Business in Malta
Today Malta is a major center of international business. Its goods and services, as well as financial resources, rotate quite freely in the international business arena. Large financial flows pass through Malta. This became possible due to the fact that the state pursues an attractive and competitive tax policy, but at the same time, local laws are fully consistent with EU legislation.
Malta offers favorable conditions for holding or trading activities in general, and the key sectors of its economy that are most attractive to investors are tourism, information and communication services, aviation, yachting and shipping (Malta is one of the world's largest registration centers for aircraft and ships and yachts), online gaming industry, pharmaceuticals, intellectual property.
Legal system of Malta
The form of government of Malta is a parliamentary republic, the political regime is democratic. Malta is a member of the European Union (since 2004) and the Eurozone (since 2008), a member of the Schengen Agreement. In addition, being a former colony of Great Britain, the state is part of the British Commonwealth. The legal system of Malta is based on English law, although it contains elements of the law of countries of the continental legal family.
Advantages of Malta
International agreements of Malta in the field of taxation
Countries with which Malta has entered into agreements for the avoidance of double taxation:
- Great Britain
- Hong Kong
- O. Maine
- San Marino
- Saudi Arabia
- Czech Republic
- South Korea
- South Africa
Malta also has tax agreements signed but not yet in force with India, Israel, Mexico, Russia and Turkey. In addition, special tax information exchange agreements (TIEA) have been concluded with the Bahamas, Bermuda and Gibraltar.
Types of companies in Malta
The advantages of Malta as a jurisdiction for doing business are associated not only with the economic and political situation in the country, but also with the speed of opening a company. So, for example, the very registration of an enterprise here takes up to 5 days, and when transferring an already ready business to Malta, you will not have to pay a penny extra and the time costs will be minimal: you will only have to go through a simplified registration procedure.
The most popular types of companies in Malta are Private Limited Company/Public Limited Company (same as a limited liability company), or Public Limited Partnership/Private Limited Partnership (limited liability partnership). The difference between a public and a private company/partnership is insignificant and noticeable only at the level of shareholders/directors, and in terms of taxation and financial matters, they are almost identical.
All companies in Malta are divided into two types:
- international trading companies (International Trading Companies, ITC);
- international holding companies (International Holding Companies, IHC).
The most common type of Maltese companies are private limited companies, established under the Companies Act 1996, Cap. 386. In a private company, the rights to transfer shares are limited, public subscription for shares is prohibited, the number of participants cannot exceed 50.
The minimum authorized capital is 1,165 euros (for a public company - about 46,600 euros). It must be paid into the foundation account of the company and can be used for its activities as working capital. At least 20% of the share capital must be paid up. The company has the ability to determine its authorized capital and have its accounts in any convertible currency; accounting, tax payment and tax refunds are carried out in the same currency, which minimizes exchange rate risks.
Only registered shares are allowed to be issued. Bearer shares are not permitted (with the exception of public companies and with the permission of the MFSA - Malta Financial Services Authority).
The minimum number of shareholders is two. Shareholders can be both Maltese and foreign, both individuals and legal entities.
The company must have at least one director (two in a public company). A legal entity may also act as a director. Foreign directors are allowed, nominees are not allowed. In addition, the company must have a secretary - an individual (he can be both a resident and a non-resident of Malta).
At least once a year, the company is required to hold an annual general meeting of shareholders. Meetings of shareholders and directors must be held predominantly in Malta in order to meet the criterion of effective management and control.
The company must have a registered office in Malta. The minutes of the meetings (sessions) of the governing bodies of the company are kept in Malta.
The Articles of Association of the company must list the purposes of its registration. Simply referring to "any legal activity" or "trading activity" is not allowed. It should be noted that at present the law does not differentiate companies on the basis of their trading or holding activities (that is, their simultaneous implementation is possible). In addition to the described private (closed) limited liability companies, there are also public (open) limited liability companies, general and limited partnerships, branches of foreign companies, trusts, etc. in Malta.
The procedure for registering a company in Malta is as follows:
Company name reservation.
The company name availability check can be done online through the company registry website or in person. In this case, confirmation of the reservation of the name is sent to e-mail.
- Preparation of Memorandum and Charter of the company.
Contribution of authorized capital.
For this procedure, the following documents must be submitted to the bank:
- a completed Know Your Customer (KYC) form;
- completed account opening request indicating the type of account, currency and preferred method of paying tax;
- a copy of the Memorandum and Articles of Association (the bank may also require a description of the company’s activities and expected turnover);
- confirmation of the permanent address of the directors (the bank also requires identification documents for all directors, beneficial owners and secretaries). In addition, copies of utility bills may be required.
Registration with the Registrar of Companies and obtaining a tax identification number (TIN).
To do this, the following documents must be submitted to the Registrar of Companies:
- name reservation confirmation;
- signed Memorandum and Charter;
- confirmation of the deposit of share capital;
- a copy of the passport/identity card of each shareholder, director of the company and secretary.
A Maltese company is required to maintain accounting records, as well as prepare and submit:
- annual report with information about the company;
- annual audited financial statements;
- annual tax return.
All companies are required to prepare an annual report (annual return) of the established format by the date of the anniversary of registration of the company. The return must be filed with the Registrar of Companies within 42 days of that date.
