Malta is an independent Republic, having gained independence from the United Kingdom in 1964, situated in the centre of the Mediterranean Sea about 60 miles south of Italy and 180 miles north of North Africa. Government is exercised by a democratically elected parliament with elections being held every five years. Population is approximately 400,000. English and Maltese are the official languages but Italian is also widely spoken. English is the business language. Malta is a member of the Commonwealth of Nations and a member of the European Union.

 

The legal system is based on the Napoleonic code but British Law has had a strong influence particularly in fiscal and commercial law, company law in particular is based on English law. The currency is the Euro. Malta has an extensive range of over fifty tax treaties in force at present.

 

The Malta Company

 

Following an agreement reached with the European Union, Malta’s revised corporate tax system became effective as from 1st January 2007. The tax refund previously available to non-resident shareholders is now available to all, completely removing any distinction between resident and non-resident shareholders. The refund system will apply to all profits both foreign and locally sourced with the exception of profits derived from immovable property situated in Malta. The changes introduced are expected to consolidate Malta’s position as an attractive jurisdiction for foreign investors.

 

A Maltese Company is taxed as described below and if correctly structured, can be designed to take advantage of the extensive tax treaty network signed by Malta.

 

• Taxation - Under the new Maltese corporate tax system a shareholder in receipt of a dividend may claim a refund of 6/7ths of the Malta tax paid on the profits out of which the dividends are paid. Such dividend must not consist of passive interest or royalties. Shareholders in receipt of profit distributions derived from passive interest or royalties will be subject to a 5/7ths refund of the Malta tax paid by the Maltese Company. The tax refunds are applicable to shareholders where the company paying the dividend has not availed itself of double taxation relief. Dividends paid out of a Maltese Company that has availed itself of double taxation relief will be subject to a 2/3rds refund of the Malta tax paid. The Maltese corporate tax rate is 35%. In most situations with foreign ownership (and taking as a whole the company and its shareholder) it is possible to achieve an effective tax rate of 5%.

• Participation Exemption - With effect from 1st January 2007 Malta operates a participation exemption which exempts from tax, dividends and capital gains derived from participating holdings. Dividends received from a participating holding are exempt from Malta tax if they satisfy one of the following:

  • The holding is in a body of persons resident or incorporated in a country within the EU.

  • The dividend has been subject to at least 15% foreign tax. The holding is not in a body of persons which derives more than 50% of its income from passive interest of royalties.

  • The holding in a body or persons not resident in Malta is not a portfolio investment and the body of persons not resident in Malta has been subject to tax of at least 5%.

 

The profit or gain from the disposal of a participating holding in company resident or not resident in Malta is also exempt from Malta Tax. Where the participation exemption is inapplicable due to the conditions and criteria not being met, the shareholders of the Maltese Company will be entitled to claim a refund of 6/7ths of the Malta tax paid, rather than a full exemption.

• Shareholders - A minimum of two shareholders is required (unless a single member company is opted for). Shareholders may be corporate or individual. Details of the shareholders appear on public file, however licensed trust companies are permitted to hold shares on a fiduciary basis.

• Directors - A minimum of one Director is required, either corporate or individual, and details appear on the public file in Malta. A Maltese incorporated company is by default tax resident in Malta however to ensure that the Malta company is not deemed tax resident in any other country it is advisable that the majority of the Board of Director is based in Malta so that the management and control of the company is in Malta.

• Annual Reporting - Companies must file an annual return and must also prepare audited accounts.

• Timeframe - Normally it will take approximately 1 week to incorporate a Maltese Company after compliance procedures have been satisfied and the minimum capital requirements have been deposited in Malta. Ready made companies are not available.

• Restriction on Name and Activity - Names must end with the word “Limited”. There are few restrictions on the words which may be included within a company name but those indicating a connection with the banking or insurance industries can only be used when an appropriate license has been obtained.

• Local Requirements - As a matter of Maltese company law every Maltese Company MUST maintain a registered office address in Malta and must also appoint a company secretary. If a licensed trust company is handling all the corporate work, it becomes legally liable for actions of the Maltese company, so will naturally insist on being involved fairly closely in all business operations. Although there is no strict requirement that the Director(s) be resident in Malta tax treaty relief is only granted to companies whose effective management and control is firmly established in Malta. For most practical purposes it will therefore be necessary to appoint Maltese resident Directors.

 

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