Malta is a renowned and respected centre of international business that is attractive in terms of taxation. It has good conditions for holding or trading activity, and it attracts investors with its tourism, information and communication services, aviation, yachting and shipping (Malta is one of the largest world registration centers of air and sea ships and yachts), online gaming, pharmaceutics, and intellectual property, that all take integral part in Maltese economy.
Maltese jurisdiction is used for the purpose of corporate and tax planning and Malta is characterized by the following:
1) High prestige: Malta isn’t recognized as an offshore zone by the majority of the countries, it isn’t in ‘black’ or ‘grey’ lists of OECD and FATF;
2) Healthy banking system;
3) Stable corporate legislation;
4) Unique and flexible taxation system that meets the requirements of EU and standards of OECD;
5) Absence of rules on thin capitalization, CFC, and transfer pricing;
6) Modern system of audit and juridical service;
7) In the end of May Agreement on double tax avoidance between Malta and Russian Federation entered into force.
Basic requirements for a Maltese company
The most proliferated type of Maltese companies is private companies with limited liability, formed in accordance with the Companies Act 1996, Cap. 386). In a private company the rights to transfer shares are limited, public subscription for shares is prohibited, and the amount of participators must not exceed 50.
The minimal authorized capital is €1,165 (for a public company it is around €46,600). It must be submitted to the company’s constituent account and it can be used in company’s activity as a working capital. Minimum 20% of the share capital has to be paid. A company has the opportunity to assign its share capital and to have its accounts in any convertible currency; accounting and payment of tax and tax returns are made in the same currency, which minimizes the exchange rate risks.
Only registered shares are allowed to be issued. Bearer shares aren’t permitted (except for the public companies and with permission from the MFSA – Malta Financial Services Authority).
The minimum amount of shareholders is two persons. The shareholders can be Maltese as well as foreign, and can be both physical and legal entity.
There must be minimum one director (in a public company there must be two). Director can be a legal entity. Foreign directors are accepted. Nominal directors are not accepted. Furthermore, the company must have a secretary – a physical entity (a local or a foreigner).
The company has to have a yearly meeting of shareholders at least once a year. The meeting of shareholders and directors has to take place primarily in Malta so that the company will satisfy the criteria of effective management and control.
The company has to have a registered office in Malta. The protocols of meetings (conferences) of the governing bodies of the company must be stored in Malta.
In the charter of the company the purpose of its registration has to be mentioned. A simple indication of “any legitimate activities” or “trading activity” isn’t allowed. We have to note that the current law doesn’t differentiate companies on the basis of them making trading or holding activity (hence their simultaneous implementation is possible).
In addition to private (closed) companies with limited liability, in Malta there are also public (opened) companies with limited liability, full and limited partnerships, branches of foreign companies, trusts, and so on.
Maltese company has to perform accounting, as well as preparation and delivery of:
-annual reports with information on the company
-annual audited financial reports
-annual tax declaration
All companies have to prepare annual returns of a set format for the anniversary of the date of company’s registration. Report must be filed with the Registrar of companies within 42 days after the given date.
In addition, companies have to submit annual financial reports. This report should be filed within 10 months after the end of the financial year. As a rule, it has to have a copy of audit report attached. Private companies whose indicators (balance, turnover and the average number of employees throughout the reporting period) do not exceed certain boundaries, are exempt from audit requirements.
Taxation of companies in Malta
Taxation system in Malta is based on the following principles:
1) system of conditional (presumptive) taxation with flexible return mechanism (reimbursement) of taxes to shareholders, including foreign shareholders (since 2007);
2) High initial tax rate and one of the lowest in EU effective tax rates (i.e real rates that are received upon completion of settlements with the tax office, on the basis of the amounts actually paid by the company together with the reimbursements made);
3) Exemption from double taxation, a wide network of bilateral tax treaties
4) Exemption from tax on dividends and on capital growth
5) No tax at the source when dividends, percentage and royalty are paid to the advantage of the non-residents of Malta.
6) no tax on capital gains in the issuance, distribution or transfer of company’s shares (on the condition that the Maltese company doesn’t own any property in Malta). As a rule, income that the foreign shareholders receive as a result of the disposal of shares is tax exempt in Malta.
7) no stamp duty on the issuance, distribution or transfer of shares (on the condition that the Maltese company mainly operates outside Malta)
8) no pre-tax
9) the possibility of implementing the EU Council Directive 2011/96/EU “on the common system of taxation applicable to parent and subsidiary companies of different member States” from 30 November 2011, and EU Council Directive 2003/49/EU “on the common system of taxation applicable to payments of interest and royalties between associated companies of different member States” from 3 June 2003.
Tax refund. Maltese company is charged with corporate tax on the basis of the law on income tax (Income Tax Act 1949, Cap. 123), in the current version.
Corporate tax rate on the profits in Malta is relatively high – it is 35% and it is flat.
At the same time, the legislation provides for the possibility of tax return based on the previous reporting period (after submitting the annual report, paying tax to the budget and deciding on distribution of profit) in which the shareholders of the company receive a tax refund in the amount of 6.7 (or in different proportions depending on several factors, that will be described below) of the sum paid, as a result the actual tax rate will be 5%.
Registered shareholders of the company who are the recipients of this company’s dividends, hold the right to demand a tax refund paid by the company. As a result, when the shareholders will receive the dividends from their Maltese company, they will receive a refund of the tax paid by the company (in a relevant proportion) during 14 days since the day when the right to refund appeared (in some case the time might take from 4 to 6 weeks). Tax refund is guaranteed by the law.
There are four possible proportions of tax refund:
a) 6/7 (return of 85,7% of tax sum, paid at the rate of 35%) – relates to profit from trading activities
b) 5/7 ( return of 71, 4% of tax sum, paid at the rate of 35%) – relates to passive percentages and royalties
c) 2/3 (return used in the case when Maltese company has relief from double taxation)
d) 100% (in cases when the profit is received from qualified participation (Participating Holding)) – dividends received from the shares of an international company, which are owned by a Maltese company, while satisfying a number of conditions.