Malta Company Formation: Complete Walk-through
The Maltese company offers one of the most versatile and effective tax solutions for any promoter, from the small start-up company to the most savvy investor.
At the outset, the Maltese corporate tax rate is set at thirty-five percent (35%), however, the shareholders are, upon a final distribution of dividends, entitled to a series of tax refunds – leaving an ultimate tax leakage of just 5% or less. This tax leakage, already the most advantageous in the European Union, may be further reduced, if the Maltese company has incurred expenses outside Malta, which expenses may be grossed up in the income tax computation, so as to further lower the tax leakage.
Further complementing this generous tax treatment, is an ever expanding network of double tax treaty which has placed Malta firmly on the tax planning map.
Reputable jurisdiction and solid growth
Taxation is always one of the key factors, behind Malta company formation. The Maltese Companies Act allows three commercial partnerships to be set up, and by far the limited liability company is the most popular variant. The Maltese registrar of companies has registered strong and steady growth in the number of limited liability companies incorporated every year. The total number of companies, incorporated in 2012, were a record 3,800, representing a marked 12% increase from the previous levels set forth in 2011, and 2013, showing again double digit growth.
The major legislative milestone was represented by the Companies Act 1995 – which provided a complete overhaul of the company legal framework ever undertaken in Malta introducing a number of key provisions such as:
· nullity of companies;
· the ultra vires doctrine;
· minority shareholders rights;
· denomination of shares;
· duty to file accounts including consolidated accounts;
· obligation for all companies to have a company secretary; etc
Once the promoters of a company have resolved to form a limited liability company, certain formalities have to be followed in order to procure the registration of the company. It is therefore valuable to avail oneself of the expertise of the FBS Group, which is now in its sixteenth year of operation, and is one of the top incorporators of Maltese registered companies.
These formalities include the preparation of certain documentation, the delivery thereof to the Registrar of Companies and the payment of the appropriate registration fees. Registration fees are a one-time fee which are calculated in accordance to the authorized share capital of the Company. The higher the share capital, the higher the registration fees. This said, registration fees for a lowly capitalized company, start off at a very competitive EUR 245.
Entrusted to FBS, the incorporation of a company requires severe attention to detail and proper organization, ideally backed up by a comprehensive checklist of formalities. Although the Maltese company is one of the most flexible and versatile corporate entities available over a wide range of jurisdictions, it is important to bear in mind, that once incorporated, the Memorandum and Articles of Association of a Company, have a public dimension, which is in theory, accessible to any interested party. It is therefore important to ensure that the Memorandum and Articles of association fully reflect the intention of the promoters, as well as a realization that the Memorandum and Articles of association are de facto a contractual agreement, with a public dimension, which relate the Company vis-à-vis third parties.
At the outset, it is important to bear in mind that there are two forms of companies, the private limited company and the public limited company (albeit variations of both categories can be found within the Companies Act).
The formalities for the registration of the two types of companies, although quasi-similar, differ in some material aspects. Moreover, the Companies Act also provides that a company (whether private or public) may by complying with the provisions of article 84 thereof be formed as an “investment company with variable share capital” – commonly referred to as a SICAV, and the primary vehicle of choice for collective investment schemes.
The Companies Act also provides that a public company which complies with certain requirements specified in article 194(6) thereof will be regarded as an “investment company with fixed share capital” (INVCO).
Considerations that are important to consider are the following:
(i) the residence of the subscribers to the Memorandum (that is whether they are nationals of the EEA or otherwise). The registrar of companies shall request a bank or professional reference attesting the good character of each subscriber for non-EEA nationals. This said, this distinction is quite academic, since as practitioners, such bank reference letters shall be rendered necessary.
(ii) the juridical nature of the subscribers (that is whether they are physical or juridical persons). Physical persons shall need to show an identification document, such as a passport copy or a national identity card, whereas corporate subscribers must show evidence of their company registration number, where available, typically via a certificate of incorporation or good standing.
(iii) whether the subscribers are to sign the Memorandum and Articles of Association themselves or whether they are appointing mandataries to sign on their behalf. Although, Maltese law allows a power of attorney to be given in an oral form, or even implied, the registrar of companies, shall, rightly so, request a copy of such power of attorney in written form, and such power of attorney shall become de facto an integral part of the Memorandum and Articles of Association.
Prior to the incorporation of a company, the promoters should take into consideration other factors, which are inherent in any business decision. A number of issues to consider would include:
(i) the viability of its proposed activities;
(ii) its proposed financing, such as loan, capital etc;
(iii) expenditure budget and income; and
(iv) relevant tax and regulatory issues (please liaise with our specialist VAT and Income tax team, including international tax counsel);
It is also important to specify the trading activity in great depth, as this may determine whether or not the company needs to pursue a licensing with the relevant authority. Highly regulated sectors, such as remote gaming, banking, insurance, and financial services, will require not only a licence to operate but will have to satisfy minimum capital adequacy thresholds are satisfied (which in turn will effect the budget and expenditure considerations).
