New tax rules could spell disaster for Malta.

Known as one of the best places in Europe to set up online poker, sports betting and slots sites, Malta is facing a huge challenge as Brussels clamps down on gambling industry regulations. Plans to enforce a new tax regime for digital companies will see Malt fighting to keep its biggest economic asset.

A new digital taxation scheme, spearhead by France and Germany, covering the European Union, could see online gaming suffer as they are taxed on turnover or profits.

The tax proposals are aimed at American giants such as Apple, Facebook and Google but any new measures could affect online gambling companies currently thriving in Malta.

The European Commission is only expected to release the proposal in spring so the effects of any proposed taxes is still not clear. But the push to tax digital firms could be bad news for island which has grown to depend on the success of the gaming sector.

Online gambling accounts for almost an eight of the island’s economy and is one of the largest sectors along with finance and tourism. Malta has few natural resources and a small population of just over 430,000.

A recent International Monetary Fund evaluation confirmed that any tax reforms could adversely affect Malta’s economic position due to the high share of corporate tax revenues in total revenues, should changes go forward.

The Maltese government is fighting the initiative and will make a case for global tax reforms through the Organisation for Economic Cooperation and Development which want to set global taxation standards for digital giants.

EU decisions on tax reforms need full, unanimous agreement from all member countries so Malta has the power to stall any reforms but whether it will safeguard the digital gambling sector remains to be seen.

Criticism has been aimed at Malta due to ongoing problems with money laundering and tax evasion.

“Malta has a general problem with money laundering and tax evasion,” said Markus Ferber, a German European People’s Party MEP and vice chair of the European Parliament’s Economic and Monetary Affairs Committee. “For me, it is very clear that the Maltese government has to significantly step up their game.”

The Commission prepared a recent analysis of Malta’s compliance with anti-money laundering rules, flagging potential areas of improvement. The recent murder of journalist Daphne Caruana Galizia, who was investigating corruption and money laundering, also led to calls for a closer look at Malta.

Although Malta is attempting to diversify by attracting more tech interests, such as venture capital money, startup investment and video game operators, tougher EU scrutiny on online gambling and money laundering continues to keep the island under pressure.

After Malta joined the EU in 2004, the country saw an opportunity to capitalise on the relatively new concept of online gambling so created attractive tax rates for international gambling operators who pay around 5 per cent in corporation tax.