Issue link: https://maltatoday.uberflip.com/i/478858
maltatoday, SUNDAY, 15 MARCH 2015 4 News MATTHEW VELLA THE head of Malta's passport sale scheme, Jonathan Cardona, has lit- tle hopes that the global rich buy- ing Maltese citizenship are going to move to Malta. In comments to Bloomberg Busi- ness, Cardona – the chief executive of the Individual Investment Pro- gramme – was portrayed as being unable to explain what the 12-month residence period for IIP applicants meant in real terms. "It doesn't say physical residency," Cardona said. "We expect an indi- vidual to be in Malta for a number of days; we don't go into the spe- cific number. If you're asking me, are these people going to move here entirely, I would say, 'Listen, let's not fool ourselves'." The statement puts paid to the pleadings of Prime Minister Joseph Muscat when he pitches the IIP to conferences organised by Henley & Partners: "Malta wants your talent, not your money. Your networks, not your accounts," he told an audience in New York last year. With doubts over what the IIP's 12- month residency exactly implies, it is clear that not even Cardona believes the rich who want a Maltese passport – which guarantees free movement in the EU and visa-free travel to the USA – could be even moving here. Cardona himself was unclear when he spoke to MaltaToday last year about the 12-month residency re- quirement, forced into Malta's IIP after beastly comments by MEPs criticising the sale of passports. The residence status that is meant to create a "genuine link" between the country and applicants requires at least two visits to Malta rather than an effective, physical 365-day stay. Cardona had told this newspaper that applicants, who at law must be resident in Malta for 12 months prior to being issued with a certifi- cate of naturalisation, do not need to be physically present on the island throughout the entire period. "It doesn't mean the person has to be present in Malta for 365 days, even due to the principle of free move- ment," he said, adding that the appli- cant must make at the very least two visits to Malta. That is easily arranged: one visit to Identity Malta's offices to pay their €650,000 contribution to the National Development and Social Fund, and another visit to take their oath of allegiance to become Mal- tese and EU citizens. In between, one of the 100 accredited agents for the IIP will purchase a €350,000 property or secure a €16,000 annual property rental, and the acquisition of €150,000 in financial bonds. The onus of proving residency comes in many forms, from having a functional residence, or even be- ing a member of social clubs, phil- anthropic initiatives, and engaging with professional bodies. So for example, enrolling a family doctor, membership with a yacht club, or participating in philanthropic activ- ities, can bolster candidates' portfo- lios at proving a genuine link with the island. As authors and concessionares of the IIP, Henley & Partners are first among equals of some 100 agents now selling Maltese passports, claiming commissions of some €70,000. They include Malta's top legal firms, some of whose partners are PN politicians – such as Ann Fenech and Stefano Mallia – who harshly criticised the government's handling of the passport sale. Henley gets 4% on the €650,000 paid by each applicant, and contrac- tually binds Prime Minister Joseph Muscat and his ministers to address Henley conferences around the world to pitch the IIP. The creator of the IIP, Swiss law- yer Christian Kalin, told Bloomberg that he doesn't think much of the Opposition's argument that Malta's citizenship is being prostituted. "This is the key point. The Opposi- tion realises that this programme is going to keep them out of power for a long time. It's going to bring in a lot of money, and whoever is in of- fice is going to benefit." mvella@mediatoday.com.mt MATTHEW VELLA MALTA has been hosting Azerbai- jan's state oil company (SOCAR) since 2007 thanks to its favourable tax re- gime exempting foreign companies from paying tax on profits generated outside of the island. It is yet another confirmation of Malta's status as a euro-denominated tax haven, that Socar Trading Holding Ltd (STHL) can act as the parent com- pany to Socar Trading SA in Geneva, without incurring a 35% corporate tax rate. An office in Ta' Xbiex hosts STHL, which acts as a back-office to the real companies where the money is made: subsidiary SOCAR Trading SA, which trades in crude oil from its Geneva of- fices. It is this company that will source and sell LNG to the ElectroGas con- sortium and then onto Enemalta, to power the new Delimara plant. In 2013, STHL and its subsidiar- ies generated $38.6 billion in sales of crude oil, after purchasing $38.5 bil- lion in crude and fuel products from third party and other companies from the SOCAR group. After taking into account salaries, administrative expenses, and banking costs, the group's 'thin' gross profit of $135 million was whittled down to $29 million. STHL however does not incur the corporate 35% rate in Malta. After paying tax in Singapore and Switzer- land, and recovering tax benefits from its Dubai subsidiary, the group pays a total of $4.6 million in tax – an effec- tive 16% tax rate, and savings In an effort to rebut accusations of secrecy by the Nobel-nominated Glo- bal Witness NGO, SOCAR has ad- mitted using Malta as "an investment platform to benefit shareholders of the holding company from tax advantages provided under the Maltese participa- tion exemption system and the EU- Swiss Savings Agreement of 2005." In the case of Switzerland, a non-EU country, SOCAR Trading SA ben- efits from a tax status for an "auxiliary company with predominant activities abroad". The set-up also allows an exemption from taxation if the Swiss subsidiary pays dividends to the Maltese parent company. "It was contemplated that a prospec- tive holding structure should involve jurisdictions with a favourable invest- ment regime, developed legislation and also providing efficiency for investors from a tax perspective," SOCAR says of its evolution, opting for the incorpo- ration of a holding company in Malta with its subsidiary SOCAR Trading SA established in Geneva, Switzerland. Since setting up shop in Malta in 2007, STHL holds 100% ownerships in Socar Trading SA (Switzerland), Socar Trading S&I (Dubai, UAE), and Socar Trading Services S.A.M (Monaco). Additionally, SOCAR in Azerbaijan employs another tax structure in Mal- ta, ostensibly to benefit from a reduc- tion of tax on shareholders' dividends if it passes on profits to shareholders from Malta. SOCAR is the owner of two Maltese companies: Socar Oil & Gas Interna- tional Holding, which in turn is the owner of Socar Oil & Gas Internation- al. When dividends are paid by trading companies to their shareholders, these shareholders become entitled to a re- fund of 85% of the Malta tax paid by the company. That means that after the Maltese trading company is taxed 35% on its profits, the shareholders receiving those dividends – in this case – the parent companies, can take back 85% of that taxed dividend. This system is employed for overseas branches set up in Malta and often results in an effec- tive tax rate of 5%. SOCAR's evolution Although owned by the state of Azerbaijan, SOCAR has had two important private interests who raised the necessary finance for its international trading structure of 10 offices worldwide. Valery Goluvushkin of Lukoil and Azerbaijani entrepreneur Anar Ali- yev (later changing his surname to Alizade to avoid association with the ruling Aliyevs of Azerbaijan) were instrumental in setting up the Maltese shareholding structure, di- viding ownership of SOCAR Trad- ing SA between SOCAR (50%) and the two businessmen. With SOCAR Trading finding it hard to raise money due to its Soviet background, it was left to Goluvushkin and Alizade to obtain credit lines that SOCAR Trading would not have been able to secure otherwise. In 2012, SOCAR bought back the entire ownership of SOCAR Trad- ing SA, with Alizade retaining a controlling interest in some 10 joint ventures with SOCAR. Forget the talent, passport buyers won't move to Malta, says IIP head SOCAR chooses Malta for tax purposes Joseph Muscat is contractually bound by Henley to promote the IIP at their global conferences. He is seen here with Christian Kalin: the Swiss lawyer behind the IIP says that the level of foreign investment the passport sales will bring in will keep the Opposition out of power for a long time IIP head Jonathan Cardona: "If you're asking me are these people going to move here entirely, I would say, 'Listen, let's not fool ourselves'."