same. Whilst each and every one of us is<br />
different, we have certain common, generic needs<br />
that we strive to satisfy in various areas of our lives.<br />
Being aware of what these needs are within the work<br />
context and understanding how they can be satisfied<br />
gives us insight about how to relate to people as they<br />
enter and then work in organisations – it gives us<br />
insight about how to manage the talent within.<br />
As you read through the needs below, think about<br />
how they relate to your own experience. Certain<br />
needs may be stronger than others however it is<br />
likely some of them will feature to some extent:<br />
• To have clarity of what our role entails and<br />
what is expected of us<br />
• To have clarity of what our role entails and<br />
what is expected of us<br />
• To be given feedback on our progress<br />
• To learn, grow and develop<br />
• To feel aligned with the organisational<br />
purpose and culture<br />
• To contribute to the organisation’s mission<br />
• To be remunerated fairly<br />
• To be acknowledged and recognised<br />
• To have a collegial working environment<br />
• To be treated fairly<br />
When these needs are satisfied people feel engaged<br />
at work and are motivated to give their best and<br />
perform at their highest level.<br />
IT’S ALL ABOUT THE BUSINESS<br />
What about the needs of the organisation? Individual<br />
business needs vary according to factors such as<br />
industry, size and goals. However in general, the<br />
business needs to fulfill its purpose and mission;<br />
it needs to achieve its strategic objectives, be they<br />
financial sustainability or growth focused; it needs to<br />
recruit talented people, it needs its people to be on<br />
board with the organisation’s objectives and to work<br />
together towards achieving them. The organisation<br />
needs its people to be engaged.<br />
Talent management provides a potential win-win<br />
situation for both the business and the individual in<br />
all enterprises, be they large, medium or small. Skillful<br />
talent management offers the possibility of fulfilling<br />
the needs of both the individual and the business.<br />
THE SME CONTEXT - SATISFYING PEOPLE<br />
& BUSINESS NEEDS<br />
We’ve established that we need to know how to attract,<br />
select, develop, reward and retain our people, we need<br />
to know how to satisfy our people’s needs in these areas<br />
and we need to know how to achieve our organisation’s<br />
purpose and objectives through our people. The question<br />
is, how do we do all this within the SME context?<br />
Larger organisations have certain advantages over SMEs<br />
in areas such as brand visibility, professionalised functions<br />
and deeper pockets. However research has shown that<br />
the SME context presents a number of advantages that<br />
could help attract and retain people.<br />
20 Spring 2018
FINANCE<br />
BE THE SOLUTION—BE A CISA ®<br />
In today’s fast-paced and ever-more complex business environment,<br />
information has become the most valuable currency for enterprises<br />
around the globe. Information systems professionals play vital roles in<br />
leveraging the value, and assuring the security and integrity of the massive<br />
volumes of information that drive business. For those professionals and<br />
the enterprises they serve the world over, the CISA®—Certified<br />
Information Systems Auditor®— is recognized as proof of competency<br />
and experience in providing assurance that critical business assets are<br />
secured and available.<br />
www.isaca.org/CISAsuccess<br />
With more than 140,000 professionals in over 180 countries, ISACA® is the<br />
trusted source of knowledge, standards, networking, and career development<br />
for information systems audit, control, security, cybersecurity, risk, privacy and<br />
governance professionals. ISACA advances and validates business-critical skills<br />
and knowledge through its globally respected certifications.
MANAGING TALENT<br />
“SMEs can provide a creative environment where<br />
new ideas and innovation flourish (Zenger & Lazzarini,<br />
2004). Research highlights a number of advantages<br />
of working in a SME organisation from the employee<br />
perspective including perceptions of better job<br />
quality and less bureaucracy (Storey et al., 2010),<br />
better job satisfaction due to higher flexibility, a<br />
better working atmosphere (Iddson, 1990) and more<br />
informality in the workplace (Dundon & Wilkinson,<br />
2009).” (Krishnan & Scullion, 2017).<br />
How an owner or manager activates each area of talent<br />
management can vary, what is critical is that talent<br />
management is carried out deliberately with a clear<br />
vision of what it hopes to achieve – engaged people<br />
working within the organisation. In July 2014, CIPD,<br />
which is a UK-based professional body for HR and people<br />
development published a research report that examines<br />
the different approaches that SMEs can take to recruit<br />
and develop their people and includes some useful<br />
insights for organisations.<br />
Informality in the workplace however can be<br />
a double-edged sword in all areas of talent<br />
management. Whilst it is one of the advantages, it<br />
can also work against the SME’s need to engage its<br />
people. Informality is great when it comes to the<br />
atmosphere at the office and when it describes<br />
the ease of relating to one another, however it can<br />
become detrimental if we take an informal approach<br />
towards recruitment, development and retention.<br />
Each area of talent management needs thought and<br />
consideration in the planning and follow-through<br />
stages no matter how big or small the organisation is.<br />
The individual needs are present in whatever context.<br />
I can work with the largest organisation in Malta or I<br />
can work with the smallest one, my needs for role<br />
clarity, feedback, connection and fairness; my desire<br />
for professional growth, are present in all contexts.<br />
Two concrete examples of how to make talent<br />
management deliberate are role profiling and taking<br />
a coaching approach with staff. Role profiling provides<br />
clarity about what the role entails and the competencies<br />
needed to fulfill the role and at the same time creates an<br />
accountability structure. These can be updated regularly<br />
to cater for evolving needs of the small and medium<br />
enterprises. You can’t begin to manage your people<br />
unless you clarify in a meaningful way what you expect<br />
of them and this is different from a job description in the<br />
form of a task list. When there isn’t the internal expertise<br />
to set up such structures such as role profiles, SMEs have<br />
the option to turn outside the organisation for support.<br />
Another example of deliberate talent management is<br />
taking a coaching approach with staff. This ticks many<br />
of the boxes for satisfying our people’s needs within<br />
22 Spring 2018
MANAGING TALENT<br />
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the work context. It is considered best practice to<br />
have ongoing coaching conversations with staff<br />
and this is one practice that serves people well in<br />
both large and small organisations. Research has<br />
repeatedly found that giving people the opportunity<br />
to learn and grow increases their satisfaction,<br />
motivation and engagement making them more likely<br />
to stay with the organisation and taking a coaching<br />
approach is a key enabler of a person’s growth. It is<br />
a cost-effective way of developing and engaging staff<br />
that has exponential returns.<br />
THE ROLE OF CULTURE, TRUST AND<br />
THE LEADER<br />
Any talent management initiative takes place within<br />
the wider context of the culture of the organisation.<br />
Culture is about how people think and act on a daily<br />
basis (Connors & Smith, 2011). The now famous<br />
saying “culture eats strategy for breakfast” sums<br />
it up nicely. Effective talent management is more<br />
than a strategy, it goes deeper into the DNA of the<br />
organisation; it is about culture; it is about values …<br />
and it starts at the top of every organisation. It has<br />
to be recognised though that in order to grapple<br />
with the idea and practice of talent management,<br />
leadership has to believe that its people are good,<br />
motivated and that they have potential. In an<br />
organisation led by an autocrat who believes that<br />
people are essentially driven by their managers rather<br />
than themselves, talent management is doomed to<br />
fail. The leader plays a critical role in embedding a<br />
healthy culture based on trust and accountability<br />
that in turn provides the rich foundation from which<br />
effective talent management can really happen in a<br />
meaningful way that delivers tangible results and a<br />
healthy ROI.<br />
CONCLUDING THOUGHTS<br />
Talent management in SMEs is valid and valuable.<br />
Are you leveraging the benefits?<br />
References<br />
• Talent management and dynamic view of talent in<br />
small and medium enterprises. TN Krishnan & Hugh<br />
Scullion, Human Resource Management Review 27<br />
(2017) 431-441.<br />
• Recruiting and developing talented people for SME<br />
growth. J Miller, CIPD Research Report (2014)<br />
• Change the culture, change the game by R Connors &<br />
T Smith, (2011)<br />
• The new rules of talent management: HR Goes Agile,<br />
P Cappelli & A Tavis; Co-Creating the Employee<br />
Experience, L Burrell; One Bank’s Agile Team<br />
Experiment, D Barton, D Carey & R Charan, Harvard<br />
Business Review March-April 2018 issue<br />
theaccountant.org.mt<br />
23
DIGITAL<br />
SMES GOING DIGITAL<br />
the way to transform the business<br />
REUBEN PORTANIER<br />
Small and medium-sized enterprises (SMEs) represent 99% of all businesses in the EU (and Malta). SMEs are<br />
defined (or rather described) in the EU recommendation 2003/361, with the description of what constitutes<br />
to fall under the definition of an SME being mainly quantitative in terms of headcount and, turnover size<br />
and/or balance sheet total.<br />
REUBEN PORTANIER IS THE<br />
CO-FOUNDING PARTNER<br />
OF AFILEXION ALLIANCE,<br />
AN ADVISORY FIRM WITH<br />
A PARTICULAR FOCUS ON<br />
TECHNOLOGY, FINTECH AND<br />
GAMING.<br />
Entity Category<br />
Medium Sized<br />
Small<br />
Micro<br />
Staff Headcount<br />
DIGITAL<br />
budgets to invest in digital technology, particularly as<br />
they may have easier access to finance. However,<br />
a counter argument, which is equally valid, relates<br />
to the fact that larger enterprises should on paper<br />
provide a high return to SMEs terms of shifting them<br />
to radically change the way SMEs conducted their<br />
business and thus being in a position to keep up with<br />
the pace of the large enterprises.<br />
be less swift than SMEs to change their modus<br />
operandi and become more digital, due to the size<br />
and complexity of their operation and processes,<br />
and thus SMEs should have a higher propensity<br />
to be digital. The truth may be mid-way between<br />
these two schools of thought, both of which may be<br />
rather simplistic arguments. Comparing the 1% of<br />
European enterprises versus the 99%, which involve<br />
SMEs is in reality comparing apples with oranges,<br />
as the nature of micro and small enterprises within<br />
the SME cohort skews the comparative assessment<br />
due to the intrinsic business nature of most micro<br />
enterprises and the majority of small enterprises.<br />
The latter include enterprises based on single<br />
practitioners, (such as notaries, family doctors,<br />
lawyers, hair dressers, etc), which business model is a<br />
traditional, personalised and very localised, together<br />
with micro enterprises based on traditional trades<br />
Addressing the supply chain is key for the survival<br />
of small enterprises in order to avoid the large<br />
enterprises squeezing them out of the market with<br />
their aggressive marketing actions. For instance,<br />
the bedroom furniture manufacturer employing<br />
25 people can compete with the likes of IKEA by<br />
using digital technology in allowing their customers<br />
build their own design, rather than choose from<br />
a preset digital catalogue. In the case of medium<br />
sized firms addressing the supply chain is critical<br />
for their growth strategies, where for instance the<br />
concept of distributed warehousing has taken off,<br />
whereby medium sized retail enterprises with cross<br />
border sales use networked ordering systems in<br />
order to ship orders from warehouses which are<br />
geographically closer to their customer in order to<br />
reduce distribution costs and time.<br />
which the very reason of their existence is not based<br />
on volumes, but on personalised products/services. However, the application of DSC may also apply for<br />
micro enterprises. The cases of UBER and Airbnb<br />
The European Union has since 2003, embarked on<br />
a journey to provide SMEs with more possibilities<br />
to exploit digital technology. In 2003 it founded the<br />
European e-Business Support Network for SMEs,<br />
with the scope to create awareness amongst SMEs<br />
show how even micro enterprises such as selfemployed<br />
chauffeur driven car services and owners<br />
of small tourist rental apartments can exploit DCS<br />
technologies (albeit using the digital platform of a<br />
third party) in order to maximise their orders books.<br />
on the benefits of going digital, together with spearheading<br />
policies that gave life to various co-financing<br />
programmes to allow SMEs join the digital era, by<br />
promoting internet connectivity, the use of ICT and<br />
Although the take up of digital technologies for<br />
SMEs may not yet be what may be expected,<br />
however SMEs with the ambition of EU cross border<br />
supporting SME have a web presence. In 2006, sales can exploit the opportunities presented by<br />
European e-Business Support Network shifted its<br />
attention towards promoting the use of digital supply<br />
chain technologies (DSC) for SMEs as it identified<br />
that DSC would be the digital technology that would<br />
Digital Technology to re-engineer their processes,<br />
and thus be more efficient, whilst for those who<br />
are more bold and innovative potentially become<br />
market disruptors.<br />
Five tips for going digital:<br />
1. Before investing in digital technology, re-assess your business objectives and strategy, and align<br />
your planned investment accordingly, and not vice versa<br />
2. Assess which business and operational processes need to change, be swifter or more customer<br />
oriented. Following this assess which processes can be re-designed and which should turn to<br />
digital technology<br />
3. Assess which areas of your business is too laborious, and refocus that area by using digital<br />
applications and solutions that can allow you to shift resources to other areas of need, such as<br />
supplier relationship management<br />
4. Do not go digital simply because it may be in ‘fashion’ to do so, but do it because you have<br />
assessed how doing so would improve your business situation. Identify the medium to long term<br />
return or savings, then go for it.<br />
5. Keep on the look out for opportunities that could assist you in going digital, in terms of local and<br />
EU assistance schemes – or look out as to how to join upcoming digital platforms that can push<br />
