Utilising Maltese Companies Advantages of Maltese Companies Operational Case Study Potential Issues
Malta has a vibrant and strong economy and has long been viewed as a gateway for investment in or out of Europe. Malta is ideally placed to facilitate international business. Malta is a full member of the European Union and has enacted very favourable tax legislation that enables clients to trade or hold assets in a low cost and low tax environment. The Maltese Company, a highly effective corporate entity with which to carry out cross border trade and investment would typically benefit from a combined corporate effective tax rate, ranging between 0% and 5%.
The Maltese company is used extensively for cross border European trade and/or as a holding structure.
In the latter circumstances, capital gains and dividends derived by a Malta company from a qualifying participating holding in a subsidiary (typically a holding of more than 10% of the equity shares in a subsidiary) would be wholly exempt from tax in Malta. A Malta company is therefore commonly used to hold interests in other foreign corporations, often enabling the free flow of dividends and capital gains from the foreign corporations to Malta, without Withholding Tax, by utilising Malta's excellent double tax treaty network (comprising 59 treaties currently in force) and/or the EU Parent-Subsidiary Directive.
A Malta company would otherwise be subject to tax in Malta on its non-exempt chargeable profits (including trading profits) at the flat corporate rate of 35%. However, pursuant to a distribution of dividends by a Malta company in favour of its shareholder/s, the said shareholder/s would generally be entitled (by extension of Malta's full imputation system) to a refund of 6/7ths of the Malta tax suffered at the level of the Malta company on profits out of which the dividends were distributed. As a result, the combined overall effective Malta tax rate is applicable in respect of non-exempt income would be reduced to 5%.
A company incorporated in Malta would be deemed to be a tax resident Company and would, accordingly, be entitled to access Malta's large network of double tax treaties. A Malta resident Director or Company Secretary is not required.
Depending on the nature of its activities, a Malta company may be required or entitled to be registered for VAT in Malta. A company set up as a pure holding company would be outside the scope of VAT.
The benefits of Malta are obvious and should seriously be considered by anyone looking to trade in or with the European Union or create a very favourable holding structure.
The significant advantages of Malta as an international business centre:
An International client is seeking to establish a Trading Company in a respectable taxpaying jurisdiction.
The client, Mr. Rossi, is trading in buying and selling electronic goods from Malaysia to their clients in Italy. It is decided that a company would be registered in Malta to carry on the said trading activities.
The Malta Company pays a combined effective rate of tax of only 5% under the Maltese tax and imputation system (once dividends are distributed and tax refunds are claimed by the company's shareholders). In addition the Malta company is able to make use of Malta's many double taxation treaties in which case the combined effective Malta tax rate may be lowered further (even possibly to 0%). The beneficial owners of the Malta Company may remain confidential if they incorporate the company through a licensed nominee company. As regards its legal basis, the company is formed as a standard private limited company.
Mr. Rossi has an opportunity to sell electronic goods to an Italian supermarket chain and has sourced a suitable supplier in Malaysia. Mr. Rossi thus wishes to establish a suitable entity that is EU resident, taxpaying, as well as being tax efficient for Mr. Rossi’s own personal requirements.
Thus, Mr. Rossi, via his Malta Company, enters into contracts with the Malaysian supplier and the Italian supermarket chain and arranges to ship the goods from Malaysia to Malta (goods may likewise be shipped directly to Italy). On arrival of the goods in the Maltese Free trade zone, the documentation is replaced with that of the Maltese company and the goods are shipped to Italy. There is no VAT charged on the sales invoice from Malaysia to the Maltese company as this represents an export from Malaysia.
The Maltese company, registered for VAT in Malta, will be obliged to quote their VAT number on their invoice to the Italian supermarket chain, as well as the Italian supermarket chain’s VAT number which will enable the Maltese company to zero rate the supply to Italy. The Italian supermarket chain will account for VAT on the supply in the usual manner within Italy.
The Italian supermarket chain on receipt of the goods will pay the agreed amount by whatever form of payment to the Maltese company, who in turn pays the Malaysian supplier.
The profit gained by the Maltese company as earlier indicated will be taxed effectively at 5%. The resulting dividend can be paid to Mr. Rossi, without suffering any withholding tax and to wherever Mr. Rossi wishes.
Clients may wish to incorporate an upper tier Malta holding company to receive dividends from a Malta company and tax refunds from the Malta tax authorities in order to gain access to Malta's refund system without receiving dividends and/or such refunds in their country of residence. As such, a Malta Holding Company may receive the said dividends and refunds and may retain the same in Malta (incurring no further Malta tax). In the meantime, the said dividends and refunds will be 'mixed' such that funds would be repatriated in the form of dividends. No tax would be withheld in Malta upon any such repatriation.
A bespoke 'offshore' solution can be complex and requires careful planning and execution. We therefore encourage our clients to contact us directly, without obligation.
While all of our consultants in our offices provide a Free Initial Consultation, the office and consultant listed below has particular expertise in this area and will gladly assist with advice on how to approach your unique challenge.
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