Companies are also required to submit an annual financial report (annual accounts). This report is submitted within 10 months after the end of the financial year. As a rule, a copy of the auditor's report should be attached to it. Private companies whose performance (balance sheet, turnover and average number of employees for the reporting period) do not exceed certain limits are exempt from audit requirements.
Taxation in Malta
- The tax system in Malta is based on the following principles:
- A system of full conditional ('imputed') taxation with a flexible mechanism for the return (reimbursement) of taxes to shareholders, including foreign ones.
- High initial tax rate and one of the lowest effective tax rates in the EU (that is, the real rates received after all settlements with the tax authority, based on the amounts actually paid by the company, taking into account the refunds made).
- Exemption from double taxation, wide network of bilateral tax treaties.
- Exemption from taxes on dividends and capital gains.
- No withholding tax on dividends, interest or royalties paid to non-residents of Malta.
- No capital gains tax on the issuance, distribution and transfer of shares (provided that the Maltese company does not own immovable property in Malta). Income received by a foreign shareholder as a result of the disposal of shares in a Maltese company is generally exempt from tax in Malta.
- No stamp duty on the issuance, distribution or transfer of shares (provided that the Maltese company operates primarily outside of Malta).
- Lack of a pre-tax system.
Malta corporate tax is levied on the basis of the Income Tax Act 1949, Cap. 123, as amended.
The corporate income tax rate in Malta can be classified as relatively high - it is 35% and is flat.
Registered shareholders who are recipients of dividends distributed by the company are entitled to demand a refund (refund) of the tax paid by the company. As a result, shareholders, upon receipt of dividends from their Maltese company, will also receive a refund of the tax paid by the company (in the appropriate proportion) within 14 days from the date of the right to return (in some cases, the period can be from 4 to 6 weeks). The tax refund is guaranteed by law.
There are four possible proportions of the tax refund:
a) 6/7 (refund of 85.7% of the amount of tax paid at a rate of 35%) - relates to profit from trading activities;
b) 5/7 (refund of 71.4% of the amount of tax paid at a rate of 35%) - refers to passive interest and royalties (by "passive" we mean interest or royalties received outside of trading or other economic activity);
c) 2/3 (refund applicable in case the Maltese company enjoys double taxation exemption);
d) 100% (in cases where the profit is received from a qualified participation (Participating Holding, literally - “participating holding”) - dividends are received from the shares of a foreign company owned by a Maltese company, subject to a number of conditions.
Taxation of dividends
The concept of 'participation' (of one company in another) for tax purposes (and, accordingly, for the application of the refund mechanism) must be qualified according to certain criteria. Qualified participation (Participating Holding) is formed under one of the following conditions:
- A Maltese holding company owns at least 10% of the shares of a foreign company (including any two of the following powers: voting rights, dividend rights, rights to a part of the assets in liquidation).
- A Maltese holding company is a shareholder of a foreign company and is entitled to membership in the board of directors or the right to appoint a person to the board of directors of that foreign company.
- The Maltese Holding Company is a shareholder that has invested at least EUR 1,164,000 in a foreign company and such investment is made continuously for a period of at least 183 days.
- The Maltese Holding Company is a shareholder of a foreign company and is authorized, at its sole discretion, to request and receive a full balance sheet (information) on the remaining ordinary shares of this foreign company that do not belong to the Maltese holding company (that is, on the full ownership structure of the foreign company).
- The Maltese Holding Company is a shareholder of a foreign company and has the right of first refusal in the event of the placement, redemption or cancellation of all ordinary shares of a foreign company not owned by the Maltese Holding Company.
- The Malta Holding Company is a shareholder of a foreign company and its shares are held for the purpose of facilitating (i.e. continuing) the business of the holding company and not for holding them as securities for trading purposes.
- Thus, if the investment (investment) meets one of the specified participation criteria, then the tax 'exemption in connection with participation' (participation exemption) will be applied to the company's income.
Dividends received by a Maltese holding company from a qualifying participation are exempt from tax in Malta if any of the following conditions are met (these restrictions are intended to prevent abuse of the participation exemption):
- The foreign company is incorporated or tax resident in an EU Member State.
- The income of a foreign company does not consist of more than half of passive interest and royalties.
- Profits of a foreign company are taxed in their home country at a rate of at least 15%.
- Ownership in a foreign company does not constitute a portfolio investment and the said foreign company or its passive interest or royalties have been taxed at a rate of at least 5%.
Maltese companies can also be used to structure royalty payments. Royalties are periodic royalties paid to the right holder for the use of intellectual property or means of individualization, such as a trademark.
In May 2013, Malta adopted legislative changes aimed at expanding the list of types of income from intellectual property subject to tax exemption. Previously, the state had a complete exemption from tax on royalties received from registered patents and copyrights. The amendments add to this list the royalties received from the use of trademarks (subject to conditions specified by law). The new rules came into force retrospectively, from January 1, 2012.
The standard value added tax rate in Malta is 18%. In the event that a Maltese company was established solely as a holding company (pure holding company), it is not subject to VAT taxation. If it has a European VAT registration (VAT), the company must also file VAT returns.
None, except in some cases when dealing with a non-resident of the European Economic Area (EEA).