your business outside our shores.<br />
theaccountant.org.mt<br />
25
BUSINESS PLAN<br />
Is Business Planning relevant for SMEs?<br />
A<br />
2015 report by Barclays Bank<br />
revealed that about 25% of UK<br />
SMEs admitted to not having any<br />
business plan or any strategy in place to<br />
support their business growth. On the<br />
other hand, less than half of the UK’s small<br />
businesses had a formal business plan in<br />
place that was written down or recorded,<br />
while the remaining 25% had an informal,<br />
verbal plan. Furthermore, only one in two<br />
UK small businesses had a succession<br />
plan in place.<br />
CHRIS MEILAK<br />
CHRIS MEILAK IS A CPA,<br />
ECONOMIST AND ASSOCIATE<br />
PARTNER AT EY MALTA, LEADING<br />
THE VALUATION, BUSINESS<br />
MODELLING AND ECONOMIC<br />
ADVISORY PRACTICE.<br />
These statistics are shocking, to say the least. As<br />
individuals, we are taught to plan ahead in most life<br />
situations – choosing a career, planning a holiday or<br />
event (think of a wedding and all the trouble a couple<br />
goes through), ensuring we maximise our study time<br />
before an important exam, or making sure our finances<br />
enable us to afford a new car or home mortgage. We plan<br />
our day and week, listing down things to do and priority<br />
tasks, and time needed. So one would expect individuals<br />
to transfer these skills to their workplace – but it seems<br />
this is not always the case.<br />
Developing a business plan is a vital tool for any business,<br />
of any size. Large corporates plan to reorganize or<br />
streamline their enterprise, plan for growth, to be able<br />
to tap new opportunities (from internal expansion to<br />
foreign markets), raising finance for new projects, or<br />
identifying exit strategies such as IPOs.<br />
And SMEs? Actually, one could argue that such a plan is<br />
of greater value in smaller businesses, because they are<br />
exposed to higher risks, which could significantly impact on<br />
the owner of the entity. SMEs often face limited resources,<br />
with few individuals covering more than one function or<br />
role. Hence, there is a need to prioritise on time, in order<br />
to sustain the business, but also the individual. In other<br />
words, time management is key, if the owner of an SME<br />
wants to achieve an acceptable work-life balance.<br />
SMEs might fall in the trap of preparing a business<br />
plan just because it was requested externally (e.g. for<br />
government or EU grants; bank financing), but the actual<br />
truth is that benefits are primarily internal. The plan<br />
formalises the strategy of the owner to try to tap market<br />
opportunities with resources at hand, but also with<br />
resources that need to be acquired, a business plan is in<br />
this respect helpful because it helps to identify such gaps.<br />
Besides there is no such thing as an “internal” plan and an<br />
“external” plan to present to third parties – if there was<br />
such a thing, eventually only the external plan would end<br />
up being executed.<br />
A business plan helps entities to stay on the right<br />
track during its growth and it assists the entity when<br />
approaching investors for funding. A business plan is<br />
what keeps companies focused on their goals and what<br />
moves them through hurdles. Hence it is fundamental<br />
for a small business. It defines what the company wants<br />
to achieve, how it plans to achieve it across a set time<br />
period and is a tool that monitors growth targets and<br />
execution of plans. Plans can make small businesses feel<br />
more confident about their future and ensure they have<br />
the necessary tools in place for growth.<br />
Business plans can be developed internally, but there<br />
is always the option to ask for professional external<br />
expertise. In this regard the Government, through the<br />
Malta Enterprise or other funds administered by the local<br />
EU Managing Authority, offers grant incentives related<br />
to business plans/ feasibility studies. Independently of<br />
who prepares the business plan, it ultimately needs to<br />
be “owned” by the SME Management/ owners – as it<br />
outlines the entity’s strategy, so one would expect the<br />
owners to address any questions on the strategy, not<br />
an external consultant. This is especially the case, since<br />
business plans should be viewed as a dynamic document,<br />
hence they should be revisited and adjusted as the<br />
business develops.<br />
26 Spring 2018
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The typical steps one undertakes when preparing an<br />
SME business plan include:<br />
a. Identifying the audience/ readers of the plan,<br />
which will include the owner/ management<br />
and possibly external parties (e.g. applications<br />
for finance from a business loan to alternative<br />
forms of finance and investment).<br />
b. Identifying the circumstances and the purpose<br />
for the development of the plan, which could<br />
include growth into new areas, or new markets.<br />
c. Tackling the key components of a business plan,<br />
which could include (but are not necessarily<br />
limited to):<br />
• The company or founders’ history<br />
• The vision and objectives<br />
• Explanation of the range of product/<br />
services being offering/ the idea/ project<br />
• Identification of the target market and<br />
customer segments<br />
• Provision of the economic context and an<br />
overview of the competitive environment<br />
(e.g. competitor or competing products)<br />
• Outlining the company strategy and growth<br />
options<br />
• Drawing up marketing action points<br />
• Delineating the financial projections and<br />
related financial plan/ funding sources<br />
• Assessing the risks and issues related to the<br />
business/ idea/ project<br />
Some of the components above will require additional<br />
research in order to be able to collect the necessary<br />
information to be able to populate the plan. It is also<br />
highly recommended to include a brief (2-3 page)<br />
executive summary highlighting the salient points of<br />
the business plan.<br />
Many local businesses unfortunately do not spend<br />
the time to formalise their business plan. Given the<br />
evolving nature of business and the economy in<br />
which we operate, the absence of a business plan can<br />
itself represent a risk. Regardless of size or age, any<br />
venture should have a clearly delineated plan which<br />
helps guide the company’s strategic focus, sets out its<br />
mission and vision as well as providing the analytical<br />
context by which future performance and changes<br />
can be benchmarked and managed. While you can<br />
still be successful without a business plan, you are<br />
more likely to be successful if a plan is in place – in<br />
fact, business planning is the backbone of most<br />
successful business.<br />
theaccountant.org.mt<br />
27
INVESTING WISELY<br />
INVESTING WISELY<br />
Diversification and Picking the Right Fund.<br />
JOSEPH PORTELLI<br />
JOSEPH PORTELLI IS THE<br />
CHAIRMAN OF THE MALTA STOCK<br />
EXCHANGE<br />
In Malta it’s common to know someone who’s<br />
had a bad experience investing in the stock<br />
market. As a result many of us have become<br />
averse to investing in anything other than real estate,<br />
government bonds or capital guaranteed products –<br />
investments deemed “safe”.<br />
At first glance investing exclusively in bond and real<br />
estate holdings may seem prudent – but for many<br />
of us it’s not the way to go. An investment portfolio<br />
lacking shares of good quality companies, with<br />
good earnings prospects, is a portfolio lacking the<br />
necessary diversification and “fire power” to assure<br />
good long-term investment returns.<br />
much of it, relative to our net worth. Imagine Investor<br />
A and Investor B, both having an investment portfolio<br />
worth €10,000 and both buying XYZ Ltd. Let’s say,<br />
Investor A foolishly places all his cash into XYZ, yet<br />
Investor B puts just five per cent or €500 into it. Next<br />
day, XYZ announces very bad news and the stock<br />
plunges 50 per cent. Investor A anxiously loses half<br />
his account value, whereas Investor B calmly loses a<br />
meagre 2.5 per cent. Although both investors owned<br />
the same stock, Investor B mitigated the pain of the<br />
selloff by managing risk effectively, and not owning<br />
too much of it. It’s critical we manage the size of all<br />
our bets and invest in a portfolio of perhaps 10 to 20<br />
stocks to diversify our holdings and spread out risk.<br />
Nutritionists often tout the health benefits of eating<br />
a well-balanced diet. A diet full of proteins, with few<br />
carbohydrates, will leave you lethargic. All four of the<br />
major food groups play some part in sustaining us in<br />
a healthy and productive way.<br />
The same can be said of an investment portfolio. A<br />
balanced portfolio including the four major asset<br />
classes – equity, bonds, real-estate and commodities<br />
– is to the investor what a well-balanced diet is to the<br />
competitive athlete: essential.<br />
Just as the grain complex gives the body energy,<br />
owning a broad and diversified portfolio of equities<br />
over time will energise your portfolio towards solid<br />
returns. Few appreciate that equities are the best<br />
performing asset class historically. The S&P500 for<br />
example, a diversified index of 500 of the largest US<br />
stocks has returned about 10 per cent annually, solidly<br />
beating, bond, real-estate and commodity returns. A<br />
portfolio devoid of shares will underperform during<br />
periods of economic expansion and corporate<br />
earnings growth. An underperforming portfolio may<br />
keep you from fulfilling your retirement dreams.<br />
Owning shares of companies implies having a right to<br />
a portion of the companies’ earnings; and of course<br />
as a company’s earnings grow, generally so too does<br />
the value of its shares. Many of us have gotten into<br />
trouble owning shares, not necessarily because we<br />
bought the wrong stock, but because we bought too<br />
Risk management is by far the most essential<br />
element to successful investing! We often buy stocks<br />
at prices which already reflect good news - leaving<br />
them little impetus to rally further. Also we buy<br />
shares after significant rallies, instead of on dips as<br />
prices experience normal corrections. Warren Buffet,<br />
the legendary billionaire US investor, only buys good<br />
quality companies having a competitive advantage,<br />
which are priced at a significant discount to intrinsic<br />
or fair value. An analogy is to buy an excellent product<br />
on sale at a 50 per cent discount to its full price. Savvy<br />
investors always buy good companies on sale!<br />
Investing in shares can be tricky if a disciplined<br />
approach to screening inexpensive companies with<br />
good earnings growth potential isn’t utilised. However,<br />
investing with a long-term horizon, managing the size<br />
of your bets and having a diversified portfolio should<br />
improve the odds of your success significantly.<br />
INVESTING IN FUNDS<br />
When we invest in actively-managed funds few<br />
of us appreciate that less than 10-20 per cent of<br />
a fund manager’s annual performance beats the<br />
underlying index the manager tracks. This is not<br />
necessarily due to the managers’ competence, but<br />
is a function of the fees associated with actively<br />
managing a fund.<br />
A majority of funds are actively managed, meaning<br />
the fund manager actively buys and sells stocks or<br />
bonds, attempting not only to generate profits, but<br />
28 Spring 2018
INVESTING WISELY<br />
to outperform an index and competitors. Although<br />
a portfolio manager is typically well trained, the<br />
rude reality is that few managers can consistently<br />
generate enough profits to overcome the expenses<br />
associated with managing a fund.<br />
If you invest with an experienced low-cost fund,<br />
with a track record of managing risk effectively, you<br />
should be in a good position to benefit from investing<br />
in funds. As an example, imagine you invest in a fund<br />
which invests in large capitalisation US corporate<br />
shares. The fund manager will aim to either finish<br />
the year in line or preferably beat the index, which<br />
mirrors the fund he manages. If the underlying index<br />
finishes the year up 15 per cent, and the fund charges<br />
two per cent in total fees, the manager must on a<br />
gross basis return 17 per cent just to match the index.<br />
Besides a fund’s management fees, investors often<br />
have to pay a load (sales commissions), sometimes<br />
as high as five per cent, just to purchase such a fund.<br />
Because so few funds can overcome the high<br />
expenses associated with active fund management,<br />
Wells Fargo Bank established the first index fund in<br />
1971. The index fund concept today popularised by<br />
US fund manager Vanguard suggests that investing<br />
in low-cost passive funds is preferable to expensive<br />
actively-managed funds. Passive funds manage<br />
portfolios which significantly mimic the index they<br />
track, thus lowering the cost of managing assets. As<br />
a result, most index funds will post returns very close<br />
to the underlying index the fund tracks.<br />
Most funds are created as open-ended funds with<br />
shares which are constantly bought or sold, usually at<br />
the day’s closing net asset value (NAV). A fund’s NAV<br />
measures the net worth or value of each share. Openended<br />
funds are continuously open to new investors,<br />
unlike closed-ended funds (CEF), which have a fixed<br />
number of outstanding shares. CEFs trade like shares<br />
on exchanges, and their value is set by the market.<br />
Sometimes their values deviate from the fund’s NAV<br />
and as a result could trade at significant premiums or<br />
discount. Investors should avoid buying CEFs trading<br />
at significant premiums to NAV.<br />
CEFs, like their open-ended counterparts, could use<br />
leverage to magnify returns. It is also common for<br />
CEFs to make periodic distributions to shareholders,<br />
however, they may on occasion have high distribution<br />
yields as they could pay out part of their funds’<br />
principal to meet their distribution goals.<br />
Do the required due diligence prior to investing in<br />
funds. This includes scrutinising all fund fees and<br />
expenses. Also consider the funds’ age and size. A fund<br />
with a long track record is easier to analyse. Ensure<br />
the fund management company is well managed<br />
and regulated in a trusted domicile. Consider a fund<br />
not so large, whereby managing fund assets is too<br />
cumbersome, thus jeopardising returns. On the other<br />
hand smaller funds will have higher expense ratios. If<br />
you invest with an experienced low-cost fund, with a<br />
track record of managing risk effectively, you should be<br />
in a good position to benefit from investing in funds.<br />
theaccountant.org.mt<br />
29
ACCOUNTANCY EUROPE<br />
REDISCOVERING THE VALUE OF SME AUDIT:<br />
Recent developments in Sweden and Denmark | An information paper by Accountancy Europe<br />
Introduction<br />
This information paper reports on the current<br />
developments in Sweden and Denmark,<br />
where national authorities are assessing the<br />
