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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.
Malta offers various forms of partnerships and limited liability companies:
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.
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.
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.
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 Malta 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 company Malta, 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.
Read more: Serviced offices Malta
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.
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.
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.
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.
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.
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%.
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.
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.
Read more: Malta double taxation agreements
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:
There are two cases where a 5/7 refund is given:
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.
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%.
Malta companies may benefit from:
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:
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 70 double tax treaties. Most treaties are based on the OECD model, including the treaties signed with other EU member states.
Also read: Accounting in Malta
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.
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:
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:
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:
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.
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.
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.
In force: Albania, Australia, Austria, Bahrain, Barbados, Belgium, 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, San Marino, Russia, Saudi Arabia, Serbia, Singapore, Slovakia, Slovenia, South Africa, Spain, Sweden, Switzerland, Syria, Tunisia, Turkey, United Arab Emirates, United Kingdom, USA, Uruguay and Vietnam.
Treaties signed but not yet in force: Belgium, Ukraine, Curaçao
Tax Information Exchange Agreements in Force: Bahamas, Bermuda, Cayman Islands, Gibraltar, USA.
Tax Information Exchange Agreements – signed but not in force: Macao
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