This guide provides a comprehensive summary on Malta companies and its corporate tax system.
1. EU Compliant Tax Regime
In 2007, Malta made the final revisions to its corporate tax system to remove the remnants of positive tax discrimination by extending the possibility to claim tax refunds to residents and non-residents alike. Certain features such as the participation exemption which serve to make Malta a more attractive tax planning jurisdiction were also introduced at this stage. Over the years Malta has modified and will continue to modify its tax laws to bring them in line with various EU directives and OECD initiatives thus offering an attractive, competitive, fully EU compliant tax system.
Types of Malta Companies & Entities in Malta
Malta offers various forms of partnerships and limited liability companies:
- Public (plc);
- Private (Ltd). Partnerships
- en commandite the capital of which is divided into shares
- en commandite the capital of which is not divided into shares;
- en nom collectif.
- Malta Trusts
Company Law Aspects
3.1. Capital Requirements
A private company must have a minimum issued share capital of €1,164.69. 20% of this amount must be paid up on incorporation. Any foreign convertible currency may be used to denominate this capital. The chosen currency will also be the company’s reporting currency and the currency in which tax is paid and any tax refund due is received, a factor which eliminates foreign exchange risks. Furthermore, Maltese company law provides for companies set up with a variable share capital.
3.2. Shareholders
Whilst companies are generally set up with more than one shareholder, there is the possibility to set up a company as a single member company. Various persons or entities may hold shares, including individuals, corporate entities, trusts and foundations. Alternatively, a trust companiy such as Chetcuti Cauchi's Claris Capital Limited, our trust company which has been authorised by the Malta Financial Services Authority to act as trustee or fiduciary, may hold shares for the benefit of the beneficiaries.
3.3. Objects
The objects of a private limited company are unlimited but must be specified in the Memorandum of Association. In case of a Private exempt limited company, a primary purpose must be stated as well.
3.4. Directors and Secretary
With respect to directors and company secretary, private and public companies have different requirements. While private companies must have a minimum of one director, a public company must have a minimum of two. It is also possible for a director to be a body corporate. All companies are obliged to have a company secretary. A company secretary must be an individual and there is a possibility for a director to act as a company secretary. In the case of private exempt companies, a sole director may also act as the company secretary.
While there are no legal requisites regarding the residence of directors or the company secretary, it is advisable to appoint Malta resident directors as this ensures that the company is managed effectively in Malta. Our professionals are able to act as or recommend officers for client companies under our administration.
3.5. Confidentiality
Under the Professional Secrecy Act, professional practitioners are bound by a high standard of confidentiality as established by the aforementioned act. These practitioners include advocates, notaries, accountants, auditors, trustees and officers of nominee companies and licensed nominees, amongst others. Section 257 of the Maltese Criminal Code stipulates that professionals who disclose professional secrets may be liable to a maximum fine of € 46,587.47 and/or a 2 year prison sentence.
3.6. Meetings
Malta companies are required to hold at least one general meeting every year, with not more than fifteen months elapsing between the date of one annual general meeting and that of the next. A company which holds its first annual general meeting is exempt from holding another general meeting in the year of its registration or in the following year.
3.7. Formation Procedure
To register a company, the memorandum and articles of association must be presented to the Registrar of Companies, along with the evidence that the paid up share capital of the company has been deposited in a bank account. Afterwards a certificate of registration will be issued.
3.8. Incorporation Time-Scale
Malta companies benefit from a relatively swift incorporation process which takes between 3 to 5 days once all information, receipt of due diligence documents and remittance of funds have been has been provided. For an additional fee, a company may be registered within just 24 hours.
3.9. Accounting & Accounting Year
Yearly audited financial statements need to be prepared in accordance with International Financial Reporting Standards (IFRSs). These statements must be filed with the Registry of Companies where they may be inspected by the public. Alternatively, Maltese law provides for a choice of financial year-end.