consequences of exempting small and mediumsized<br />
enterprises (SMEs) from mandatory audit.<br />
Findings<br />
The main findings of the impact assessment<br />
outline numerous downsides of abolishing the SME<br />
audit obligation and show that the companies’<br />
competitiveness and growth have not been enhanced<br />
by the reform:<br />
1. Slower growth<br />
Those companies which opt out of audit do not<br />
have higher growth, rather the opposite. They<br />
report weaker subsequent growth, both in net<br />
sales and staff numbers.<br />
SMEs are the backbone of the EU economy.<br />
They represent 99.8% of all enterprises which<br />
operate in the non-financial sector of the 28 EU<br />
Member States. SMEs account for 66.6% of total<br />
employment and generate 56.8% of value added<br />
in this sector 1 . These figures are comparable with<br />
the contribution of large enterprises. Therefore,<br />
policy instruments that also instil confidence and<br />
trust in this part of the market are indispensable.<br />
An audit of the financial statements (audit) is<br />
one of these policy instruments; it ensures that<br />
financial information is reliable, which is crucial<br />
for the functioning of the economy and its growth.<br />
However, policy-makers seem to focus on audit<br />
of large or listed companies rather than SMEs.<br />
In recent years, the requirement for auditing<br />
SMEs has been increasingly perceived as an<br />
administrative burden. As a result, regulators<br />
in some countries have introduced an audit<br />
exemption for SMEs. At the same time, Sweden<br />
has just evaluated the impact of one such<br />
reform abolishing the SME audit requirement,<br />
concluding that the reform was unsuccessful as<br />
its costs outweigh the benefits.<br />
Swedish impact assessment<br />
In 2010, Sweden abolished a regulatory requirement for<br />
audit of small limited liability companies. In December<br />
2017, the Swedish National Audit Office (NAO), an<br />
independent body of the Swedish Parliament 2 , published<br />
a report Abolition of audit obligation for small limited<br />
companies – a reform where costs outweigh benefits 3 that<br />
put this abolition into question. The report demonstrates<br />
through an impact assessment that audit of small entities<br />
is valuable to both SMEs and the public good.<br />
2. Smaller savings<br />
The cost savings made by the companies that opt<br />
out of audit are small, profitability does not improve.<br />
3. Lack of transparency and control<br />
Without audit, overall transparency is reduced<br />
and authorities have less information to exercise<br />
control and enforcement in various areas.<br />
4. Increased risk of economic crime including<br />
tax evasion<br />
The inclination to opt out of audit is greater in<br />
industries with a high risk of economic crime<br />
and tax evasion. The slowing rate of growth may<br />
indicate that companies that opt out of audit<br />
withhold more tax than before.<br />
5. More mistakes in the accounting<br />
Without audit, the number of errors in the<br />
financial statements increases.<br />
Recommendation and next steps<br />
Based on the conclusion that this reform’s costs<br />
outweigh its benefits, the Swedish NAO recommends<br />
to the Swedish Government to reintroduce the audit<br />
obligation for small limited liability companies. The<br />
Government will respond to the report’s findings at a<br />
plenary meeting in early April 2018.<br />
Denmark follows suit<br />
The Swedish NAO’s report has sparked a debate on<br />
the consequences of the SME audit exemption in<br />
Denmark. The Danish audit exemption threshold<br />
has been raised three times in the last twelve years<br />
- in 2006, 2010 and 2013. The Danish Ministry of<br />
30 Spring 2018<br />
1<br />
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<br />
https://ec.europa.eu/growth/smes/business-friendly-environment/performance-review_en?pk_source=ec_newsroom&pk_medium=link&pk_campaign=spr17<br />
2<br />
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<br />
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<br />
independent of political or other stakeholder interests. More information is available at https://www.riksrevisionen.se/en/Start/About-us/<br />
3<br />
A summary of the report in English is available at https://www.riksrevisionen.se/PageFiles/27902/RiR_2017_35_REVISIONSPLIKT_SUMMARY.pdf<br />
The full report is available in Swedish at https://www.riksrevisionen.se/PageFiles/27733/RiR_2017_35_REVISIONSPLIKT_ANPASSAD.pdf
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ACCOUNTANCY EUROPE<br />
Business has now announced to carry out a study<br />
into the consequences of easing the audit obligation.<br />
Risks of audit exemption for SMEs<br />
Exempting SMEs from audit increases a number<br />
of risks to the economy. The Swedish report has<br />
highlighted in particular the risk of accounting errors,<br />
tax evasion and economic crime.<br />
Accounting errors<br />
As demonstrated by the Swedish example, without<br />
audit, SMEs tend to have more errors in their<br />
accounting. This undermines the reliability of their<br />
financial statements and reduces users’ trust in them.<br />
Negative impact on Tax collection<br />
The Swedish assessment indicates that exempting<br />
SMEs from the audit obligation may increase tax<br />
evasion and impair the ability of authorities to detect<br />
such crime. Without being audited, companies run<br />
a smaller risk that tax evasion will be discovered. It<br />
is easier for companies to deliberately report lower<br />
economic activity and so reduce the profit to lower<br />
their tax.<br />
Fraud, corruption, money laundering and<br />
terrorist financing<br />
Audit serves as a deterrent to fraudulent and criminal<br />
behavior. For instance, it helps deter crime such as<br />
fraud, corruption and money laundering in companies.<br />
Given today’s heightened risk of terrorism in Europe,<br />
the deterrence effect of audit is critical in particular<br />
for SMEs as it reduces the risk that they are used for<br />
terrorist financing.<br />
Business insolvency<br />
SMEs have a corporate responsibility to third parties<br />
such as their suppliers, creditors, investors, employees<br />
and the state itself. If a company is not audited, these<br />
stakeholders’ confidence in the financial statements<br />
and accuracy of business performance diminishes.<br />
Subsequently, the lack of confidence makes it more<br />
difficult for SMEs to operate and flourish.<br />
Limitations on access to funding<br />
Access to credit/loans and financing enables SMEs to<br />
grow, which is in every country’s interest. According<br />
to a European Central Bank’s survey 4 , in recent<br />
years, SMEs’ demand for external financing has<br />
been increasing in Europe. However, the availability<br />
of this financing still poses a challenge to SMEs. This<br />
challenge might become even greater if a company<br />
has not had an audit which provides more credibility<br />
to its financial statements.<br />
Conclusion<br />
There are diverging national policies and views<br />
on SME audit. Given this backdrop, it is interesting<br />
to see countries like Sweden and Denmark taking<br />
an empirical facts-based approach to evaluate the<br />
effectiveness of reforms abolishing the SME audit<br />
requirement. Policy-makers will further discuss the<br />
policy implications of the assessment findings.<br />
The Swedish example is a good practice of sound<br />
policy-making. It is important to be pragmatic in policymaking<br />
and to be able to adapt or even revert a policy<br />
if it proves unsuccessful or worse, counterproductive.<br />
In the context of SME audit, we encourage all policymakers<br />
to take informed decisions based on facts and<br />
evidence and to consider the benefits of SME audit,<br />
both for SMEs themselves and for other stakeholders.<br />
Accountancy Europe has formed a group of experts<br />
to enhance the debate at European level on how<br />
best to respond to the challenges of SME audit. We<br />
will also keep analysing national developments in the<br />
area of SME audit policy.<br />
About Accountancy Europe<br />
Accountancy Europe unites 51 professional organisations<br />
from 37 countries that represent 1 million professional<br />
accountants, auditors and advisors. They make numbers<br />
work for people. Accountancy Europe translates their<br />
daily experience to inform the public policy debate in<br />
Europe and beyond.<br />
Accountancy Europe is in the EU Transparency Register<br />
(No 4713568401-18).<br />
Many SMEs enjoy the privilege and protection of a<br />
‘limited liability’. This poses a risk for creditors in case<br />
a limited liability company cannot pay its debts. Audit<br />
may reduce this risk and provide more security to<br />
creditors and other users of the financial statements.<br />
Without audit, this counterbalance disappears.<br />
4<br />
Survey on the Access to Finance of Enterprises in the euro area; available at<br />
https://www.ecb.europa.eu/pub/pdf/other/ecb.accesstofinancesmallmediumsizedenterprises201705.en.pdf?17da4ff2a730b7ababea4037e4ce8cae<br />
32 Spring 2018
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YOUR CAREER, OUR PROMISE.
PROJECT MANAGEMENT<br />
The Start-Up Journey in Malta –<br />
how friendly is the framework for budding entrepreneurs?<br />
CHRIS CACHIA<br />
CHRIS CACHIA IS A SERVICE<br />
MANAGER AT ALTER DOMUS. HE<br />
IS A LAWYER AND CHARTERED<br />
ACCOUNTANT<br />
INTRODUCTION<br />
It is common in literature nowadays to read stories of successful<br />
start-ups. Occasionally this has unfortunately led to the idolisation of<br />
entrepreneurship, giving it a sheen of glamour but glossing over the<br />
hard hours of work and sacrifice. The latter are necessary if the business<br />
is to succeed. Another consequence is that people are induced to<br />
start their own business at the beginning of their career path.<br />
The start-up phase can be as complicated as it is exciting, especially<br />
when one considers the different building blocks, legal requirements<br />
and interactions with different governmental entities to start off the<br />
business.<br />
In a local context, what is the state of play when launching a small<br />
business? Is the environment, business friendly or is it mired by too<br />
many strands of information which entrepreneurs need to grapple<br />
with before seeing their project take off? This article will try to provide<br />
a very brief overview of the landscape faced by an entrepreneur<br />
when launching a start-up in Malta.<br />
WHAT IS A “SMALL BUSINESS” OR “SMALL<br />
ENTERPRISE”?<br />
A definition of micro, small and medium enterprises<br />
is found in Commission Recommendation 2003/361/<br />
EC of 6 May 2003 . Under the recommendation, “An<br />
enterprise is considered to be any entity engaged in<br />
an economic activity, irrespective of its legal form.<br />
This includes, in particular, self-employed persons<br />
and family businesses engaged in craft or other<br />
activities, and partnerships or associations regularly<br />
engaged in an economic activity.”<br />
The recommendation further applies two<br />
benchmarks to define the category of small and<br />
medium size enterprises, namely, staff headcount<br />
and financial ceilings.<br />
Broadly, enterprises considered to fall under<br />
the grouping of micro, small and medium-sized<br />
enterprises (SMEs) are those employing less than<br />
250 persons, which have an annual turnover of not<br />
more than EUR 50 million, and/or an annual balance<br />
sheet total not exceeding EUR 43 million.<br />
34 Spring 2018
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ACCOUNTING AND FINANCIAL REPORTING<br />
Maltese law provides for the General Accounting<br />
Principles for Small and Medium-Sized Entities<br />
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reporting for small or medium-sized entities.<br />
In turn, a small enterprise is an enterprise employing<br />
less than 50 persons and whose annual turnover<br />
and/or annual balance sheet total does not exceed<br />
EUR 10 million. Whereas a microenterprise is an<br />
enterprise which employs fewer than 10 persons and<br />
whose annual turnover and/or annual balance sheet<br />
total does not exceed EUR 2 million.<br />
FINANCING AND INCORPORATION OF THE<br />
ENTITY<br />
Having established the aim of the business, the<br />
next step is to start trading and grow the business.<br />
The selection of the right form of entity for doing<br />
business, the manner in which the entity operates,<br />
and financing considerations need to be determined.<br />
The founders, family members or friends of the<br />
founders usually provide the initial sources of finance.<br />
Other forms of financing at this stage may be hard to<br />
come by. Angel investing or banks may be looking at a<br />
more mature business, and even then would require<br />
detailed business plans and forecasting. Start-ups<br />
may benefit from Government grants and rebates<br />
which will be discussed further in the article.<br />
Furthermore entrepreneurs have to choose the<br />
legal form for operation under Maltese law. One can<br />
select the traditional routes of trading in their own<br />
name, setting up a partnership or incorporating a<br />
company with a separate legal identity. The article<br />
will focus on the latter, specifically the private<br />
limited liability company.<br />
Incorporating a private limited liability company is a<br />
relatively straightforward process once all required<br />
submissions are in hand. The most important<br />
GAPSME allows small enterprises to draw up<br />
accounting records allowing for straightforward<br />
and basic reporting without having to go into the<br />
complexity of the more comprehensive International<br />
Financial Reporting Standards (IFRS) framework.<br />
Directors’ reports are also not required on submission<br />
of a statutory form.<br />
The choice of using IFRS and as a result more detailed<br />
disclosures would become more relevant when the<br />
start-up grows or possibly when trying to attract more<br />
financing, through new investors or via bank loans,<br />
which might require a more granular level of detail.<br />
GRANT SCHEMES<br />
Several grant schemes are available, aimed at<br />
supporting SME investments in different sectors.<br />
These include but are not limited to the provision<br />
of non-repayable grants for research, development<br />
and innovation actions, part-financing of the<br />
eligible expenditure related to initial productive<br />
investment costs in tangible and intangible assets<br />
when implementing their business growth strategies,<br />
and part-financing of costs for external consultancy<br />
services to assess and evaluate their operations,<br />
processes and systems.<br />
The company would need to compile an application<br />
and adhere to certain conditions to qualify for such<br />
schemes. These applications have to be supported by<br />
backing documentation including business plans and<br />
also forecasts.<br />
OTHER REQUIREMENTS<br />
The incorporation of the company in and of itself is<br />
only the start.<br />
The entrepreneurs would then need to proceed with<br />
the registration of the company for VAT purposes,<br />
36 Spring 2018
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opening of a bank account and registration of a PE<br />
number. Company registration, VAT registration and<br />
