COMPANY FORMATION AND ADMINISTRATION

Trading & Holding Companies in Malta Trading Companies in MALTA

 

The changes to Maltese tax laws continue to place Malta as an ideal location for the purpose of carrying out international trading operations. Through the establishment of a company registered under Maltese law, international entrepreneurs are able to reap the advantages of the imputation system of taxation when distributions are made to them as non resident shareholders. The definition of a ‘company registered in Malta’ has been widened to include oversea branches set up in Malta, companies which although not resident in Malta carry out activities in Malta and also companies which are neither incorporated nor resident in Malta provided that such companies are registered with the local tax authorities. The objects of the company must include operations of a trading nature. The tax paid by companies registered in Malta is at the rate of 35%. However, since Malta operates the full imputation system of taxation, the tax paid by the company is allowed as a credit to the shareholders when distributions are made to them. Shareholding may be held by individuals or through a Maltese parent constituted as a dividend feeder’ company. On the distribution of a dividend from the company, the shareholders may claim a tax refund of six sevenths of the tax paid by the company. The tax refund is paid to the shareholder within 4 weeks from the end of the month in which it is due. Evidently, a company registered in Malta is a very tax efficient vehicle ideally suited for carrying out international trading activities.

 

The following example illustrates the current tax regime:

 

Trading profit by company 1000

Malta Tax at 35% 350

Profit after tax 650

Dividend received by Shareholder 1,000

Tax thereon 350

Credit for tax paid by company 350 Tax payable 0

Tax refunded – 6/7th 300

Net tax paid in Malta 50

 

Holding Companies in MALTA

Under the Maltese tax system, the income and capital gains derived by a Maltese company from a ‘participating holding’, qualifies for a full refund of the Maltese tax paid by the company when distributions are made to company shareholders. Maltese tax laws have further enhanced this tax treatment through the introduction of the notion of the ‘participation exemption’ whereby such income may be exempt from Maltese tax provided certain conditions are satisfied.

A participating holding arises where:

• a company holds directly at least 10% of the equity shares of a company not resident in Malta whose capital is wholly or partly divided into shares; or

• a company is an equity shareholder in a company not resident in Malta and the equity shareholder company is entitled at its option to call for and acquire the entire balance of the equity shares not held by that equity shareholder company to the extent permitted by the law of the country in which the equity shares are held; or

• A company is an equity shareholder in a company not resident in Malta and the equity shareholder company is entitled to first refusal in the event of the proposed disposal, redemption or cancellation of all of the equity shares of that company not held by that equity shareholder company; or

• a company is an equity shareholder in a company not resident in Malta and is entitled to either sit on the Board or appoint a person to sit on the Board of that company as a director; or

• a company is an equity shareholder which invests a minimum sum of €1,165,000 (or the equivalent in foreign currency) in a company not resident in Malta and that investment in the company not resident in Malta is held for an uninterrupted period of not less than 183 days; or

• a company is an equity shareholder in a company not resident in Malta and where the holding of such shares is for the furtherance of its own business and the holding is not held as trading stock for the purpose of trade. Dividends derived from a participating holding acquired after 1 January 2007 by a Maltese company may qualify as a ‘participation exemption’ provided certain anti‐abuse provisions are satisfied.

 

The body of persons in which the participating holding is held must satisfy any one of the following conditions:

• It is resident or incorporated in a country or territory which forms part of the EU;

• It is subject to any foreign tax of at least 15%;

• It does not have more than 50% of its income derived from passive interest or royalties.

 

When none of the above conditions are met, then both the following two conditions must be fulfilled:

• The equity holding by the company registered in Malta in the body of persons not resident in Malta is not a portfolio investment; and

• The body of persons not resident in Malta or its passive interest or royalties have been subject to any foreign tax at rate which is not less than 5%.

 

In those instances where the participating holding qualifies as a ‘participation exemption’, the Maltese company has the option not to declare the income in its tax return resulting in no tax being payable in Malta.

 

DOUBLE TAXATION AGREEMENTS

 

Malta has concluded tax treaties with a significant number of countries which enhance the incentives provided by Maltese domestic legislation. Most of these treaties ensure that profits generated in Malta are either exempt from tax in the country of residence of the investor, or that such a country will provide a tax credit for the Malta tax spared as a consequence of the incentives Malta provides. These are the double taxation agreements currently in force:

 

Albania

Latvia

Australia

Lebanon

Austria

Libya

Bahrain

Lithuania

Barbados

Luxembourg

Belgium

Malaysia

Bulgaria

Montenegro

Canada

Morocco

China

Netherlands

Croatia

Norway

Cyprus

Pakistan

Czech Republic

Poland

Denmark

Portugal

Egypt

Qatar

Estonia

Romania

Finland

Russia

France

San Marino

Georgia

Saudi Arabia

Germany

Serbia

Greece

Singapore

Guernsey

Slovakia

Hong Kong

Slovenia

Hungary

South Africa

Iceland

Spain

India

Sweden

Ireland

Switzerland

Isle of Man

Syria

Israel

Tunisia

Italy

Turkey

Jersey

UAE

Jordan

United Kingdom

Korea

USA

Kuwait

Uruguay

Double Taxation Agreements signed but not yet in force:

 

  • Barbados (Protocol amending DTA
  • Belgium (Protocol amending DTA)
  • Liechtenstein (Protocol amending DTA)
  • Mexico (Protocol amending DTA)
  • Moldova (Protocol amending DTA)
  • Ukraine (Protocol amending DTA)