Company Taxation in Malta
Companies registered in Malta are considered to be resident and domiciled in Malta, thus they are subject to tax on their worldwide income less permitted deductions at the corporate income tax rate which at present stands at 35%.
Imputation System
Maltese tax resident shareholders receive full credit for any tax paid by the company on profits distributed as dividends by a Maltese company, thus preventing the risk of double taxation on that income. In cases where the shareholder is liable to tax in Malta on dividend at a rate which is lower than the company rate of tax (which currently stands at 35%), excess imputation tax credits are refundable.
Malta Tax Refunds
Upon receipt of a dividend, shareholders of a Malta company may claim a refund of all or part of the Malta tax paid at the level of the company on such income. In order to determine the amount of refund which one may claim, the type and source of the income received by the company must be considered. Shareholders of a company that have a branch in Malta and who are receiving dividends out of branch profits subject to tax in Malta qualify for the same Malta tax refunds as shareholders of a Malta company.
Maltese law stipulates that refunds are to be paid within 14 days from the day in which a refund becomes due, that is when a complete and correct tax return for the company and shareholders has been filed, the tax due has been fully paid and a complete and proper refund claim has been made.
Refunds may not be claimed in any case on tax suffered on income derived directly or indirectly, from immovable property.
Full refund
A full refund of the tax paid by the company, resulting in an effective combined tax rate of zero may be claimed by shareholders in respect of:
- income or gains are derived from an investment which qualifies as a Participating Holding; or
- in the case of dividend income, where such Participating Holding falls within the safe harbours or satisfies the anti-abuse provisions.
The 5/7ths refund
There are two cases where a 5/7 refund is given:
- when the income received is passive interest or royalties; or
- in cases of income arising from a participating holding which does not fall within the safe harbours or satisfy the anti-abuse provisions.
The 2/3rds refund
Shareholders who claim double taxation relief in respect of any foreign income received by a Malta company are limited to a 2/3 refund of the Malta tax paid.
The 6/7ths refund
In cases of dividends which are paid to shareholders out of any other income which has not being previously mentioned, these shareholders become entitled to claim a refund of 6/7ths of the Malta tax paid by the company. Thus, shareholders will benefit from an effective rate of Malta tax of 5%.
Double Tax Relief for Malta Companies
Malta companies may benefit from three types of double tax relief:
- Unilateral relief, including credit system for relief of underlying tax
- Double Tax Treaty Network
- Flat Rate Foreign Tax Credit system (FRFTC)
Unilateral Relief
The unilateral relief mechanism creates a virtual double tax treaty between Malta and a large number of countries around the world which provides for a tax credit in cases where foreign tax has been suffered irrespective of whether Malta has a double tax treaty with such jurisdiction or not. To benefit from unilateral relief, a taxpayer must provide evidence to the satisfaction of the Commissioner that:
- that the income arose overseas;
- that the income suffered foreign tax; and
- the amount of foreign tax suffered.
The foreign tax suffered will be compensated through in the form of credit against the tax chargeable in Malta on the gross chargeable income. The credit shall not exceed the total tax liability in Malta on the foreign sourced income.
OECD based Tax Treaty Network
To date, Malta has signed over 80 Malta double tax treaties. Most treaties are based on the OECD model, including the treaties signed with other EU member states.
EU Parent and Subsidiary Directive
As an EU member state, Malta has adopted the EU Parent-Subsidiary Directive which disposes of cross border transfer of dividends from subsidiary to parent companies within the EU.
Interest and Royalties Directive
The Interest and Royalties Directive exempts interest and royalty payments payable to a company in a member state from tax in the source member state.