application of PE number can nowadays be performed<br />
through Business First. Attention needs to be given<br />
to the registration of the VAT number as this involves<br />
different options depending on the service offered<br />
or product sold. The opening of a bank account is<br />
subject to on-boarding requirements, and can be<br />
time consuming.<br />
require professional help as this can be seen as a<br />
barrier to entry for entrepreneurs with the counter<br />
effect of leading them not to incorporate a business<br />
in Malta in the first place. This could also signal<br />
inefficiencies in the way different government entities<br />
interact with one another, or the total absence<br />
thereof, leading to time wastage, repetition of work,<br />
delays and a general feeling of an uncoordinated<br />
approach to this delicate stage of a business.<br />
ROLE OF PROFESSIONAL ADVISORS AND<br />
INCUBATORS<br />
Obtaining professional help aids in the launch of a<br />
successful start-up. The environment should not<br />
however be so complicated as to invariably always<br />
Business incubators, whether private or governmentbacked,<br />
are an available option in Malta and can be<br />
critical in providing initial guidance and a support<br />
network to young entrepreneurs. They also provide<br />
training and business support.<br />
CONCLUSION<br />
Professionals should strive to provide the value added to start-up<br />
businesses in all cases, and one notes that a number of options<br />
are available which create a business friendly environment. There<br />
is however room for more development such as less laws and<br />
regulations, access to financing and education.<br />
theaccountant.org.mt<br />
37
PENSIONS<br />
Looking beyond the Government Pension -<br />
Some recent tax developments impacting the local pensions' arena<br />
The Maltese pension system has been the subject<br />
of public consultation and debate for a long<br />
number of years. The Government-funded twothirds<br />
pension remains thus far the main source of<br />
future pension income for the vast majority of the<br />
Maltese workforce, and it is no secret that there are<br />
serious doubts about the financial adequacy and<br />
sustainability of the Government pension.<br />
The said legal notices are the Personal Retirement<br />
Scheme Rules, which were introduced in 2014 by<br />
virtue of Legal Notice 468 of 2014 (as subsequently<br />
amended), and the Voluntary Occupational Pension<br />
Scheme Rules, introduced in September 2017 by<br />
virtue of Legal Notice 228 of 2017. The focus of<br />
this article is on the Voluntary Occupational Pension<br />
Scheme Rules.<br />
BERNARD ATTARD<br />
BERNARD ATTARD IS A TAX<br />
PARTNER AT PWC. HE HAS WIDE<br />
EXPERIENCE IN MALTESE TAX AND<br />
SOCIAL SECURITY MATTERS AND<br />
LECTURES AT THE UNIVERSITY<br />
OF MALTA.<br />
VICTORIA MUSCAT<br />
VICTORIA MUSCAT IS A TAX<br />
SENIOR MANAGER AT PWC. SHE<br />
HAS EXPERIENCE IN PENSIONS<br />
REGULATORY AND TAX MATTERS,<br />
AND HAS ADDRESSED VARIOUS<br />
TECHNICAL SEMINARS AND<br />
CONFERENCES<br />
Various factors are cited in this respect, amongst<br />
which is the fact that the Maltese population is<br />
an ageing population - people are living longer<br />
while birth rates have fallen. Very broadly, this<br />
means that the number of individuals below<br />
retirement age who are paying contributions<br />
to fund Government pensions is increasingly<br />
becoming lower than the number of individuals<br />
subsisting on such pensions. In addition, the<br />
two-thirds pension (the maximum amount of<br />
which currently stands at just over €12,000) to<br />
which one may eventually be entitled, may not be<br />
considered as sufficient to provide an adequate<br />
standard of living throughout retirement.<br />
Taking these and other factors into consideration,<br />
it is evident that the Maltese pension system can<br />
no longer remain one that is primarily dependent<br />
on the Government pension.<br />
Regulation and fiscal measures go hand in hand<br />
The regulatory framework for the setting up and<br />
administration of occupational and personal pension<br />
schemes has been in existence since 2002 by virtue of<br />
the Special Funds (Regulation) Act, which has since<br />
been repealed and replaced by the Retirement Pensions<br />
Act (“RPA”), and supporting Pension Rules issued by<br />
the MFSA. Yet, the lack of adequate fiscal measures<br />
addressing contributions into such pension schemes and<br />
the taxation of income derived therefrom, has meant<br />
that there was no real impetus for the introduction,<br />
locally, of occupational and personal pension schemes.<br />
Indeed, over the more recent years, we have seen steps<br />
in the right direction with the introduction of two legal<br />
notices and supplementary amendments to Maltese tax<br />
law, in an attempt to provide a workable tax framework<br />
(including certain tax incentives) for occupational and<br />
personal pension schemes.<br />
The Voluntary Occupational Pension Scheme<br />
Rules (“the Rules”)<br />
Main conditions and definitions<br />
The Rules came into force on 1 January 2017 and<br />
introduce a number of tax measures for both<br />
employers and employees contributing towards an<br />
occupational pension scheme.<br />
In order for the provisions to apply, there are<br />
essentially three main conditions to be satisfied:<br />
1. The pension scheme into which contributions<br />
are paid should be a qualifying scheme. Firstly,<br />
as the name of the Rules implies, it needs to<br />
be a scheme established in the context of an<br />
employment relationship. In addition, it can<br />
be in one of two forms: either a retirement<br />
scheme registered under the RPA (or any law<br />
substituting such Act), or a long term contract of<br />
insurance that has certain features and terms for<br />
benefit withdrawal mirroring those applicable to<br />
retirement schemes registered under the RPA.<br />
2. The employer making contributions for the<br />
benefit of its employees should be a qualifying<br />
employer. This essentially requires the employer<br />
to be registered as a payer under the Final<br />
Settlement System Rules. The employer<br />
can be any person, whether corporate or<br />
unincorporate, and whether vested with legal<br />
personality or not, and can include self-occupied<br />
persons i.e. persons who are not employed but<br />
are engaged in an economic activity.<br />
3. The individual for the benefit of whom the<br />
contributions are paid should be a qualifying<br />
employee. The relevant criteria in this respect<br />
are set out in Rule 4 of the Rules and provide<br />
that the individual:<br />
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PENSIONS<br />
A. Should be registered for Maltese tax<br />
purposes and should derive chargeable<br />
income in terms of Article 4(1)(b) of the<br />
Income Tax Act, i.e. employment income;<br />
B. Should be employed by a qualifying<br />
employer; and<br />
C. Should not be a beneficiary of the Highly<br />
Qualified Persons Rules.<br />
Criteria (a) and (b) are important in that they<br />
require the contributions to be paid by or on<br />
behalf of an employee. This implies that selfoccupied<br />
persons can only qualify for the tax<br />
measures provided under the Rules on the<br />
contributions they make for the benefit of their<br />
employees, and not on the contributions paid<br />
for their own benefit. (The latter contributions<br />
could possibly qualify under the rules issued for<br />
Personal Retirement Schemes.) This implied<br />
restriction is intended to avoid the same<br />
contribution qualifying for more than one benefit.<br />
amount paid. The tax credit can be offset against<br />
the tax charge for the year but unlike the tax credit<br />
applicable to employers, any unutilised portion<br />
cannot be carried forward to subsequent years.<br />
Some other provisions in the Rules<br />
1. Payments from the scheme: Whether the<br />
scheme is a retirement scheme registered under<br />
the RPA or a long term contract of insurance,<br />
the withdrawal of income therefrom should<br />
in general constitute pension income for the<br />
recipient and chargeable to tax accordingly.<br />
However, the Rules provides exceptions where<br />
payments received in certain circumstances<br />
may either be exempt from tax, or considered as<br />
other (i.e. not pension) chargeable income.<br />
Fiscal measures for employers<br />
• An annual tax credit amounting to the lower of<br />
15% of the contribution paid for each employee<br />
and €150 per employee per annum, which may<br />
be utilised as a deduction from the tax due on the<br />
employer’s chargeable income for the year. Further<br />
provisions are made for the carrying forward of<br />
unutilised tax credits to subsequent years, and the<br />
tax accounting of such relieved profits in order to<br />
ensure that the benefit is not lost upon distributions<br />
of the relieved profits to shareholders.<br />
• Furthermore, Rule 9 of the Rules provides for<br />
the tax deductibility of qualifying contributions<br />
paid by employers into an occupational pension<br />
scheme. Where the contribution paid for any<br />
employee exceeds €2,000 in a year, the tax<br />
deduction is capped at €2,000.<br />
Fiscal measures for employees<br />
The Rules specify that employer contributions made<br />
for the benefit of employees do not constitute taxable<br />
fringe benefits in the hands of such employees. This<br />
is in clear contrast with salaries, which are taxable for<br />
the employees.<br />
The Rules also cater for those circumstances where<br />
employees voluntarily and out of post-tax income<br />
make contributions into the scheme. In such cases,<br />
an employee qualifies for an annual tax credit<br />
amounting to the lower of €150 and 15% of the<br />
2. Social security contributions: Employer<br />
contributions into an occupational pension<br />
scheme do not form part of the basic weekly<br />
salary on which social security contributions are<br />
due i.e. such employer contributions are not<br />
subject to social security.<br />
3. Administrative matters, including reporting<br />
and compliance requirements for employers<br />
and service providers (retirement scheme<br />
administrators or insurance providers depending<br />
on the form of qualifying scheme).<br />
Other aspects of occupational pension schemes<br />
The concept of occupational pension schemes in<br />
practice triggers a lot of questions dealing with<br />
different fact circumstances that can exist within one’s<br />
40 Spring 2018
PENSIONS<br />
workforce. While the answers to a number of these<br />
questions can be derived from the tax / regulatory laws<br />
(including the Income Tax Act, RPA and Pension Rules),<br />
it is yet to be seen whether the fiscal measures and the<br />
regulatory framework are attractive enough to make<br />
occupational pension schemes successful and ultimately<br />
serve the purpose of making Malta’s pension system<br />
more adequate.<br />
But should one focus only on tax/ regulatory outcomes?<br />
Can other benefits flow to an employer and an employee<br />
as a result of an occupational pension scheme? Today’s<br />
reality is that it is an employees’ market and every<br />
additional staff benefit, no matter how big or small, is likely<br />
to have an impact on employee loyalty and satisfaction,<br />
and the ability of an employer to attract and retain staff.<br />
With this future looking perspective, we leave you<br />
with some open questions which should hopefully<br />
serve as ‘food for thought’, with the prospect of<br />
building further on this step towards the evolvement<br />
of occupational pension schemes in Malta.<br />
• The framework for occupational pension<br />
schemes provides for a voluntary scheme rather<br />
than a mandatory one. This is in keeping with<br />
the ideology of encouraging people to save for<br />
their retirement, rather than obliging them. But<br />
will a voluntary pension system really have the<br />
desired take-up? Perhaps making the system<br />
mandatory (for both employer and employee)<br />
is not a straightforward call but could there<br />
possibly be a middle-of-the-road approach?<br />
For instance, the UK and New Zealand both<br />
have adopted systems whereby employees<br />
are automatically enrolled in their employer’s<br />
pension scheme when they are first employed,<br />
but they can choose to opt out.<br />
Additionally, an occupational pension scheme can have<br />
a corporate social responsibility and public relations<br />
perspective - by introducing an occupational pension<br />
scheme, an employer will be contributing towards a<br />
better standard of living for its employees at a time when<br />
they are no longer part of its workforce.<br />
Looking ahead<br />
The introduction of the tax rules for occupational<br />
pension schemes is certainly an important step in the<br />
right direction. Now is really the time to put these rules<br />
in practice and also, from such practical experience,<br />
be bold and nimble enough to identify areas (both tax<br />
and regulatory) which can be further enhanced for the<br />
better use of such schemes. This is what will ultimately<br />
make these occupational pension schemes successful<br />
and ensure that they reach their purpose.<br />
• The local regulatory framework does not<br />
allow the full withdrawal of one’s pension<br />
pot upon retirement. Such a methodology is<br />
understandable since, after all, the pension fund<br />
should be there to provide income for life after<br />
retirement. However, should this apply across<br />
the board? Would this work in the context of a<br />
lower pension value? To make such occupational<br />
pension schemes more wide reaching, should we<br />
therefore consider introducing some flexibility<br />
for withdrawal, such as ‘triviality provisions’,<br />
similar to the UK system, which essentially<br />
allow the cashing in as one lump sum (or over a<br />
shorter number of years) pensions with small or<br />
‘trivial’ values?<br />
There are many more points to think about and the<br />
debate over retirement planning and the funding<br />
of pensions in the Maltese economy will certainly<br />
continue. All key stakeholders have a very important<br />
role to play, not only to promote financial literacy<br />
but also to drive important changes. The pension<br />
system cannot remain stagnant but has to evolve<br />
to deal with economic, social and demographic<br />
trends. For many people, the pensions they are<br />
counting on to finance their old-age needs may be<br />
facing serious challenges and we cannot afford to<br />
be complacent.<br />
theaccountant.org.mt<br />
41
GETTING IT RIGHT<br />
GETTING IT RIGHT<br />
RELATED PARTY DISCLOSURES FOR SMEs<br />
ROBERTA WEST FALZON<br />
ROBERTA WEST FALZON IS A<br />
CERTIFIED PUBLIC ACCOUNTANT<br />
AND HOLDS A PRACTISING<br />
CERTIFICATE IN AUDITING. SHE<br />
IS AN AUDIT MANAGER AT RSM<br />
MALTA LEADING SEVERAL AUDIT<br />
ASSIGNMENTS FOR NATIONAL<br />
AND INTERNATIONAL CLIENTS<br />
OPERATING IN DIFFERENT FIELDS.<br />
The changes to the Maltese Companies Act as<br />
a result of the transposition of the EU Single<br />
Directive into Maltese law, which came into effect<br />
on 1st January 2016, had an impact on small and<br />
medium-sized entities. The option under Article<br />
185 of the Companies Act for small companies<br />