All companies, irrespective of whether they are private or public companies require the filing of a Memorandum of Association. The Companies Act prescribes that a company shall not be validly constituted under the Act unless a memorandum of association is entered into and subscribed by at least two persons, and a certificate of registration is issued in respect thereof. In reality, these due documents, merely crystallize a process that would have been initiated through the collection and deposit of other key documents.
Furthermore, it must be remarked that, notwithstanding the aforesaid, the Companies Act does make exceptions to the two-subscribers rule by enabling an exempt private company to have a single member as long as the object clause of such a company specifies which activity of the company shall be its main trading activity and the business of the company shall consist principally of that activity. The rationale behind this exception is that a ‘company’ as the word implies implies a plurality of subscribers rather than one individual member. Recent amendments to the Companies Act, have now extended the possibility of the sole shareholder being also a corporate person ( a matter precluded until August 2013). However, it is still not possible for a single member company to have a corporate person holding the office of director.
The Companies Act also prescribes the minimum requisites to be included in the Memorandum of Association:
(a) whether the company is a public company or a private company;
(b) the name and residence of each of the subscribers thereto;
(c) the name of the company;
(d) the registered office in Malta of the company;
(e) the objects of the company;
(f) the amount of share capital with which the company proposes to be registered (“the authorized capital”), the division thereof into shares of a fixed amount, the number of shares taken up by each of the subscribers and the amount paid up in respect of each share and, where the share capital is divided into different classes of shares, the rights attaching to the shares of each class;
(g) the number of the directors, the name and residence of the first directors and, where any of the directors is a body corporate, the name and registered or principal office of the body corporate, the manner in which the representation of the company is to be exercised, and the name of the first person or persons vested with such representation;
(h) the name and residence of the first company secretary or secretaries;
(i) the period, if any, fixed for the duration of the company.
The registrar of Companies shall rightly refuse to register any company which falls short of the aforesaid requirements
Articles of Association
Contrary to the aforesaid Memorandum of Association, the Articles of Association does not prescribe the minimum area requirements to be inserted therein. Typically however, the articles of association would cover matters as the transfer and transmission of shares, the issue of shares, forfeiture of shares, calls on shares, procedures at general meetings and board meetings, resolutions, alternate directors, notices, dividends and reserves and capitalization of profits – in other words, the internal organization of the company or the manner in which the company’s affairs will be managed.
It is also worth noting that the articles of association are not an essential part to the company statutes, and it is possible for a Company not to register an article of association at all. In this eventuality, the model articles contained in the First Schedule to the Companies Act will ipso jure become the articles of the company “in the same manner and to the same extent as if they were contained in duly registered articles. The rationale of such a consideration is to promote uniformity, in a text which is acceptable and in conformity with the laws of Malta. In reality, it would be unwise to incorporate a company without such articles of association, since any eventual decision regarding the introduction of such articles, would necessitate the consensus of the existing shareholders of the company, consensus which may not always be attainable. When such articles of association is filed, then like the memorandum and articles of association, they must be signed off by the subscribers, and effectively constitute a contractual agreement between the shareholders.
The memorandum or articles of association of a private company will set a number of restrictions, notably the following:
(i) restriction regarding the right to transfer its shares;
(ii) limitation of the number of its members to fifty; and
(iii) prohibit any invitation to the public to subscribe for any shares or debentures of the company.
In the case of a private exempt company, the memorandum or articles of association, apart from containing the same restrictions as those required for a private company, must
(i) limit the number of persons holding debentures of the company to not more than fifty;
(ii) prohibit any body corporate from being a director of the company; and
(iii) prohibit the company and each of the directors from being a party to an arrangement whereby the policy of the company is capable of being determined by persons other than the directors, members or debenture holders thereof.
Investment company with variable share capital
Another type of company is that of an investment company with variable share capital. This is one of the corporate vehicles of choice for collective investment schemes. The Memorandum and Articles of Association must state that
(i) the share capital of the company shall be equal to the value for the time being of the issued share capital of the company; and
(ii) such share capital shall be divided into a specified number of shares without assigning any nominal value thereto.
The memorandum of association shall furthermore limit the object of the company to either one of the following, that is (i) the collective investment of its funds in securities and in other movable and immovable property, or in any of them, with the aim of spreading investment risk; and giving shareholders of the company the benefit of the results of the management of its funds, and in the fulfillment of that object, it shall be entitled to perform any act which is connected with or ancillary thereto or (ii) to act and operate as a Retirement Fund within the meaning of the Special Funds (Regulation) Act.
Furthermore, the memorandum or articles of the company must also provide
(i) that the actual value of the paid up share capital of the company shall be at all times equal to the value of the assets of any kind of the company after the deduction of its liabilities; and
(ii) that the shares of the company shall be purchased by the company directly or indirectly out of the assets of the company, at the request of any of the holders thereof or as otherwise provided by the memorandum or articles of the company.
Private writing or notarial deed
There are two ways in which a company, irrespective of its status can be incorporated – either by a public deed enrolled before a notary or else by means of a private writing. In any case, an original signed copy is to be presented to the registrar of companies. FBS strongly recommends the use of a private writing, and has successively assisted hundreds of clients in incorporating a company.
