Malta holding companies can be set up in order to hold shares and securities and business assets in any form such as real estate, fixed assets, aircraft, investments, bank accounts and intellectual property as well as personal assets including any luxury items such as yachts, residential property, works of art. Although there is no specific holding company regime, the domestic tax treatment afforded to the different types of income received by such companies as well as the participation exemption regime introduced in 2007 make the setting up of Malta holding companies a very attractive option and an excellent conduit to and from the EU.
Participation Exemption
Income or capital gains derived by Malta companies from qualifying participating holdings may be exempt from tax in Malta. An investment qualifies as a participating holding where:
(a) Malta holding companies hold directly at least 5 percent of the equity shares of a company whose capital is wholly or partly divided into shares, which holding confers an entitlement to at least 5 percent of any two of the following (“equity holding rights”):
- right to vote;
- profits available for distribution; and
- assets available for distribution on a winding up; or
(b) a company is an equity shareholder in a company and the equity shareholder company is entitled at its option to call for and acquire the entire balance of the equity shares not held by that equity shareholder company to the extent permitted by the law of the country in which the equity shares are held; or
(c) a company is an equity shareholder in a company 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
(d) a company is an equity shareholder in a company 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
(e) a company is an equity shareholder which holds an investment representing a total value, as on the date or dates on which it was acquired, of a minimum of one million, one hundred and sixty-four thousand euro (€1,164,000) (or the equivalent sum in a foreign currency) in a company and that holding in the company is held for an uninterrupted period of not less than183 days; or
(f) a company is an equity shareholder in a company 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 a trade.
Equity shares refers to a holding of the share capital in a company which entitles the shareholder to at least any two of the following three rights: the right to vote, the right to profits available for distribution to shareholders and the right to assets available for distribution on a winding up of the company.
The participation exemption may also apply to holdings in other entities such as a Maltese limited partnership, whose capital is not divided into shares, a non-resident body of persons which has similar characteristics, as well as a collective investment vehicle where the liability of the investors is limited provided the criteria for the application of the exemption are satisfied.
Capital gains derived from the disposal of such participating holdings may be exempt from tax in Malta at the option of the Malta company. Where Malta holding companies receive dividend income from a participating holding such income may be exempt from tax in Malta also at the option of the company provided that the company in which the participating holding is held falls within one of the following safe harbours:
- it is resident or incorporated in the EU;
- it is subject to any foreign tax at a rate of at least 15%; or
- less than 50% of its income is derived from passive interest or royalties
Where a participating holding does not fall within one of the safe harbours above, the income derived therefrom may nevertheless be exempt from tax in Malta if both the conditions below are satisfied:
- the equity shares held in the non-resident company do not represent a portfolio investment; and
- the non-resident company or its passive interest or royalties have been subject to tax at a rate which is not less than 5%.
Taxation of the Malta Holding Companies
Where the participation exemption does not apply or where the company does not opt for income or gains to be exempt, Malta holding companies would be subject to tax on income less deductible expenses at the corporate income tax rate of 35%. Upon receipt of a dividend, the shareholders would be eligible to claim a refund of all or part of the tax paid, depending on the type and source of income received. The shareholder of the Malta company would be eligible to receive refunds as follows:
- 100% of the Malta tax paid where the investment qualifies as a participating holding and in the case of dividend income, where such participating holding falls within the safe harbours or satisfies the anti-abuse provisions as detailed above.
- 5/7ths of the Malta tax paid, where the income received by the company is passive interest or royalties or income or capital gains from a participating holding which does not fall within the safe harbours or satisfy the anti-abuse provisions
- 2/3rds of the tax payable in Malta, where income has benefitted from double taxation relief.
- 6/7ths of the Malta tax in all other cases.
Withholding tax on dividends
Dividend payments made by Malta holding companies to non-residents are paid free of Malta withholding tax.
Disposal of shares in Malta Holding Companies
A non-resident shareholder of Malta holding compnaies would be exempt from tax in Malta on the gain derived upon the disposal of shares in a Maltese company whose main assets do not consist of real estate situated in Malta, provided that the ultimate beneficial owner of the gain or profit is not directly or indirectly owned and controlled by, nor acts on behalf of individuals who are resident and domiciled in Malta.