to prepare abridged accounts has been removed<br />
and consequently a small company must deliver to<br />
the Registrar of Companies its full set of financial<br />
statements including the notes to the accounts.<br />
One note that was not required to be included in<br />
abridged accounts, hence not made public, was with<br />
respect to the disclosure of emoluments granted<br />
to the directors of a company for their services as<br />
directors and for their services in connection with<br />
the management of the affairs of the company. This<br />
included all fees, percentages, gifts, compensation<br />
for loss of office and other similar payments together<br />
with any commitments arising or entered into in<br />
respect of retirement pensions or other similar<br />
commitments for former directors of the company.<br />
This increased level of disclosure to be made public<br />
is encouraging businesses to look into the two<br />
accounting frameworks allowed to be adopted by<br />
Maltese small and medium-sized entities (GAPSME<br />
and IFRSs as adopted by the EU) and assess the<br />
disclosure requirements of the two.<br />
The objective of Section 20 of GAPSME, similarly<br />
to IAS 24, is to ensure that an entity’s financial<br />
statements contain the disclosures necessary to draw<br />
attention to the possibility that its financial position<br />
and profit or loss may have been affected by the<br />
existence of related parties, and by transactions and<br />
outstanding balances, including commitments, with<br />
such parties. Both frameworks define a related party<br />
transaction as “a transfer of resources, services or<br />
obligations between a reporting entity and a related<br />
party, regardless of whether a price is charged”. 1,2<br />
what constitutes a related party, which is in line with<br />
that given by IAS 24. A related party is a person or an<br />
entity that is related to the entity that is preparing its<br />
financial statements. Related parties include:<br />
• Persons with control, joint control or significant<br />
influence over the entity (and close members of<br />
their families)<br />
• Parent company<br />
• Subsidiaries<br />
• Fellow subsidiaries<br />
• Associates of the entity and other members of<br />
the group<br />
• Joint ventures of the entity and other members<br />
of the group<br />
• Members of key management personnel of the<br />
entity or of a parent of the entity (and close<br />
members of their families)<br />
• Entities (or any of their group members)<br />
providing key management personnel services<br />
to the entity or its parent<br />
• Post-employment benefit plans<br />
DISCLOSURE REQUIREMENTS<br />
As for GAPSME, the disclosure requirements<br />
distinguish between a small company and a<br />
medium-sized company. However, small and<br />
medium-sized entities opting for IFRS as adopted<br />
by the EU have to disclose the same information<br />
as that required by large entities. Under<br />
GAPSME, small companies have lesser disclosure<br />
requirements as evidenced in Table 1 below. But<br />
it is important to note that small companies (both<br />
those adopting IFRS as adopted by the EU and<br />
those adopting GAPSME) are required to make<br />
disclosures concerning directors’ remuneration.<br />
Small companies under GAPSME are required to<br />
disclose only transactions with specific categories<br />
of related parties and these include the reporting<br />
entity’s board of directors.<br />
GAPSME in comparison to the previous GAPSE<br />
regulations provides more detail in the definition of<br />
One of the major differences in the disclosure<br />
requirements between IFRS and GAPSME is that<br />
42 Spring 2018
GETTING IT RIGHT<br />
IAS 24 requires the disclosure of the identity of the ultimate controlling party. No such disclosure is<br />
required by GAPSME if the ultimate controlling party is an individual.<br />
Table 1 below highlights the disclosure requirements between IFRS and small and medium-sized entities for GAPSME.<br />
Table 1: Disclosure requirements under GAPSME (small and medium-sized entities) and IFRSs as adopted<br />
by the EU (adapted from 1,2 )<br />
GAPSME<br />
IFRS<br />
Small Companies<br />
Medium - sized<br />
Companies<br />
The name and registered office of its immediate parent<br />
company.<br />
<br />
The name and registered office of its ultimate parent<br />
company and if neither the parent nor the ultimate parent<br />
prepare consolidated financial statements, the name and<br />
registered office of the entity which draws up the<br />
consolidated financial statements of the largest body of<br />
entities of which it forms part as a subsidiary entity and the<br />
place where copies of these consolidated financial<br />
statements may be obtained, provided they are available.<br />
<br />
<br />
The name of the ultimate controlling party.<br />
For transactions with related parties to disclose:<br />
• The nature of the related party relationship.<br />
• The amount of transactions in aggregate for each<br />
significant category of transactions.<br />
• The amount of outstanding balances and their terms and<br />
conditions, including whether they are secured, and the<br />
nature of the consideration to be provided in settlement;<br />
and details of any guarantees given or received.<br />
• Provisions for doubtful debts related to the amount of<br />
outstanding balances.<br />
• The amount charged to profit or loss during the period in<br />
respect of bad or doubtful debts due from related parties.<br />
# #<br />
Shall include:<br />
parties having<br />
control, joint<br />
control or<br />
significant<br />
influence over the<br />
entity,<br />
• subsidiaries,<br />
• associates,<br />
• jointly controlled<br />
entities of the<br />
entity, and<br />
• directors of the<br />
entity<br />
For all related<br />
parties<br />
<br />
For all related<br />
parties<br />
An entity shall also disclose the following in relation to<br />
members of the entity’s board of directors and other<br />
members of its administrative, managerial and supervisory<br />
bodies:<br />
a. The amount of advances and credits granted with<br />
indications of the interest rates, main conditions and any<br />
amounts repaid or written off or waived; and<br />
<br />
b. Any commitments entered into on their behalf by way of<br />
guarantees of any kind.<br />
<br />
<br />
<br />
c. The amount of the emoluments granted in respect of the<br />
financial year by reason of their responsibilities;<br />
d. Any commitments arising or entered into in respect of<br />
retirement pensions of former member of the entity’s board<br />
of directors.<br />
(As detailed in<br />
paragraph 20.7)<br />
<br />
<br />
An entity shall disclose key<br />
management personnel<br />
compensation in total and for<br />
each of the following categories:<br />
(a) short-term employee benefits,<br />
(b) post-employment benefits,<br />
(c) other long-term benefits,<br />
(d) termination benefits, and<br />
(e) share-based payment.<br />
# Under GAPSME entities are exempt from disclosing related party transactions with other group companies<br />
provided that such group companies are wholly owned by a member of the group.<br />
Globally there is a greater interest in related party transactions given the need for more transparency in financial<br />
reporting. Hence, management should ensure that they have the necessary tools to collect the information to<br />
meet the disclosure requirements requested by the regulations.<br />
1<br />
L.N. 289 of 2015. Accountancy Profession Act (CAP. 281) Accountancy Profession (General Accounting Principles for Small and Medium-Sized Entities) Regulations, 2015.<br />
Section 20: Related party disclosures.<br />
2<br />
International Accounting Standard 24 Related Party Disclosures.<br />
theaccountant.org.mt<br />
43
VAT<br />
VAT for small business:<br />
existing rules and current development<br />
MATTHEW ZAMPA<br />
MATTHEW ZAMPA IS ONE OF<br />
THE FOUNDING PARTNERS OF<br />
ZAMPA DEBATTISTA. HE HAS<br />
BEEN SPECIALISING IN VAT FOR<br />
TEN YEARS AND HAS EXTENSIVE<br />
EXPERIENCE ON VAT MATTERS<br />
APPLICABLE TO DIFFERENT<br />
INDUSTRIES.<br />
44 Spring 2018<br />
When it comes to VAT, small and large businesses alike are<br />
generally bound by the same set of rules and regulations.<br />
This implies that the compliance burden derived from the<br />
need to observe such rules and regulations represents<br />
a compliance cost to tax payers, which in view of their<br />
limited resources, is to a certain extent larger in the case<br />
of small businesses.<br />
For the purposes of alleviating this administrative burden,<br />
the VAT Directive 1 allows Member States to adopt a special<br />
scheme for small enterprises, which by and large, provides<br />
for simplified procedures for charging and collecting VAT<br />
and furthermore in certain cases exempt businesses<br />
with an annual turnover below a certain threshold from<br />
charging and deducting input VAT. Such measures are<br />
optional at the level of the Member State and moreover<br />
are optional at the level of the taxpayer. What is pertinent<br />
to note in the case of the small businesses regime, is<br />
that the rules regulating the regime specifically apply to<br />
businesses who are established in a particular Member<br />
State and consequently do not extend to supplies carried<br />
out beyond the territorial boundary within which the<br />
taxable person is established. This implies that taxable<br />
persons registered as small businesses and who carry out<br />
supplies which are treated as taking place in a Member<br />
State other than that in which they are established, may<br />
still have to follow and comply with obligations in that<br />
other Member State, to the extent they are liable for the<br />
payment of the VAT in that Member State.<br />
SMALL UNDERTAKINGS<br />
Malta, has adopted the above mentioned small business<br />
threshold scheme which differentiates between three<br />
broad categories of economic activities, each having<br />
its distinct entry threshold. Taxable persons who opt to<br />
benefit from such a scheme may avail themselves of the<br />
scheme by registering under article 11 of the VAT Act, as<br />
a result of which they would not be required to charge<br />
and collect output VAT on supplies carried out thereby<br />
while at the same time they cannot recover any input VAT<br />
incurred on their expenses.<br />
Category<br />
Economic Activities consisting<br />
principally in the supply of goods<br />
Economic Activities consisting<br />
principally in the supply of services<br />
with a low value added<br />
Other Economic Activities -<br />
High value added<br />
1<br />
Directive 2006/112<br />
2<br />
Art. 17(3)<br />
3<br />
L.N. 14 of 1999 – Subsidiary legislation 406.02<br />
Example<br />
Distributors of products<br />
Plumber; Mechanic<br />
Lawyer; Accountant<br />
The other economic activities threshold indicated<br />
above is proposed to be increased to EUR20,000. In<br />
fact, by means of Council Implementing Decision<br />
(EU) 2018/279 of 20 February 2018, the Council of<br />
the European Union has authorised Malta to apply a<br />
special measure derogating from Article 287 of the<br />
VAT Directive consisting in raising the threshold for<br />
supplies of services by small businesses to €20,000.<br />
The implementation thereof would require an<br />
amendment to Item 8 of Part One of the Sixth Schedule<br />
to the VAT Act which would be made by a legal notice.<br />
ANNUAL ACCOUNTING REGIME<br />
In terms of the enabling provision 2 in the VAT Act and<br />
the implementing provisions in the legal notice 3 , small<br />
businesses whose turnover does not exceed certain<br />
specific amounts as prescribed in the Sixth Schedule<br />
to the said Act, and who are registered under Article<br />
10 of the VAT Act, are, unless the Commissioner<br />
decides otherwise, allocated a twelve month tax<br />
period. This measure, of itself is intended to alleviate<br />
the taxpayer (and also the tax administration)<br />
from the administrative burden of preparing and<br />
submitting the VAT return on a quarterly basis as is<br />
typically required by persons registered under Article<br />
10 of the VAT Act.<br />
CASH ACCOUNTING<br />
While not specifically a small business scheme,<br />
accounting for VAT on a cash basis is a scheme which<br />
is applicable to certain categories of persons whose<br />
turnover, does not exceed a predetermined amount<br />
of two million Euro. Such businesses, account for VAT<br />
upon receipt of payment for a supply, irrespective<br />
of the day of delivery of a good or performance of a<br />
service. However, for the purposes of ensuring fiscal<br />
neutrality to such supplies, input VAT incurred on<br />
expenses may only be recovered to the extent it is<br />
paid to the supplier. This implies that businesses who<br />
adopt the cash accounting regime are not faced with<br />
cash flow issues relating to VAT.<br />
Turnover<br />
€35,000<br />
€24,000<br />
€14,000
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VAT<br />
to charge their customers VAT which is different from<br />
that of the Member State in which they are established.<br />
The principle of destination-based taxation requires VAT<br />
to be charged and accounted for in the Member State<br />
where the customer is established (Member State of<br />
‘destination’) rather than in the Member State where the<br />
small business is established (Member State of ‘origin’).<br />
This infers that in principle, small businesses involved<br />
in cross border trade cannot in theory benefit from the<br />
exemption in Member States other than where they are<br />
established. As a result, there is no level playing for small<br />
business to trade and do business within the EU.<br />
SMALL BUSINESSES OPERATING WITHIN A CROSS<br />
BORDER CONTEXT<br />
While the small undertaking rules apply within a local<br />
context, where the business is established, a lacuna in<br />
the legislation exists where such businesses also operate<br />
within a cross border context. However, what are the<br />
implications in this case? Are small businesses offering<br />
cross border supplies being compliant?<br />
The Malta Vat Act, unlike the VAT Directive 4 excludes<br />
small businesses from the obligation to be identified<br />
for VAT under the standard VAT registration in the<br />
cases where such persons carry out supplies to other<br />
taxable persons established in other Member States and<br />
such transactions fall be to taxed in the country where<br />
the customer is established. Therefore, no additional<br />
obligations are imposed on small undertakings offering<br />
supplies of services falling within the scope of the general<br />
place of supply of services rules to taxable persons<br />
identified for VAT in other jurisdictions, and consequently<br />
it is not possible for such persons to file recapitulative<br />
declarations for such supplies.<br />
Furthermore, the small undertaking thresholds do not<br />
hold water in the context of an electronically supplied<br />
service carried out by a small undertaking established<br />
in Malta to a private consumer established in another<br />
Member state. As a result, given that the transaction<br />
is treated as taking place in the Member State of the<br />
customer, in line with the place of supply rules, and to the<br />
extent that the transaction is taxable in that jurisdiction,<br />
then, the small undertaking has to charge VAT at the<br />