Participation Exemption
Malta holding companies may be structured to hold shares in other companies and such participations in other companies qualify as participating holding. Holding Companies which meet either of the conditions mentioned below may benefit from the Malta participation exemption based on participating holding rules both on dividends from such holdings and gains arising on the disposal of such holdings:
- a company holds directly a minimum of 5% of the equity shares of a company whose capital is completely or partly divided into shares, which holding confers an entitlement to at least 5% 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
- a company is an equity shareholder in a company, therefore it is entitled 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
- a company is an equity shareholder in a company, therefore it is entitled to first refusal in the event of the proposed disposal, redemption, or cancellation of all the equity shares of that company not held by that equity shareholder company; or
- 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
- a company is an equity shareholder which holds an investment representing a minimum total value of €1,164,000 or its equivalent in a foreign currency, as on the date or dates on which it was acquired, in a company and that holding in a company must be held for an interrupted period of a minimum of 183 days; or
- 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 trade.
Equity shares deal with the holding of the share capital in a company which is not a property company and which entitles the shareholder to at least any two of the following three years: 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.
Participation exemption can also apply to holdings in other entities which could be a Maltese limited partnership, a non resident body of persons with similar characteristics, and even a collective investment vehicle where the liability of the investors is limited, as long as a holding satisfies the criteria for the exemption outlined below:
- 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.
The above are the safe harbours set. In cases where the company in which the participating holding is held does not fall within one of the aforementioned safe harbours, the income which is derived therefore may nevertheless be exempt from tax in Malta if both the conditions below are satisfied:
- the equity shares held in the non-resident company must 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%
5.6. Flat Rate Foreign Tax Credit
Companies which are receiving overseas income may benefit from the FRTC, provided that they provide an auditor’s certificate stating that the income arose overseas. The FRFTC mechanism assumes a foreign tax suffered of 25%. A 35% tax is imposed on the company’s net income grossed up by 25% FRFTC, with the 25% credit being applied against the Malta tax due.
Contact Us
6. No other taxes
- There are no withholding taxes on the distribution of dividends to shareholders;
- No taxes or restrictions on the distribution of the dividends from the Malta company;
- Tax is paid and refund is received in same currency of company’s share capital.
- No withholding taxes on interest and royalties to non-residents;
- No capital duties;
- No wealth taxes;
7. Advance tax rulings
In certain cases specified at law, it is possible to request a formal ruling to provide certainty on the application of domestic tax law to a specific transaction. Such rulings will be binding on the Inland Revenue for five years and survive a change in law for 2 years, and it is generally issued within 30 days of application. An informal system of Revenue feedback has been created through which a letter of guidance may be given.
8. Compliance with EU Law
As a member of the European Union, Malta has implemented all the relevant EU directives that concern the subject of corporate taxation, including the EU Parent-Subsidiary Directive and the Interest and Royalties Directive. This makes Malta’s corporate legal framework fully compliant with EU law and further harmonises the Maltese laws with the laws of all other member states.
9. Double taxation treaties
In force: Andorra, Albania, Australia, Austria, Azerbaijan, Bahrain, Barbados, Belgium, Botswana, Bulgaria, Canada, China, Croatia, Cyprus, Czech Republic, Denmark, Egypt, Estonia, Finland, France, Georgia, Germany, Greece, Guernsey, Hong Kong, Hungary, Iceland, India, Ireland, Isle of Man, Israel, Italy, Jersey, Jordan, Korea, Kuwait, Latvia, Lebanon, Libya, Lichtenstein, Lithuania, Luxembourg, Malaysia, Mauritius, Mexico, Moldova, Montenegro, Morocco, Netherlands, Norway, Pakistan, Poland, Portugal, Qatar, Romania, Russia, San Marino, Saudi Arabia, Serbia, Singapore, Slovakia, Slovenia, South Africa, Spain, Sweden, Switzerland, Syria, Tunisia, Turkey, Ukraine, United Arab Emirates, United Kingdom, USA, Uruguay and Vietnam.
Treaties signed but not yet in force: Belgium, Curaçao
Tax Information Exchange Agreements in Force: Bahamas, Bermuda, Cayman Islands, Gibraltar, USA.
