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General information on Malta

Malta offers significant advantages for setting up your company. As an EU Member State, Malta offers you EU-compliant, low effective tax rates, a very professional and stable services infrastructure and a respected reputation.

The Republic of Malta is an island situated in Southern Europe. It comprises several islands on the Mediterranean Sea, about 80 km south of Sicily, with a population of around 416,000. The capital of Malta is Valletta and is effectively the smallest national capital in the European Union. Maltese and English are the official languages.

Historically, Malta’s location was of great strategic importance as a naval base. It gained independence from the United Kingdom in 1964 and became a republic in 1974. Malta joined the European Union in 2004 and became part of the Eurozone in 2008.

Since the country is part of the European Union, companies registered in Malta benefit from all of the advantages of a European company, even being able to apply for a VAT number, but with a far lower tax rate.

Malta has taken important and substantial steps to establish itself as a global player in the cross-border fund administration business. Competing against countries like Ireland and Luxembourg, Malta has a unique combination of a multi-lingual workforce and a strong legal system. The country boasts as a regulator, the MFSA, which has a strong business development mind-set, and the country has been successful in attracting gaming businesses, aircraft and ship registration, credit-card issuing banking licences, and also fund administration.

 

Malta Company main characteristics:

 

Tax

Introduction

Malta does not impose any withholding taxes on dividend, interest and royalties and does not have any Transfer Pricing and CFC legislation.

Tax Refund System

The standard corporate tax rate in Malta is 35% of the chargeable income for the fiscal year.  Upon a dividend distribution from the Maltese company, shareholders receiving such distributions become entitled to claim a refund of the Malta tax paid by the company on those profits out of which distributions are made. Tax refunds also apply where a company operates through an oversea branch in Malta.

The refunds currently available are:

• 6/7ths refund:   This type of refund is generally due on those profits earned from trading activities. Taking into account such refund, the effective rate of tax works out at 5%.
• 5/7ths refunds: This type of refund is generally due in respect of income derived from passive interest and royalties and income from participating holdings which do not qualify for the participation exemption. The effect rate of tax works out at 10%.
• 2/3rds refund: Available in those instances where the company has claimed double taxation relief. The refund depends on the type of double taxation relief availed of and is limited to the tax paid in Malta.
• 100% refund:  Applies when profits are derived from a participating holding which qualifies for the participation exemption.

Participation Exemption

Participation Holding

A participating holding exists where a company holds directly at least 10% of the equity shares of a company whose capital is wholly or partly divided into shares and where such holding confers at least 10% of any of following:  (i) a right to votes; (ii) a right to profits available for distribution and (iii) a right to assets available for distribution on the winding up of the company. The taxation authorities in Malta may also establish that an equity holding exists even where there is no holding of shares but where it is proven that at least two of the condition rights exist. A participating holding also exists when the following criteria are met:

• The investment in the non-resident company amounts to EUR 1,164,700 or more, subject to a time duration test of 183 days
• The Maltese company has the option to acquire the remaining balance of the equity shares in the non-resident company
• The Maltese company is entitled to first refusal in the event of the proposed disposal, redemption or cancellation of the remaining balance of the equity shares in the non- company
• The Maltese company is entitled to sit on the Board of the non-resident company
• The holding of shares in the non-resident company is for the furtherance of the business of the Maltese company provided further that the shares are not held for trading purposes

Participation Exemption

Profits derived from a participating holding or from gains realised on the disposal of such holding may, subject to certain conditions, be exempted from tax in Malta. The exemption is available where the non-resident company or similar entity  (in which the Maltese company owns the holding) is resident or incorporated in the EU; or is subject to foreign tax of at least 15% or does not have more than 50% of its income derived from passive interest or royalties. Where none of the above 3 conditions are met, the exemption is subject to an alternative test where both of the following 2 conditions must be satisfied – (1) the holding is not a portfolio investment and (2) the non-resident company or entity or its passive interest or royalties have been subject to any foreign tax at a rate which is not less than 5%.

A Maltese company receiving gains or profits from a participating holding or its disposal has an option not to claim the participation exemption but may pay tax at 35% instead. In such case, the company’s shareholders may (following a distribution of profits derived from the holding) claim a 100% refund of the tax paid by the company. This option affords flexibility in planning holding structures.

Double Taxation Relief

Malta’s domestic tax provisions relieve both juridical double taxation, through the various forms of relief explained below, and also economic double taxation mainly by the application of the Full Imputation System.

Malta adopts a credit method of Double Taxation Relief in accordance with Article 23B of the OECD Model Tax Convention. In addition to Treaty Relief, which would be applicable if the foreign tax had been incurred in a jurisdiction with which Malta had concluded a Double Tax Treaty, Malta extends its relief provisions unilaterally through three other forms of credit.