applicable rate in that jurisdiction.<br />
This issue is set to deteriorate with the shift towards<br />
destination-based taxation under the proposed definitive<br />
VAT system whereby many small businesses may have<br />
EU PROPOSAL FOR SMALL BUSINESSES<br />
For the purposes of addressing challenges and limitations<br />
present within the existing small business scheme and in<br />
order to enhance exploitation of the single market, the<br />
EU Commission has submitted a proposal amending<br />
Directive 2006/112/EC on the common system of<br />
value added tax as regards the special scheme for small<br />
enterprises. In particular, the proposal includes measures<br />
which seek to:<br />
(i) reduce VAT compliance costs for small businesses<br />
both domestically and at EU level;<br />
(ii) reduce distortions of competition both domestically<br />
and at EU level;<br />
(iii) reduce the negative impact of the threshold effect;<br />
and<br />
(iv) facilitate administrative burden on small businesses<br />
and tax administrations.<br />
Essentially, the proposal opens up the exemption for<br />
small enterprises to all EU eligible businesses, whether<br />
or not established in the Member State where the<br />
VAT will apply and the exemption will be available.<br />
Furthermore, it establishes an updated value for the<br />
maximum level of national exemption thresholds and<br />
additionally introduces a transitional period during which<br />
small enterprises that temporarily exceed the exemption<br />
threshold will be able to continue using the exemption.<br />
Salient considerations for small businesses<br />
Do not charge VAT on supplies carried out<br />
Do not recover VAT on purchases made<br />
Rules apply in the country where the small<br />
business is established<br />
From a Malta perspective, not obliged to do anything<br />
in respect of cross border supplies;<br />
May still have VAT obligations in a MS other than<br />
that where they are established<br />
File VAT returns on annual basis<br />
Small Business who opt to be registered under Article 10<br />
of the VAT Act may be granted an annual tax period<br />
Proposal to modernize the existing regime is underway<br />
46 Spring 2018<br />
4<br />
Art. 214(1)(e) of Directive 2006/112 EC
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INSURANCE<br />
The Insurance Distribution Directive (IDD)-<br />
Are you ready?<br />
You name it, you insure it. In today’s world, one can obtain an insurance policy to cover almost everything,<br />
ranging from the compulsory car insurance to a decent health policy. The increase in the use of information<br />
technology made the exchange of information and access for potential policyholders much easier. As a<br />
result, alternative distribution channels started to rise. With insurance policy types designed to protect<br />
one’s life, or the ability to earn income, it is a process where individuals might realise that it is only some<br />
coverage that is actually relevant and meets their needs.<br />
MATTHEW MICALLEF<br />
MATTHEW MICALLEF IS AN<br />
ACCOUNT MANAGER AT USA RISK<br />
GROUP MALTA<br />
Variety is the spice of life, but it can also be a<br />
stumbling block. This ‘variety’, in addition to the<br />
comprehensive range of insurance products available<br />
to choose from, makes it difficult for the men in the<br />
street to understand the products, especially when<br />
these include contracts of an investment nature. It<br />
comes as no surprise that prospective policyholders<br />
find both the insurance terminology and the<br />
information itself the most difficult to understand<br />
when compared to other financial sectors, such as<br />
banking. Moreover, the perils of small print continue<br />
to make it challenging for customers to understand<br />
the products they are actually buying.<br />
date of the IDD by seven months to 1 October 2018<br />
and subsequently will repeal the IMD. A review and<br />
evaluation report is expected to be submitted to the<br />
European Parliament by February 2021.<br />
The scope of the IDD<br />
While the IMD regulates insurance intermediaries<br />
only, the new Directive applies to a wider regulation<br />
of insurance distributors. The latter Directive does<br />
not just regulate the distributors, but also sets the<br />
activity of the distribution itself, whether carried out<br />
directly by an insurance underwriter or through an<br />
insurance intermediary.<br />
What is the IDD?<br />
The main focus of the Insurance Distribution Directive<br />
(IDD) is to continue to develop the EU regulation<br />
within the insurance and re-insurance market. It is<br />
intended to establish equal opportunities between<br />
participants when obtaining insurance products<br />
while ensuring an increase in customer protection<br />
and transparency. It is crucial for customers to be<br />
provided with the right information. This ensures<br />
that informed decisions on insurance purchases are<br />
made. It is also designed to strengthen policyholder<br />
protection and make it easier for firms to trade<br />
cross-border. The IDD will eventually bring the<br />
insurance industry in line with customer protection<br />
rules, recently adopted in other financial sectors,<br />
at the same time as improving the consistency<br />
between the regimes operating in different EU<br />
Member States.<br />
The IDD was published on 22 February 2016, updating<br />
the 2002 Insurance Mediation Directive (IMD) which<br />
regulates EU insurance brokers, agents, and other<br />
intermediaries. Although EU Member States are<br />
still required to transpose IDD into national law by<br />
the original date, 23 February 2018, the European<br />
Commission has proposed to push back the application<br />
Article 2 of the IDD defines ‘insurance distribution’ as:<br />
‘the activities of advising on, proposing, or carrying<br />
out other work preparatory to the conclusion of<br />
contracts of insurance, of concluding such contracts,<br />
or of assisting in the administration and performance<br />
of such contracts, in particular in the event of a claim,<br />
including the provision of information concerning<br />
one or more insurance contracts in accordance with<br />
criteria selected by customers through a website or<br />
other media and the compilation of an insurance<br />
product ranking list, including price and product<br />
comparison, or a discount on the price of an insurance<br />
contract, when the customer is able to directly or<br />
indirectly conclude an insurance contract using a<br />
website or other media’.<br />
The new wording of ‘insurance distribution’ within<br />
the IDD comprises more or less of the same activities<br />
as ‘mediation’ under the IMD, including the assistance<br />
of giving advice, the day-to-day administration and<br />
performance of the insurance contract.<br />
The IDD makes reference and applies its rules to three<br />
types of insurance distributors listed below, all of<br />
which are licensed to operate under their respective<br />
regulatory rules:<br />
48 Spring 2018
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INSURANCE<br />
1. Re/ insurance intermediaries (including tiedinsurance<br />
intermediaries): any person (natural<br />
or legal) who is engaged in the activity of re/<br />
insurance distribution in return for remuneration;<br />
2. Ancillary insurance intermediaries: any person<br />
(natural or legal) whose primary activity is not<br />
insurance distribution but is engaged in the<br />
activity of insurance distribution in return for<br />
remuneration and only distributes insurance<br />
products that are complementary to their goods<br />
or services;<br />
3. Re/ insurance undertakings: any direct life or<br />
non-life insurance undertaking authorised and<br />
regulated by the supervisory authority of the<br />
respective Member State. This type of insurance<br />
distributor was not covered under the IMD;<br />
Insurance comparison sites, or insurance introducers,<br />
popular concepts mainly in the UK, are not subject to<br />
the provisions of the IDD, provided that they do not<br />
earn any remuneration of any kind or offer the option<br />
to conclude an insurance contract via a website or<br />
other media which is authorised and regulated by<br />
the supervisory authority.<br />
Professional requirements 1<br />
The IDD lays specified that all customer-facing<br />
employees (of all types of insurance distributors)<br />
require a sound reputation. Each employee<br />
must at least have a clean criminal record as per<br />
police conduct certification and never filed for<br />
bankruptcy. In addition to this, the employee must<br />
attend professional training on a regular basis;<br />
the IDD requires at least 15 hours of training and<br />
development each year. The training must be verified<br />
by a certificate, depending on the type of insurance<br />
products sold, the license of the distributor itself and<br />
the type of insurance activities performed. However,<br />
it not yet clear as to how these hours should be<br />
recorded and the different levels of training.<br />
Also, the IDD requires insurance intermediaries to hold<br />
professional indemnity insurance (or similar guarantee<br />
against liability arising from negligence) for at least<br />
€1.25 million (previously €1 million under the IMD)<br />
per claim and €1.85 million (previously €1.5 million<br />
under the IMD) in aggregate per year for all claims.<br />
Conduct of Business Rules<br />
Article 17 of the new Directive highlights that<br />
insurance distributors must ‘always act honestly,<br />
fairly and professionally in accordance with the best<br />
interests of customers’ and that information, including<br />
any marketing material delivered by the insurance<br />
distributor must be ‘fair, clear and not misleading’.<br />
Other information must be disclosed by the insurance<br />
distributor to the customer depending on the type<br />
of insurance distributors, whether it is an insurance<br />
intermediary, ancillary insurance intermediary or<br />
insurance undertaking. The information which must<br />
be disclosed before the conclusion of an insurance<br />
contract includes, but not limited to the identity and<br />
address of the insurance distributor and whether it<br />
provides any advice on the insurance product sold in<br />
the market.<br />
There are specific remuneration disclosure<br />
requirements for insurance intermediaries, which<br />
include:<br />
• The nature of the remuneration received in<br />
relation to the insurance contract; and<br />
• The basis of remuneration (e.g. fee paid by<br />
policyholder, commission included in the<br />
insurance premium or other economic benefit<br />
offered in connection with the insurance<br />
contract. Both fee or commission, whether<br />
included within the premium or as a percentage<br />
of the premium are still to be determined by<br />
means of the IDD Rules).<br />
Any other payments made by the customer in<br />
addition to the above mentioned under the insurance<br />
contract must also be disclosed.<br />
Cross-selling<br />
Cross-selling in insurance is the practice of offering a<br />
potential policyholder an insurance product together<br />
with an ancillary product, which is not insurance but<br />
still a complementary product. This is sold as one<br />
package. In a cross-selling scenario, the insurance<br />
distributors must give their customers a detailed and<br />
adequate description of the package, including the<br />
benefits and costs of such package.<br />
When an insurance product is sold together with<br />
an ancillary product as a package to other goods<br />
or services, the insurance distributor must offer<br />
the customers an opportunity to purchase the<br />
products separately. Examples of ancillary products<br />
include the Road Side Assistance, the Motor Vehicle<br />
Licenses and forthcoming services like Transfers<br />
of Vehicles. Moreover, the IDD will introduce a<br />
detailed standardised Insurance Product Information<br />
Document (IPID) for all non-life insurance products.<br />
1<br />
Details to be determined by means of the IDD Rules<br />
50 Spring 2018
INSURANCE<br />
Exemptions<br />
The IDD applies to any person (natural or legal) who<br />
is established within the EU and sells insurance<br />
and reinsurance products. However, Article 1 of<br />
the IDD specifically excludes ancillary insurance<br />
intermediaries if the following conditions are met:<br />
a. The insurance is complimentary to the good<br />
or service supplied by a provider, where such<br />
insurance covers:<br />
(i) risk of breakdown, loss of, or damage to,<br />
the good or the non-use of the service<br />
supplied by that provider; or<br />
(ii) damage to, or loss of, baggage and other<br />
risks linked to travel booked with that<br />
provider;<br />
b. The amount of the premium paid for the<br />
insurance product does not exceed EUR 600<br />
calculated on a pro-rata annual basis;<br />
c. By way of derogation from point (b), where<br />
the insurance is complementary to a service<br />
referred to in point (a) and the duration of that<br />
service is equal to, or less than, three months,<br />
the amount of the premium paid per person<br />
does not exceed EUR 200.<br />
What do we know so far?<br />
Although it is difficult to calculate the exact amounts<br />
at this stage, the changes brought about by the<br />
new Directive will bring higher costs for insurance<br />
distributors, which eventually will be passed on to<br />
policyholders. Moreover, both governments and<br />
respective regulatory authorities are expected to<br />
incur increased costs as a result of increased checks<br />
and controls.<br />
The new Directive is expected to bring the following<br />
benefits to the market:<br />
• An improved information distribution which<br />
helps potential policyholders to make better<br />
informed decisions on the insurance products<br />
presented to them;<br />
• Increased transparency on both prices and costs<br />
for insurance products. The aim of the IDD is to<br />
provide the customer with clear information<br />
about whether the insurance distributor has<br />
personal economic incentives to sell one<br />
product from the other; and<br />
• Rules of transparency and the overall business<br />
conduct will prevent customers from obtaining<br />
products that do not meet their needs.<br />
The IDD does not restrict a specific business<br />
model for the sale of insurance products. The new<br />
Directive will bring about new concepts of which the<br />
requirements are not yet clear, both at a local and<br />
EU level. The introduction of these requirements<br />
will probably have a huge impact on the insurance<br />
market, given that significant changes are expected<br />
in the day-to-day business of insurance distributors.<br />
Further discussions are expected in the coming days,<br />
together with additional guidelines and rules to be<br />
released by the European Commission.<br />
52 Spring 2018
THE POWER OF BEING UNDERSTOOD<br />
AUDIT TAX CONSULTING
FEES<br />
Transforming Challenges into<br />
Opportunities: Fee Pressure<br />
The recent IFAC Global SMP Survey identified key challenges many small- and medium-sized<br />
practices (SMPs) face. This article is one in a series that breaks down the data from the survey<br />
and provides information, ideas, and tips to help SMPs address these challenges as well as best<br />
