COVID-19: Taxing times for the economy

Over the last week, many countries have announced a variety of economic measures aimed at relieving the distress many businesses are facing due to the coronavirus pandemic. Germany has arguably gone the furthest, by promising unlimited liquidity assistance to small and large businesses alike, along with a massive expansion of loans offered by the state development bank (KfW), with shorter application times and rock-bottom interest rates. France has established a solidarity fund and financial assistance for SMEs cutting-back working hours without terminating employment contracts, and the EU has allocated some 37 billion Euros to fight the health and economic consequences of the coronavirus.

What economic relief is available to Maltese businesses?

Following a commitment last week to provide teleworking assistance and tax deferrals for businesses, in a public address on the 18th of March 2020, the Maltese Government announced a package of measures intended to alleviate the strain face by local businesses during this pandemic. The publication of relevant legal notices is expected shortly.

In a nutshell, the general economic measures amount to a total of 850 million EUR, or 6.06% of Malta’s GDP for 2019, comprising of 700 million EUR in temporary passive assistance, i.e. tax deferrals, and 150 million EUR in state bank guarantees.

The breakdown is as follows:

  • Up to 700 million EUR in deferrals of provisional tax, VAT, and social security contributions for both self-employed individuals and employers, for March and April;
  • Up to 150 million EUR in bank guarantees, which is expected to enable businesses to secure loans from independent private banks up to a maximum global amount of 750 million EUR. It is further expected that the provision of Government bank guarantees should translate to lower interest rates on those loans.

VAT refund payments to businesses will also be accelerated. Moreover, the Government is permitting local banks to accept requests for a 3-month moratorium for personal and business loan repayments. Many banks have not yet responded to this measure. HSBC has already stated it will permit such requests, however, a detailed policy has not yet been issued. Any such bank policies should specify whether the full amount due at the end of the moratorium would need to be repaid upfront.

The Government also stated that, if necessary, it will consider offering an additional 900 million EUR in bank guarantees in order to secure further loans.

Informal Avenues for Relief

Outside the realm of state relief, a number of banks have already announced extraordinary measures to assist their individual and business customers.

HSBC Bank Malta Plc:

  • Customers holding home loans and personal loans may apply for a 3-month repayment moratorium on their loan;
  • Late payment fees for all Credit Card accounts will be waived; and
  • Customers may apply for a temporary increase in Overdraft or Credit Card limits.

Bank of Valletta Plc:

  • Customers may apply for capital repayment holidays ranging between 3 and 12 months;
  • Internet banking is now being offered at no additional cost in order to ease trade finance services; and
  • An allotment of 10 million EUR to provide direct working capital to customers facing short-term cash flow issues. Direct working capital will be offered for a period of up to 6 months subject to the satisfaction of eligibility criteria, including credit approval. The maximum loan per customer may not exceed 500,000 EUR and will be priced at 3.5% repayable over 12 months. Moreover, no bank processing fees will be charged.

Lombard Bank Malta Plc:

  • An allotment of 12.5 million EUR to provide temporary working capital to business customers facing temporary liquidity shortages. This capital will be offered for a period of up to 18 months. The maximum loan per customer may not exceed 350,000 EUR and will be offered on a fixed debit interest rate of 2.5% per annum. Moreover, no bank processing fees will be charged.

APS Bank:

  • The bank has committed to engage with customers adversely affected by COVID-19 to determine if any supporting measures are required in the circumstances.

Debtor-companies are always encouraged to initiate negotiations with their banks and other creditors if they foresee a likelihood of default in their contractual obligations. Experience has shown that banks invariably have a vested interest in helping companies survive, as the prospect of a full debt repayment from a company that is rescued from financial ruin is infinitely preferable than having to prove as a creditor in its insolvent winding-up.