KPMG MALTA
Advisory Services - April 2014
Factoring
Why Malta?
Factoring is one of the oldest forms of business financing that
is gaining renewed traction today.
Factoring is increasing in popularity particularly in businesses
where receivables over a longer term are part of the business
cycle, and rapidly growing companies require working capital to
take advantage of new business opportunities.
In a typical factoring arrangement, a factor buys the right to
collect on an invoice by agreeing to pay the value of the invoice
less a discount for commission and fees – typically around
2% to 6%. The factor usually advances most of the invoiced
amount to the company immediately, usually 75% - 80% of
the face value of the invoice and the balance (less the discount)
upon receipt of funds from the invoiced party.
Factoring arrangements may be both with recourse and
without recourse. In recourse factoring, the factor is
responsible for buying back invoices that have not been paid
by the company’s customers after a pre-determined period of
time. In non-recourse factoring, the factor completely assumes
the risk of non-payment of the company’s customers. Nonrecourse factoring insulates the business from the cost of
bad debt. Given non-recourse arrangements are riskier for the
factor, the discount rate will be higher than it is for recourse
factoring.
A factoring company may be set up in Malta as a financial
institution in terms of the Financial Institutions Act (Chapter
376 of the Laws of Malta). A financial institution is defined
in the Act as being “any person who regularly or habitually
acquires holdings or undertakes the carrying out of any activity
listed in the First Schedule for the account and at the risk of
the person carrying out the activity”. The First Schedule to the
Act lists the activities which can be performed by a licensed
financial institution of which factoring is one of them. Factoring
companies (and other financial institutions) are subject to
supervision by the Banking Unit of the Malta Financial Services
Authority (“MFSA” or “Authority”). The licence is required
whether the financial institution carries out business in or from
Malta.
A financial institution must not at any time or under any type of
factoring accept responsibility for:
(a) The acceptance of the goods or services provided by the customer of the institution to its clients;
(b) The discharge of the customer’s responsibilities towards clients;
(c) Product liability; or
(d) The accuracy of the invoices issued.
Malta’s favourable tax regime and business friendly regulator
make it an ideal location for the setting up of a factoring
company in Malta.
Factoring is a financing method in which accounts receivable are purchased at a discount
by a financial institution, or factor, to raise capital. Malta is proving to be an attractive
jurisdiction for the setting up of factoring companies.
Factoring / Advisory Services / April 2014
© 2014 KPMG, a Maltese Civil Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved.
Licensing Process
The licensing process is governed by the Act and the
Financial Institution Rules (the Rules). The licence
requirements stipulate that:
• A minimum of 2 individuals must effectively direct
the business of the factoring company, ensuring
the four-eyes principle at all times
• All qualifying shareholders (holding more than
10%) , controllers and all persons who will
effectively direct the business of the institution
are suitable, fit and proper. This will require
that all persons in such roles submit a Personal
Questionnaire to the Authority, detailing their
experience over the previous 10 years, and
what criteria they fulfil that makes them suitably
qualified to take on the current position. This is to
ensure that the institution observes at all times
the highest professional, ethical and business
standards
• Neither the Act nor the Rules establish the
minimum share capital required. The applicant will
therefore submit a proposal, and this will then be
determined by the Authority on a case-by-case
basis, and varies depending on the activities being
undertaken, and their risk profiles. The level of
capital will also be determined by the exposures to
clients that the factoring company will have.
Any licence application to perform factoring services
under the Act, and which the Authority is bound to
reply to within a maximum of 6 months, needs to
include the following:
• An official application form
• A programme of operations, setting out the
particular activities to be undertaken
• A copy of the Memorandum and Articles of Association of the proposed institution
• The proposed level of initial capital
• A detailed business plan including the structure,
the organisation, the management systems,
governance arrangements and internal control
systems of the institution
The Authority expects financial institutions to have in place specific and
appropriate policies to measure, monitor and manage the higher risks
that are involved in providing factoring services. The Authority considers
three main risk areas that a financial institution needs to assess when
considering a request for a factoring service, which are:
•
its financial performance;
•
the quality of the security; and
•
the quality of management of the financial institution.
The following are the applicable fees for a financial institution licence:
Applicable Fees
Application & Processing Fee
€3,500
Annual Supervision Fee
0.0002 x Total Assets, subject to a
minimum of €2,500
The factoring company would pay tax at the corporate rate of tax
applicable in Malta of 35%, subject to relief for international double
taxation, if any. However, the shareholders of the financial institution
would be entitled to a partial tax refund, generally of 6/7ths or 30%, upon
a dividend distribution. Therefore, following tax refunds to the financial
institutions shareholders on dividend distributions, tax would, when
considering the combined financial institution and shareholder imputation
tax system, amount to 5%. No withholding tax is imposed on dividends
paid to non-residents.
Malta, with a flexible yet robust regulatory framework, has developed into
a well established financial centre. All domestic and foreign transactions
are handled efficiently and reliably by Maltese and foreign banks
employing suitable technology systems, and experienced personnel.
English, a joint official language with Maltese, is the business language.
The high education and training level of the English-speaking Maltese
labour force is a key competitive factor. Moreover Malta’s lifestyle,
enjoying a typical Mediterranean climate and enviable work-life balance
makes Malta a favourite for expatriates to pursue their business
endeavours.
• 3 year financial projections/budgets demonstrating
that the applicant will be able to employ
appropriate and proportionate procedures for
operation
• If available, audited financial statements for
the preceding 3 years for any of the qualifying
shareholders
• Any potential outsourcing arrangements that may
be entered into
• Other related information, where relevant
Factoring / Advisory Services / April 2014
© 2014 KPMG, a Maltese Civil Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved.
Contact us
Juanita Bencini
Partner
Advisory Services
T: (+356) 2563 1053
E: juanitabencini@kpmg.com.mt
Antoniella Gauci
Senior Manager
Advisory Services
T: (+356) 2563 1038
E: antoniellagauci@kpmg.com.mt
www.kpmg.com.mt
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely
information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without
appropriate professional advice after a thorough examination of the particular situation.
© 2014 KPMG, a Maltese Civil Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved.
The KPMG name, logo and ‘cutting through complexity’ are registered trademarks or trademarks of KPMG International Cooperative (KPMG International).
Printed in Malta.
April 2014