practice examples from IFAC SMP Committee members, together with the range of other tools and<br />
resources available.<br />
CHRISTOPHER ARNOLD<br />
CHRISTOPHER ARNOLD IS<br />
THE HEAD OF SME/SMP AND<br />
RESEARCH AT IFAC. HE WAS<br />
PREVIOUSLY AN AUDIT MANAGER<br />
FOR DELOITTE AND QUALIFIED AS<br />
AN ACCOUNTANT IN A MID-TIER<br />
ACCOUNTANCY PRACTICE IN<br />
LONDON (NOW CALLED PKF-<br />
LITTLEJOHN). CHRISTOPHER<br />
STARTED HIS CAREER AS A SMALL<br />
BUSINESS POLICY ADVISER AT<br />
THE ASSOCIATION OF CHARTERED<br />
CERTIFIED ACCOUNTANTS (ACCA).<br />
MATS OLSSON<br />
MATS OLSSON IS PARTNER AND<br />
ONE OF THE FOUNDERS OF<br />
ADRIAN & PARTNERS AB. ADRIAN<br />
& PARTNERS IS A MEDIUM-SIZED<br />
PRACTICE IN GOTHENBURG,<br />
SWEDEN, THAT WORKS PRIMARILY<br />
WITH SMALL- AND MEDIUM-SIZED<br />
OWNER-LED CLIENT COMPANIES.<br />
HE HAS HIGHER EDUCATION<br />
IN ACCOUNTING AS WELL AS<br />
BUSINESS LAW. MR. OLSSON<br />
IS ALSO THE DEPUTY CHAIR OF<br />
THE IFAC SMPC AND CHAIR OF<br />
ITS TASK FORCE FOR SMALL<br />
BUSINESS SUPPORT.<br />
Pressure to Lower Fees<br />
The third highest challenge small- and mediumsized<br />
practices face globally is pressure to lower<br />
fees. Practitioners are fully aware of the importance<br />
of providing quality services, but it is clear that<br />
some clients remain reluctant to pay for such<br />
services. Technological advances, globalization, and<br />
outsourcing to less-expensive offshore contractors<br />
may also prompt clients to keep up the heightened<br />
fee pressure.<br />
The Guide to Practice Management for Small- and<br />
Medium-Sized Practices includes a section on coping<br />
with pricing pressures.<br />
• Adopt new approaches to pricing.<br />
Instead of billing an hourly rate, set prices for<br />
services such as business advisory services<br />
based on perceived or estimated value to your<br />
client. Also, packaging more desirable services<br />
with services that are essential but less desirable<br />
allows for a broader range of services for a larger<br />
fee.<br />
• Stress the value of services offered.<br />
Talk to clients regularly about the benefits of<br />
the services they receive. Communication is an<br />
important part of value pricing.<br />
• Focus efforts on most valuable clients.<br />
Evaluate clients, group them, and offer<br />
different service levels to different groups,<br />
especially for non-audit services such as<br />
business advisory or tax. This technique,<br />
referred to as yield management, is used<br />
in the airline industry to price seats by the<br />
level of service in first class, business class,<br />
or economy sections. Some clients will<br />
appreciate, and pay for, first class service.<br />
Others will prefer the economy rate.<br />
• Leverage technology.<br />
Maximize technology to improve processes and<br />
lower costs in the face of stagnant or declining<br />
fees. Cloud computing solutions deliver the same<br />
services, like payroll and bookkeeping, for less<br />
cost, email costs less than regular postal services,<br />
and Skype is less expensive than telephone or inperson<br />
meetings.<br />
• Re-examine service offerings.<br />
Consider combining value with additional services<br />
for little extra cost, or provide the same for less<br />
cost. To set your practice apart in the marketplace,<br />
consider specializing in niche markets or services.<br />
• Fee breakdown.<br />
Break invoices into smaller parts. For example,<br />
instead of charging a total amount for “Services<br />
Rendered,” an invoice can show separate<br />
services and each cost, such $X Tax Return, $X<br />
Annual Report, etc. This clearly demonstrates<br />
each individual service and makes it harder for<br />
clients to complain.<br />
• Find less expensive sources of supply.<br />
Review your practice’s suppliers and look for<br />
competitors offering benefits that may warrant<br />
switching. Competitive pricing and choice<br />
of suppliers, from internet service providers<br />
to computer hardware vendors, may have<br />
improved considerably since your practice first<br />
chose its suppliers.<br />
• Tackle overheads.<br />
Seek to minimize waste and make the most<br />
efficient use of human and environmental<br />
resources, including workspace, energy, and<br />
54 Spring 2018
IFRS
FEES<br />
consumables. To optimize expensive office<br />
space, practices may encourage staff to perform<br />
work at clients’ premises or at home and prebook<br />
a desk space when in the office. Similarly,<br />
practices could find staff efficiencies through<br />
improved workload distribution, adequate<br />
planning and supervision of engagements,<br />
and delegating work to the appropriate<br />
levels. Flexible working hours may avoid staff<br />
redundancies, which erode morale and make<br />
it difficult to recruit new staff. Shifting routine<br />
work to more junior staff can also help cut costs,<br />
but staff assignments need to be managed<br />
carefully to maintain quality results and avoid<br />
damage to your practice’s brand.<br />
The Global Knowledge Gateway also includes a number<br />
of articles, videos, and resources on these topics.<br />
Value Pricing<br />
• Pricing on Purpose: How to Implement Value<br />
Pricing in Your Firm, Parts I-III<br />
• Tomorrow’s Firm and the Role of Value Pricing<br />
• How to implement value-based billing<br />
• Are Your Fees Too Low?<br />
• How to Negotiate Higher Fees<br />
• Setting Fees When Starting Up in Practice<br />
• Fee Rates: Communicate Your Value<br />
• Advisory Service Fees – The Numbers Do Stack Up...<br />
• How to Manage Audit Fee Increases–and Even<br />
Reduce Them<br />
Please see previous articles on attracting new clients<br />
and keeping up with new regulations and standards<br />
for further information and guidance.<br />
This article originally appeared on the IFAC Global Knowledge<br />
Gateway: www.ifac.org/Gateway. Visit the Gateway to<br />
find additional content on a variety of topics related to the<br />
accountancy profession.<br />
Copyright September 2017 by the International Federation<br />
of Accountants (IFAC). All rights reserved. Used with<br />
permission of IFAC. Contact permissions@ifac.org for<br />
permission to reproduce, store, or transmit this document.<br />
Fees<br />
• Ethical Considerations Relating to Audit Fee<br />
Setting in the Context of Downward Fee Pressure<br />
56 Spring 2018
BITCOIN<br />
BUSTING THE BITCOIN MYTHS<br />
It’s fair to say that Bitcoin and Blockchain<br />
have become mainstream talking points<br />
over the last 12 months. While Blockchain,<br />
the technology that underpins Bitcoin,<br />
has received near universal acclaim, the<br />
cryptocurrency itself continues to be mired<br />
in a debate over its validity as a digital<br />
asset. I find that most of the confusion<br />
surrounding Bitcoin stems from a lack of<br />
understanding the wheels and cogs under<br />
the hood and can be broadly categorised<br />
into five main misconceptions.<br />
HOW AND WHY BITCOIN WAS CREATED<br />
Bitcoin was created by Satoshi Nakamoto, an as yet<br />
unidentified programmer using a pseudonym, as a<br />
result and in the aftermath of the 2007/08 financial<br />
crisis. Satoshi published and deployed the Bitcoin<br />
protocol as open source software. The first two lines<br />
of Satoshi’s whitepaper read as follows:<br />
“A purely peer-to-peer version of electronic cash<br />
would allow online payments to be sent directly<br />
from one party to another without going through<br />
a financial institution.”<br />
In essence Satoshi Nakamoto’s motivation was to<br />
devise a financial system independent and free from<br />
the mismanagement of banks and central banks as well<br />
as the inflationary monetary policies of governments.<br />
Anyone willing to participate in the network simply<br />
needs to download and run the software. The software<br />
itself is being constantly updated. Although Satoshi’s<br />
last recorded involvement was at the end of 2010,<br />
various developers and cryptographers collaborate<br />
full-time to propose and write improvements to the<br />
bitcoin protocol.<br />
HOW ARE NEW BITCOINS CREATED AND WHY<br />
THE NETWORK WASTES SO MUCH ENERGY<br />
One of the fundamental monetary policies of Bitcoin<br />
embedded into the protocol software is a fixed supply<br />
of bitcoins which is limited to 21 million coins (coins<br />
are divisible up to 100 millionth of a coin). The number<br />
of coins issued by the software diminishes every four<br />
years until the 21 million coin limit is reached (at<br />
some point in the year 2140). The diminishing supply<br />
together with a forecast growth in user adoption gives<br />
bitcoin its deflationary characteristic.<br />
New coins are issued periodically (every 10<br />
minutes) as a reward to miners for securing the<br />
bitcoin network. Miners are competing with each<br />
other to solve a mathematical puzzle in order to<br />
claim the reward awarded by the software, together<br />
with transaction fees, in exchange for providing<br />
their computing power (mining costs incorporate<br />
hardware and energy consumption). The winning<br />
miner broadcasts their result, known as Proof-of-<br />
Work, to the entire network thereby validating the<br />
new bitcoin supply in circulation and simultaneously<br />
adding a new block to the bitcoin blockchain,<br />
incorporating new transactions to the network.<br />
The transactions are now confirmed and form part<br />
of the chain of blocks, with each successive block<br />
being linked cryptographically to the previous<br />
block, all the way back to the first block created by<br />
Satoshi Nakamoto.<br />
Detractors of Bitcoin point to the fact that creating<br />
new bitcoins wastes energy, with estimates of as<br />
much as a medium-sized nation consumes in a year.<br />
This is somewhat of a false statement for two reasons.<br />
The miners’ primary function by virtue of their staked<br />
computational power is to provide security to the<br />
network from malicious hackers. The reward in the<br />
form of new bitcoin is simply a by-product of the<br />
mining process. To elaborate this point further, when<br />
new bitcoin ceases to be issued in the year 2140 the<br />
mining process will carry on. Secondly, the critique<br />
needs to be analysed against the costs to produce,<br />
transact and store other forms of money (traditional<br />
fiat currencies and gold) along with the burdensome<br />
compliance and oversight.<br />
WHO CONTROLS BITCOIN<br />
A common fear with Bitcoin, which contrasts with<br />
traditional banking, surrounds the overall control<br />
of the software and by extension the bitcoins in<br />
circulation. A fundamental aspect of the Bitcoin<br />
protocol is the consensus mechanism which in a<br />
nutshell requires a majority of the network to consent<br />
to any changes to its code. As a result there is no<br />
person or group of persons that can tamper with the<br />
software code without majority consensus. While the<br />
identity of Bitcoin’s creator remains unknown, should<br />
Satoshi Nakamoto resurface he shall have no more<br />
power to amend the protocol than any other single<br />
MICHAEL SCICLUNA<br />
MICHAEL SCICLUNA IS THE<br />
MANAGING DIRECTOR OF EXCO<br />
SERVICES LIMITED, A CORPORATE<br />
SERVICES PROVIDER AND CFO<br />
OF BITMALTA, A NOT-FOR-PROFIT<br />
ADVOCACY GROUP FOCUSSED<br />
ON CRYPTOCURRENCIES AND<br />
BLOCKCHAIN.<br />
theaccountant.org.mt<br />
57
BITCOIN<br />
user or contributor. Indeed his exclusion, whether<br />
self-imposed or not, is considered a key feature of<br />
Bitcoin’s decentralisation as there is no figurehead<br />
that weaves significant influence, unlike most if not<br />
all other cryptocurrencies out there.<br />
The economic experiment presented by Bitcoin enables<br />
us to compare the monetary regulation that is set in<br />
code and fully democratised, with that of traditional<br />
central bank policies which have arguably had mixed<br />
results in setting monetary policy with various financial<br />
panics attributed to misplaced oversight, contributory<br />
policy or both. In summary, Bitcoin is controlled by its<br />
code and mathematical rules. The fact that no one<br />
controls Bitcoin provides certainty over the money<br />
supply without any outside interference.<br />
WHAT GIVES BITCOIN ITS VALUE<br />
This is one of the most common questions and is<br />
also one of the most difficult to answer as there<br />
is no central authority that provides backing and<br />
no apparent intrinsic value. It is just code after all<br />
written by an unknown programmer. By comparison<br />
gold itself has very limited industrial use while fiat<br />
currencies have unlimited supply and are therefore<br />
inflationary. One striking example of this effect is<br />
the US Dollar, the world’s primary reserve currency<br />
which has lost as much as 96%, in purchasing power<br />
terms, of its value since 1913.<br />
As with any asset, whether digital or physical, the<br />
price is determined by the value at which it can be<br />
exchanged between a willing buyer and seller.<br />
Bitcoin’s primary features (fixed supply, decentralisation,<br />
security, 24/7 network, speed and lower-cost<br />
transaction fees) have attracted a steady stream of<br />
adopters utilising it as both a medium of exchange<br />
as well as a store of value. Market forces dictated by<br />
growing demand and limited supply have seen the<br />
price rise steadily (save for 1 or 2 speculative price<br />
spikes) over the past 9 years.<br />
Assuming continued adoption over the longer term,<br />
including by institutional investors, the price of Bitcoin<br />
is expected to rise until it reaches an equilibrium. As<br />
both a technology and a monetary asset it is still at a<br />
nascent stage, however confidence in this trajectory<br />
will enable Bitcoin to maintain its value and compete<br />
with gold as a store of value and with flat currencies<br />
as a medium of exchange.<br />
IT’S USED BY CRIMINALS AND MONEY LAUNDERERS<br />
Yes it is. However in no greater percentage than<br />
with cash or traditional methods. In the early days<br />
a significant demand for Bitcoin was likely used in<br />
the illicit drug trade. I would argue that this value<br />
represented a tiny fraction of global illicit trades<br />
and/or money laundering. As adoption has grown<br />
along with a better understanding of blockchain and<br />
the services provided atop the technology, use of<br />
Bitcoin for illicit transactions have reduced as a total<br />
percentage of transactions. Bitcoin is far from an<br />
anonymous currency. Every transaction transmitted<br />
on the network is permanently recorded on a public<br />
blockchain and auditable. Forensic analysis of such<br />
transactions allows intelligence services to identify<br />
the source and destination of a flow of funds and<br />
has been used successfully to apprehend criminal<br />
actors 1 . Recently published research indicated that<br />
less than 1% of bitcoin transactions were used for<br />
the laundering of illicit funds 2 . If you were to argue<br />
that Bitcoin should be made illegal to hinder the<br />
ability of a few users to operate outside traditional<br />
channels, the same argument can also be made of<br />
cash and other payment gateways. I would argue that<br />
the benefits of allowing the technology to flourish far<br />
outweigh the costs of trying to stamp it out.<br />
58 Spring 2018<br />
1<br />
A Wizsec, Breaking open the MtGox case 27 July, 2017<br />
