Incorporation of Maltese Companies
The principle Maltese legislation regulating companies and partnerships is the Companies Act, 1995 which is mainly based on UK Law and the EU Directives.
Malta - as an ideal base for carrying out Trading Operations and establishing a Holding Company
Maltese Trading Company
The recent 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 Mal-tese law, international entrepreneurs are able reap the advantages of the imputation system of taxation when distributions are made to them as non resident share-holders.
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 par-ent 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 fourteen days 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 |
| Trading Profit by company | 1000 |
| Dividend received by Shareholder | 1000 |
| Tax theron | 350 |
| Credit for tax paid by company | 350 |
| Tax Payable | 0 |
| Tax refunded - 6/7ths | 300 |
| NET Tax paid in Malta | 50 |
Maltese Holding Companies
Malta Introduces the Participation 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.
A participating holding arises where:
• a company holds directly at least ten per cent 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 en-titled at its option to call for and acquire the entire balance of the equity shares not held by that equity share-holder 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 five hundred thousand liri (or the equiva-lent sum 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 hold-ing acquired after 1 January 2007 by a Mal-tese company may qualify as a ‘participation exemption’ provided certain anti-abuse provi-sions are satisfied. The body of person 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 per-sons 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.
The Malta Financial Services Authority (MFSA) was established by law on 23 July 2002. It is a fully autonomous public institution and reports to Parliament on an annual basis. The MFSA has taken over supervisory functions previously carried out by the Central Bank of Malta, the Malta Stock Exchange and the Malta Financial Services Centre and is the single regulator for financial services. The sector incorporates all financial activity including banking, investment and insurance. The MFSA also manages the Registry of Companies and has also taken over responsibility as the Listing Authority.