Malta

Malta Private Limited Liability Company (LLC)

Since 2007, all companies newly registered in Malta are onshore companies. The principal Maltese legislation regulating companies and commercial partnerships is the Companies Act 1995, that is to a large extent based on the UK Companies Act and has been in line with the European Union Company Law Directives even before Malta's entry in the EU. The Maltese Companies Act defines the types of corporate entities or commercial partnerships that may be established and regulates the manner in which their affairs are to be conducted. The most common form is the LLC:

The following are the chief characteristics of a private limited company:
  • only one member is necessary;
  • only one director is necessary, and must be a natural person, but can be of any nationality and resident anywhere;
  • there must be a company secretary, which must be a licensed Maltese Nominee Company;
  • there must be a registered office in Malta;
  • the minimum authorised and paid-up capital is €1,164, where the capital is does not exceed the minimum, it must be fully subscribed in the memorandum. Where it exceeds the minimum, at least 20% of the nominal value of each share must be paid up
  • shares can be registered but not bearer; preference or redeemable shares are permitted; and shares do not have to carry voting rights;
Malta International Holding Company

The International Holding Company (IHC) is similar to the old International Trading Company except that as its name implies it holds participations in foreign companies. Its effective tax rate is 11.67% or less; if dividends emanate from a 'participating holding' i.e. one of more than 10% in the paying company, then the effective rate of tax is nil. The IHC can make use of Malta's Double Taxation Treaties.

Malta Trusts

The Offshore Trusts Act 1988 was amended by The Trusts and Trustees Act 2004, which became effective in January 2005, and allows Maltese residents and firms to use local trusts, while also furthering Malta's international obligations on non-discrimination, transparency and the prevention of money laundering.

The government believes that the legislation, which creates a more streamlined and simplified trust regime, will make Malta much more attractive to both international and domestic clients, by offering greater flexibility and certainty. The new Act eliminates the nominee company regime, and introduces a licensing regime for professional trustees.

Until 2005, trusts in Malta were based on the Offshore Trusts Act 1988, which was largely based on Jermal trust law, itself a common law implant stemming from English trust law. Trusts under this Act must have non-resident settlor and beneficiaries, and trust assets must not include Maltese real estate (permitted under the new Act).

The Recognition of Trusts Act 1994 gave effect to the Hague Convention, and results in a division of trusts into:
  • Maltese trusts, where the proper law of the trust is Maltese, and the governing legislation is The Trusts and Trustees Act 2004; and
  • Foreign trusts, governed by whatever law the settlor has nominated..
  • All trusts, including foreign ones, must register with the Maltese Financial Services Centre (MFSC), which costs EUR250 for application and processing and EUR100 upon approval. A further EUR2,500 is payable upon the issuance of approval and annually thereafter. Foreign trusts which do not register with the MFSC will not benefit from the tax advantages of registered foreign trusts (they are tax-exempt).

Under the 2004 Act, transfers of assets into a trust or a change of beneficiaries may give rise to a charge to tax. A registered trust must have a Maltese Professional Trustee as one of its trustees, which files an annual declaration of conformity with the law.

It is likely that a Malta-registered trust will often be a more effective holding vehicle than the International Holding Company. Trusts are able to use the extensive network of Maltese Double Taxation Treaties.

Tax in Malta (New Company Tax System 2007 onwards)

The Maltese Company pays tax on a worldwide basis at the normal corporate tax rate of 35% with significant tax refunds to shareholders based on the imputation tax system and with the possibility of confidential beneficial ownership, reducing the effective tax rate down to as low as 5%.

This presents favourable tax planning opportunities for:
  • dividends received from a participating holding,
  • capital gains made from the disposal of a participating holding,
  • dividends from non-participating holdings,
  • trading income,
  • passive income (interest, royalties etc).
Key aspects of Maltese Tax:
  • No thin-cap rules or debt : equity ratios,
  • No transfer pricing rules,
  • No withholding taxes on interest and royalties to non-residents,
  • No withholding tax on dividend payment,
  • No capital duties or wealth taxes,
  • Tax imputation system crediting up to 100% refund of tax paid.
The Imputation system:

Malta operates the full imputation system of taxation whereby the tax paid by the company is available as a credit to the shareholders when distributions are made to them. Company tax of 35% is available as a credit to the shareholders upon receiving dividends from the company.

6/7ths refund for active income:

When dividends are paid by trading companies to the shareholders, these shareholders become entitled to claim refunds of 6/7ths of the Malta tax paid by the company. Taking into account such refunds, this results in an effective rate of Malta tax of 5%.

Shareholding may be held by individuals or through a Maltese parent.

The definition of a company has been widened to include an oversea branch 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.

100% refund for participating holdings / participating exemption:

Under the Maltese tax system, the income and capital gains derived by a Maltese registered 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. The latest amendments to Maltese tax laws have enhanced this tax treatment through the introduction of the notion of the ‘participation exemption’ whereby such income may be exempted from Maltese tax provided certain conditions are satisfied.

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. 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.

If the company, however, elects to include the income from it’s participating holding in its tax return, it will then still qualify for a full refund of the tax paid by the Maltese company. The refund is payable by the fourteenth day following the end of the month in which the claim is made.

For companies having income derived from non participating holdings or from passive interest and royalties, the Maltese tax system still provides for refunds of the tax paid by the Maltese company when distributions are made to shareholders.

5/7ths refund for passive interest and royalties:

When distributions are made out of profits earned from passive interest and royalties, the shareholders of a Maltese company may claim a refund of five-sevenths of the tax paid by the company when distributions are made to them.

The six-sevenths and five-sevenths refunds only apply when the distributions are made by the company which did not claim any form of double tax relief. When dividends are paid out of profits allocated to the foreign income account and in respect of which profits the company has claimed double tax relief, the shareholders may apply for a refund of two-thirds of the tax paid by the Maltese company.

Double Tax Agreements:

Malta has an extensive tax treaty network with 45 treaties in force and 12 initialled but not yet ratified.

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Signia Group
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