2<br />
Bitcoin Laundering: An Analysis of Illicit Flows into Digital Currency Services, 12 January 2018<br />
By Tom Robinson, D.Phil & Yaya Fanusie for Elliptic, Center on Sanctions & Illicit Finance
MALTA ENTERPRISE<br />
Recent amendments for SMEs and start-ups<br />
by Malta Enterprise<br />
Malta is rapidly gaining international<br />
recognition as a brand denoting<br />
excellence in a number of sectors,<br />
including the pharmaceuticals,<br />
life sciences, advanced manufacturing, fintech,<br />
aviation and ICT amongst others. In order to help<br />
such enterprises, particularly SMEs to improve<br />
their competitive edge further, Malta Enterprise,<br />
as the country’s economic development agency,<br />
tasked with attracting new foreign direct<br />
investment as well as facilitating the growth<br />
of existing operations, has developed various<br />
incentives for the promotion and expansion of<br />
industry and the development of innovative<br />
enterprises. A series of new schemes have been<br />
launched and a number of other schemes were<br />
a work in progress.<br />
Startup Advance<br />
Following the success of the B.Start scheme, through<br />
the Startup Advance scheme, Malta Enterprise will be<br />
now extending its seed funding support to small startup<br />
undertakings that are in the process of consolidating<br />
a business operation that has demonstrated market<br />
potential and is deemed as economically feasible and<br />
innovative. The Corporation may award a maximum<br />
grant of €100,000. Similarly to B.Start, the grant shall<br />
be disbursed at three month intervals. Beneficiaries<br />
are required to submit to the Corporation periodic<br />
reports on the progress achieved highlighting any<br />
changes to the original plan.<br />
In order to be eligible, the applicant must employ a<br />
minimum of two full-time employees at application<br />
stage and must be proposing products and/or services<br />
that have potential to be marketed and distributed<br />
internationally. Moreover, products produced and/<br />
or services offered must be new or substantially<br />
improved compared to the state of the art in the local<br />
industry. The activities of the start-up undertaking<br />
must be linked to the knowledge of the Key Promoters.<br />
It is expected that key persons engaged in the startup<br />
have the academic background required and/<br />
or hands on experience in the relevant sector. The<br />
scheme is open to a number of industries which<br />
include manufacturing, information technology, R&D,<br />
biotechnology, pharmaceuticals, and the creative<br />
industries amongst others.<br />
Deduction for Transportation Cost of Employee<br />
Together with Transport Malta and the Inland<br />
Revenue, Malta Enterprise has collaborated on an<br />
incentive for enterprises providing transport for<br />
their own employees. Any enterprise may claim a<br />
deduction against its income equivalent to 150% of<br />
the employee transportation costs incurred in the<br />
relative year.<br />
In respect of any year of assessment, the deduction<br />
referred to above may only be claimed on the lower<br />
of: (i) €25,000 of the employee transportation costs<br />
incurred by the undertaking in the year preceding<br />
the year of assessment; or (ii) €300 per employee<br />
whose transportation costs have been incurred by the<br />
undertaking in the year preceding the year of assessment.<br />
Amendments to the Micro Invest Scheme<br />
The Micro Invest scheme is still one of the<br />
most popular schemes to be implemented and<br />
administered by Malta Enterprise Corporation. In<br />
2018, only electronic application forms submitted<br />
through the portal are being accepted.<br />
With companies facing numerous challenges to<br />
maximizing their potential and reducing costs,<br />
the Micro Invest Scheme is a perfect aid to<br />
entrepreneurs. Self-employed persons, companies<br />
and partnerships will be supported through a tax<br />
credit amounting to 45% (65% for undertakings<br />
operating from Gozo) on the eligible expenditure.<br />
However, as from 2018 the maximum assistance has<br />
been increased by €20,000. Enterprises based in<br />
Malta may benefit of up to €50,000 over any period<br />
60 Spring 2018
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MALTA ENTERPRISE<br />
of three consecutive fiscal years. This capping shall<br />
also be increased by €20,000 to a total of €70,000<br />
for enterprises operating from Gozo, familybusinesses,<br />
and female-owned enterprises.<br />
Moreover, as from 1st January 2018, all enterprises<br />
that employ up to fifty persons (instead of thirty) on<br />
full time contracts are now eligible for the scheme.<br />
It is important to note that an enterprise with no<br />
employees at application stage however is still not<br />
entitled to the benefit.<br />
Eligible expenses include furbishing, refurbishing and<br />
upgrading of business premises, improvement on<br />
machinery and technologies, increase in wage costs if<br />
in 2017 such an increase exceeded 3% when compared<br />
to the previous two years, investment costs such as<br />
computer hardware, packaged software solutions,<br />
and new or first time used in Malta machinery. As<br />
from 2018, an eligible enterprise may also claim costs<br />
for the purchase of more than one new commercial<br />
vehicle as long as the second vehicle is new, replaces<br />
another vehicle and has the latest European Emission<br />
Standard rating. The list of eligible commercial<br />
vehicles, amongst other terms and conditions, is<br />
outlined within the Incentive Guidelines.<br />
Assistance for the Catering Businesses<br />
In 2017, Malta Enterprise in collaboration with<br />
ITS, started assisting hospitality and catering<br />
establishments interested in engaging a chef to<br />
support in capacity building, innovation, and in the<br />
development the operations. Enterprises (including<br />
self-employed operators) may be supported<br />
through a tax credit of up to €10,000 representing<br />
a percentage of the eligible expenditure and wages<br />
of the international experienced chefs. Moreover, in<br />
the coming weeks, another scheme will be launched<br />
whereby costs related to the renovation of the<br />
restaurant may be eligible for a tax credit.<br />
Other Schemes<br />
During 2018, the Certify scheme and the Business<br />
Advisory Services will be revamped and re-launched,<br />
and the Qualifying Employment in Innovation and<br />
Creativity (Personal Tax) has been extended until<br />
December 2018.<br />
the way their role as regional and industry innovation<br />
providers could be improved. This is at the heart of<br />
the Innova Foster project. This project falls under<br />
Interreg Europe which amongst others is seeking to<br />
strengthen the productivity of enterprises, as well<br />
as boost research and innovation. An important part<br />
of the project is to map out and understand the local<br />
start-up and innovation ecosystem to identify strengths<br />
and weaknesses at a national level and subsequently<br />
address such weaknesses by improving local policies and<br />
programmes to foster high-potential start=ups. Malta<br />
Enterprise is participating in this project with European<br />
partners from Spain, Ireland, UK, Poland, Slovenia and<br />
Estonia. The project runs from 2017 to 2020.<br />
Unfortunately the lack of complete applications<br />
prolongs the administrative process so it is important<br />
that the application is compiled properly and carefully<br />
so to avoid any risks of getting a rejection<br />
Here are three important points to remember before<br />
applying for our incentives:<br />
POINT 1#<br />
Always go through the Incentive Guidelines to ensure<br />
that you have understood the objective of the scheme.<br />
Also make sure that you are referring to the latest<br />
version of the Incentive Guidelines.<br />
POINT 2#<br />
Always use the checklist available on the application<br />
itself. A check list is available to help you confirm that<br />
all the required documents have been attached. Missing<br />
information or uncertified documents will be rejected.<br />
POINT 3#<br />
An important document to observe is the de minimis<br />
declaration form which is in line with the parameters<br />
and criteria of the Commission Regulation. The applicant<br />
will be required to complete and sign the de minimis<br />
declaration form that they (and/or their shareholders)<br />
have not received or has not applied for any de minimis<br />
aid which would result in exceeding the de minimis<br />
ceiling of €200K over a period of three fiscal years. Any<br />
de minimis aid received in excess of €200K threshold will<br />
have to be recuperated, with interest, from the single<br />
undertaking receiving the aid.<br />
Participation in EU Funded Projects<br />
The Corporation is also participating in Innova Foster, a<br />
European funded project. This project focuses on the<br />
engagement of start=ups in the innovation process and<br />
Contact Business First on 144 or send an email on<br />
info@businessfirst.com.mt for more information<br />
62 Spring 2018
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Together with this, competitive compensation<br />
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LIFESTYLE<br />
Elaine Marie Debono shares<br />
her volunteering experience in<br />
Reaching Cambodia<br />
ELAINE MARIE DEBONO<br />
ELAINE MARIE DEBONO IS AN<br />
FCCA QUALIFIED ACCOUNTANT.<br />
SHE IS A SUPERVISOR WITHIN THE<br />
TAXATION DIVISION AT MAZARS<br />
IN MALTA<br />
There is no definite reply about why I decided to embark in this<br />
volunteering journey, but almost a year ago, I felt that I wanted<br />
to do something more. I was skimming through the social media<br />
pages of various voluntary organizations and after seeing some lovely<br />
shots on Reaching Cambodia’s facebook page, I submitted my application<br />
for a two-week placement. I had to commit myself to the dates for this<br />
two week experience, which proved to be quite a challenge considering<br />
the number of tax deadlines during the year and other lecturing<br />
commitments. Consequently I had no other choice than opting for the<br />
Christmas period. This not only meant stepping outside my comfort zone<br />
but also spending the festive season away from my family.<br />
The experience started off with various meetings led<br />
by two very humble yet very inspirational individuals,<br />
the founders Denise and Silvan. These meetings<br />
included sessions with a historian, a teacher, a<br />
doctor and a psychologist, who provided me with<br />
information about our work in Cambodia, and other<br />
useful tips about how to prepare ourselves both<br />
physically and emotionally. This included information<br />
giving details of the fund raising activities supporting<br />
the projects of Reaching Cambodia. Reaching<br />
Cambodia is a residential centre providing shelter<br />
to approximately 60 children living at the orphanage<br />
ranging in age from newly born to 24 years of age, to<br />
enable orphans and vulnerable children to grow up in<br />
a healthy environment and improve their education.<br />
The following days involved several activities. The<br />
children were given lessons in Maths and Science but<br />
were also involved in a number of educational games.<br />
All the children attend free schooling provided by<br />
the local Government starting from the age of six<br />
whereas additional schooling is provided at the<br />
residential centre. Reaching Cambodia also sponsor<br />
the children’s uniforms, stationery, school books,<br />
bags and anything else which could be required.<br />
The first day of placement at Reaching Cambodia was<br />
Christmas Day. I was particularly excited to meet the<br />
children. Slightly emotional too as I did not know what<br />
to expect. Nonetheless it was a Christmas which I will<br />
never forget. After a couple of hours, it was evident<br />
that the children were at ease. All volunteers are<br />
required to wear the turquoise ‘Reaching Cambodia’<br />
T-shirt. This uniform identifies all Maltese volunteers<br />
as family and as soon as we arrived the children called<br />
out to us… “Reaching, reaching!” Our experience<br />
started with a Christmas party for the children at the<br />
residential centre.<br />
64 Spring 2018
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affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved. Printed in Malta.
LIFESTYLE<br />
Apart from helping at the Residential Centre, we<br />
were also required to assist in Reaching Cambodia’s<br />
XEMX project. This project’s aim is to help youths<br />
and families to learn the tailoring trade. Items are<br />
designed and produced by hand using materials<br />
from Cambodia. Our work involved giving basic<br />
English lessons to the students to enable them<br />
to communicate with their future potential<br />
international customers.<br />
The background of some of the children seeking<br />
help is unfortunate. Nonetheless they seemed to be<br />
grateful and happy. Of course, my experience was<br />
a minor insight of the poverty in Cambodia, which<br />
helps you appreciate how fortunate we are.<br />
The last day arrived too quickly. I brought with me a<br />
number of papers with the words “I love you Elaine”,<br />
handmade woollen bracelets and many memories<br />
which I knew I would keep in my heart forever. Most<br />
importantly I learnt a lot of lessons, about myself,<br />
about the world and about life.<br />
Coming back to Malta was not easy, as I missed the<br />
children. However I felt reassured as within two<br />
weeks following our departure, another Reaching<br />
Cambodia Group was on its way. The kids would<br />
once again be getting the love and affection from<br />
their Maltese friends. My two weeks in Cambodia<br />
were only a part of a bigger, long term project. I was<br />
part of the tenth group for 2017 of the Reaching<br />
Cambodia placements. Eight other groups are<br />
planned for 2018, some of which are fully booked.<br />
Another initiative of Reaching Cambodia is the<br />
launch of a medical project in January 2018.<br />
Over three months have passed since my return to<br />
Malta. My minor contribution was minimal compared<br />
to the wealth I received. The children of Cambodia<br />
taught me to appreciate the little things in life, and<br />
sometimes during stressful busy days, I just recall the<br />
resilience of these children.<br />
For more information about Reaching Cambodia and<br />
how you could volunteer or donate, please visit http://<br />
reaching-cambodia.com<br />
66 Spring 2018
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Find out more at:<br />
www.deloitte.com/mt/gdpr<br />
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A list of the corporate partners, as well as the principals authorised to sign reports on behalf of the firm, is available at www.deloitte.com/mt/about.<br />
Cassar Torregiani and Associates is a firm of advocates warranted to practise law in Malta and is exclusively authorised to provide legal services in Malta under the Deloitte Legal sub-brand.<br />
Deloitte provides audit, consulting, financial advisory, risk advisory, tax and related services to public and private clients spanning multiple industries. Deloitte serves four out of five Fortune Global 500 ®<br />
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