Tax Information Exchange Agreements – signed but not in force: Macao
*****************
1. EU Compliant Tax Regime
In 2007, Malta made the final revisions to its corporate tax system to remove the remnants of positive tax discrimination by extending the possibility to claim tax refunds to residents and non-residents alike. Certain features such as the participation exemption which serve to make Malta a more attractive tax planning jurisdiction were also introduced at this stage. Over the years Malta has modified and will continue to modify its tax laws to bring them in line with various EU directives and OECD initiatives thus offering an attractive, competitive, fully EU compliant tax system.
2. Corporate vehicles
Malta offers various forms of partnerships and limited liability companies:
- Public (plc);
- Private (Ltd). Partnerships
- en commandite the capital of which is divided into shares
- en commandite the capital of which is not divided into shares;
- en nom collectif
3. Company Law Aspects
3.1. Capital Requirements
A private company must have a minimum issued share capital of €1,164.69. 20% of this amount must be paid up on incorporation. Any foreign convertible currency may be used to denominate this capital. The chosen currency will also be the company’s reporting currency and the currency in which tax is paid and any tax refund due is received, a factor which eliminates foreign exchange risks. Furthermore, Maltese company law provides for companies set up with a variable share capital.
3.2. Shareholders
Whilst companies are generally set up with more than one shareholder, there is the possibility to set up a company as a single member company. Various persons or entities may hold shares, including individuals, corporate entities, trusts and foundations. Alternatively, a trust companiy such as Chetcuti Cauchi's Claris Capital Limited, our trust company which has been authorised by the Malta Financial Services Authority to act as trustee or fiduciary, may hold shares for the benefit of the beneficiaries.
3.3. Objects
The objects of a private limited company are unlimited but must be specified in the Memorandum of Association. In case of a Private exempt limited company, a primary purpose must be stated as well.
3.4. Directors and Secretary
With respect to directors and company secretary, private and public companies have different requirements. While private companies must have a minimum of one director, a public company must have a minimum of two. It is also possible for a director to be a body corporate. All companies are obliged to have a company secretary. A company secretary must be an individual and there is a possibility for a director to act as a company secretary. In the case of private exempt companies, a sole director may also act as the company secretary.
While there are no legal requisites regarding the residence of directors or the company secretary, it is advisable to appoint Malta resident directors as this ensures that the company is managed effectively in Malta. Our professionals are able to act as or recommend officers for client companies under our administration.
3.5. Confidentiality
Under the Professional Secrecy Act, professional practitioners are bound by a high standard of confidentiality as established by the aforementioned act. These practitioners include advocates, notaries, accountants, auditors, trustees and officers of nominee companies and licensed nominees, amongst others. Section 257 of the Maltese Criminal Code stipulates that professionals who disclose professional secrets may be liable to a maximum fine of € 46,587.47 and/or a 2 year prison sentence.
3.6. Meetings
Malta companies are required to hold at least one general meeting every year, with not more than fifteen months elapsing between the date of one annual general meeting and that of the next. A company which holds its first annual general meeting is exempt from holding another general meeting in the year of its registration or in the following year.
3.7. Formation Procedure
To register a company, the memorandum and articles of association must be presented to the Registrar of Companies, along with the evidence that the paid up share capital of the company has been deposited in a bank account. Afterwards a certificate of registration will be issued.
3.8. Incorporation Time-Scale
Malta companies benefit from a relatively swift incorporation process which takes between 3 to 5 days once all information, receipt of due diligence documents and remittance of funds have been has been provided. For an additional fee, a company may be registered within just 24 hours.
3.9. Accounting & Accounting Year
Yearly audited financial statements need to be prepared in accordance with International Financial Reporting Standards (IFRSs). These statements must be filed with the Registry of Companies where they may be inspected by the public. Alternatively, Maltese law provides for a choice of financial year-end.
4. Company Tax System
Companies registered in Malta are considered to be resident and domiciled in Malta, thus they are subject to tax on their worldwide income less permitted deductions at the corporate income tax rate which at present stands at 35%.
4.1. Imputation System
Maltese tax resident shareholders receive full credit for any tax paid by the company on profits distributed as dividends by a Maltese company, thus preventing the risk of double taxation on that income. In cases where the shareholder is liable to tax in Malta on dividend at a rate which is lower than the company rate of tax (which currently stands at 35%), excess imputation tax credits are refundable.
4.2. Tax Refunds
Upon receipt of a dividend, shareholders of a Malta company may claim a refund of all or part of the Malta tax paid at the level of the company on such income. In order to determine the amount of refund which one may claim, the type and source of the income received by the company must be considered. Shareholders of a company that have a branch in Malta and who are receiving dividends out of branch profits subject to tax in Malta qualify for the same Malta tax refunds as shareholders of a Malta company.
Maltese law stipulates that refunds are to be paid within 14 days from the day in which a refund becomes due, that is when a complete and correct tax return for the company and shareholders has been filed, the tax due has been fully paid and a complete and proper refund claim has been made.
Refunds may not be claimed in any case on tax suffered on income derived directly or indirectly, from immovable property.
4.3. 100% refund
A full refund of the tax paid by the company, resulting in an effective combined tax rate of zero may be claimed by shareholders in respect of:
- income or gains are derived from an investment which qualifies as a Participating Holding; or
- in the case of dividend income, where such Participating Holding falls within the safe harbours or satisfies the anti-abuse provisions.
4.4. The 5/7ths refund
There are two cases where a 5/7 refund is given:
- when the income received is passive interest or royalties; or
- in cases of income arising from a participating holding which does not fall within the safe harbours or satisfy the anti-abuse provisions.
4.5. The 2/3rds refund
Shareholders who claim double taxation relief in respect of any foreign income received by a Malta company are limited to a 2/3 refund of the Malta tax paid.
4.6. The 6/7ths refund
In cases of dividends which are paid to shareholders out of any other income which has not being previously mentioned, these shareholders become entitled to claim a refund of 6/7ths of the Malta tax paid by the company. Thus, shareholders will benefit from an effective rate of Malta tax of 5%.
5. Effective system for relief of double taxation for companies
Malta companies may benefit from:
- Unilateral relief, including credit system for relief of underlying tax
- Double Tax Treaty Network
- Flat Rate Foreign Tax Credit system (FRFTC)
5.1. Unilateral Relief
The unilateral relief mechanism creates a virtual double tax treaty between Malta and a large number of countries around the world which provides for a tax credit in cases where foreign tax has been suffered irrespective of whether Malta has a double tax treaty with such jurisdiction or not. To benefit from unilateral relief, a taxpayer must provide evidence to the satisfaction of the Commissioner that:
- that the income arose overseas;
- that the income suffered foreign tax; and
- the amount of foreign tax suffered.
The foreign tax suffered will be compensated through in the form of credit against the tax chargeable in Malta on the gross chargeable income. The credit shall not exceed the total tax liability in Malta on the foreign sourced income.
5.2. OECD based Tax Treaty Network
To date, Malta has signed over 70 double tax treaties. Most treaties are based on the OECD model, including the treaties signed with other EU member states.
5.3. EU Parent and Subsidiary Directive
As an EU member state, Malta has adopted the EU Parent-Subsidiary Directive which disposes of cross border transfer of dividends from subsidiary to parent companies within the EU.
5.4. Interest and Royalties Directive
The Interest and Royalties Directive exempts interest and royalty payments payable to a company in a member state from tax in the source member state.
5.5. Participating Exemption
Malta holding companies may be structured to hold shares in other companies and such participations in other companies qualify as participating holding. Holding Companies which meet either of the conditions mentioned below may benefit from this participating exemption based on participating holding rules both on dividends from such holdings and gains arising on the disposal of such holdings:
- a company holds directly a minimum of 5% of the equity shares of a company whose capital is completely or partly divided into shares, which holding confers an entitlement to at least 5% 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
- a company is an equity shareholder in a company, therefore it is entitled 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
- a company is an equity shareholder in a company, therefore it is entitled to first refusal in the event of the proposed disposal, redemption, or cancellation of all the equity shares of that company not held by that equity shareholder company; or
- 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
- a company is an equity shareholder which holds an investment representing a minimum total value of €1,164,000 or its equivalent in a foreign currency, as on the date or dates on which it was acquired, in a company and that holding in a company must be held for an interrupted period of a minimum of 183 days; or
- 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 trade.
Equity shares deal with the holding of the share capital in a company which is not a property company and which entitles the shareholder to at least any two of the following three years: 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.
Participation exemption can also apply to holdings in other entities which could be a Maltese limited partnership, a non resident body of persons with similar characteristics, and even a collective investment vehicle where the liability of the investors is limited, as long as a holding satisfies the criteria for the exemption outlined below:
- 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.
The above are the safe harbours set. In cases where the company in which the participating holding is held does not fall within one of the aforementioned safe harbours, the income which is derived therefore may nevertheless be exempt from tax in Malta if both the conditions below are satisfied:
- the equity shares held in the non-resident company must 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%
5.6. Flat Rate Foreign Tax Credit
Companies which are receiving overseas income may benefit from the FRTC, provided that they provide an auditor’s certificate stating that the income arose overseas. The FRFTC mechanism assumes a foreign tax suffered of 25%. A 35% tax is imposed on the company’s net income grossed up by 25% FRFTC, with the 25% credit being applied against the Malta tax due.
Contact Us
6. No other taxes
- There are no withholding taxes on the distribution of dividends to shareholders;
- No taxes or restrictions on the distribution of the dividends from the Malta company;
- Tax is paid and refund is received in same currency of company’s share capital.
- No withholding taxes on interest and royalties to non-residents;
- No capital duties;
- No wealth taxes;
7. Advance tax rulings
In certain cases specified at law, it is possible to request a formal ruling to provide certainty on the application of domestic tax law to a specific transaction. Such rulings will be binding on the Inland Revenue for five years and survive a change in law for 2 years, and it is generally issued within 30 days of application. An informal system of Revenue feedback has been created through which a letter of guidance may be given.
8. Compliance with EU Law
As a member of the European Union, Malta has implemented all the relevant EU directives that concern the subject of corporate taxation, including the EU Parent-Subsidiary Directive and the Interest and Royalties Directive. This makes Malta’s corporate legal framework fully compliant with EU law and further harmonises the Maltese laws with the laws of all other member states.
9. Double taxation treaties
In force: Andorra, Albania, Australia, Austria, Azerbaijan, Bahrain, Barbados, Belgium, Botswana, Bulgaria, Canada, China, Croatia, Cyprus, Czech Republic, Denmark, Egypt, Estonia, Finland, France, Georgia, Germany, Greece, Guernsey, Hong Kong, Hungary, Iceland, India, Ireland, Isle of Man, Israel, Italy, Jersey, Jordan, Korea, Kuwait, Latvia, Lebanon, Libya, Lichtenstein, Lithuania, Luxembourg, Malaysia, Mauritius, Mexico, Moldova, Montenegro, Morocco, Netherlands, Norway, Pakistan, Poland, Portugal, Qatar, Romania, Russia, San Marino, Saudi Arabia, Serbia, Singapore, Slovakia, Slovenia, South Africa, Spain, Sweden, Switzerland, Syria, Tunisia, Turkey, Ukraine, United Arab Emirates, United Kingdom, USA, Uruguay and Vietnam.
Treaties signed but not yet in force: Belgium, Curaçao
Tax Information Exchange Agreements in Force: Bahamas, Bermuda, Cayman Islands, Gibraltar, USA.
Tax Information Exchange Agreements – signed but not in force: Macao