Another necessary document to be presented to the registrar of companies is the evidence that the company has deposit paid up share capital, either by means of a bank letter of a bank slip. A third way is also possible, whereby a practitioner issues a letter, accompanied by a bank slip, attesting to the deposit of such share capital. It is of paramount important that the name of the proposed company be visible on such bank slip (therefore the name reservation is a matter strongly advised) and the amount credited to the account of the company “in formation” be in the currency in which the share capital is stated. The share capital must match the currency denomination in which the capital is deposited.
The Companies Act provides that the consideration for the acquisition of shares (whether on original subscription or a subsequent issue) may only consist of assets capable of economic assessment. This is to the exclusion of future personal services and in general any undertakings to perform work or supply services may not be given by way of consideration.
The consideration for shares originally subscribed to in the memorandum or issued subsequently by the company can therefore be either in cash or in kind (but not future personal services or undertakings to perform work or supply services).
The Registrar of Companies will not register the company unless he receives evidence that the paid up share capital of the company as specified in the memorandum of association has indeed been paid up. The form of the evidence to be furnished depends on whether the consideration for the shares is in cash or in kind. It is practice for the share capital to be deposited into a Maltese bank account, and in fact this is the typical practice undertaken by FBS. However, there is absolutely no reason why a statement by a foreign bank would be rejected by the Registrar of companies, insofar that the foreign bank is a reputable one, and the same rules set forth above regarding indication of name, is provided.
In the case of shares which are to be issued on original subscription for a consideration in kind, the Companies Act specifically requires that a report on such consideration must be drawn up before the company is registered by one or more experts who are independent of the company and approved by the Registrar. This so called section 73 report (after the corresponding article of the Companies Act), must contain at least a description of each of the assets comprising the consideration as well as the methods of valuation which have been used and shall state whether the values arrived at by the application of these methods correspond at least to the number and nominal value, and, where applicable, to the premium on the shares to be issued for them. The delivery of the report must be presented to the Registrar for registration before the company is registered.
After the share capital have been deposited in a company in formation bank account, the share capital shall be at the disposal of the company once the bank account has been opened. In order to render the bank account fully operational (and therefore allow payments out of the account in the ordinary course of the company’s business) banks would typically require the following:
1. a certified copy of the memorandum and articles of association of the company;
2. a signed resolution of the company resolving to appoint the bank as the Company’s banker and appointing signatories to the account;
3. certified copies of passports of bank signatories;
4. bank or character references on the bank signatories;
5. specimen signatures of the bank signatories; and
6. a duly completed questionnaire about the company and its proposed activities, including estimated turnover.
The above requirements are part of a bank’s “know your client” procedures. These procedures have taken on added importance as a consequence of the strict money laundering reporting obligations under domestic law and international conventions.
Powers of Attorney
In the case of an individual subscriber, the memorandum and articles of association may be signed either by the subscriber himself or by a mandatory acting on his behalf under a power of attorney. In the latter case, it is mandatory to submit a copy of the power of attorney to the Registrar of Companies.
In the case of a corporate shareholder, a copy of any power of attorney authorizing a mandatory to sign on behalf of the corporate shareholder should also be lodged with the Registrar prior to the registration of the company. Where the person signing the memorandum and articles of association on behalf of the corporate subscriber is an officer of such subscriber and authorised to sign on behalf the subscriber by virtue of his office, the Registrar does not require any documentation indicating the signatory’s authority. For this reason, FBS will request a copy of the Memorandum and Articles of Association of the corporate subscriber, in order to establish that the person executing such power of attorney is in fact authorized to this effect. A corporate resolution by the board of directors of the corporate directors, expressly resolving to the subscription of shares within the Maltese company shall also be required.
Passport Copies for individual subscribers and directors
In the case of individual subscribers and directors, the Registrar requires a clear copy of the pages of the passport containing the holder’s details and photograph or a copy of some other official identification document. This requirement seeks to meet the demands of current international standards which emphasise the importance of establishing the identity and retention of proper identification records of owners and officers of companies. FBS will request certified copies of the shareholders and directors in order to comply with statutory Know-Your-Client requirements.
Documentation regarding corporate subscribers or directors
Where a subscriber or director is a company or entity which is not constituted under Maltese law, there must also be submitted to the Registrar a copy of a certificate confirming the existence of the company or entity (for example, the certificate of registration, a certificate of good standing, etc.). FBS will also request a copy of the memorandum and articles of association (or equivalent constitutive document) of the company or entity and to submit the same to the Registrar. All such documents must be in English.
As with the case of individual subscribers or directors, the Registrar retains the right, in particular cases, to require the submission of any additional information or documentation as he may deem necessary regarding companies or entities constituted outside Malta. This would typically include bank references for the company. Where the corporate subscriber has no banking history, such as in the case of companies recently incorporated, this requirement will be substituted by a banking or professional reference of the shareholders and beneficial owners of the corporate subscribers
Reservation of company name
A central point, which is often overlooked, yet remains of pivotal importance is the name reservation of the Company. The name is after all one of the most distinctive features of a company, and the Company is indeed very often identifiable via its name, which may in more than one occasion, double as its brand name, with significant consequences to its intellectual property rights.
In order to ensure availability of the name, Focus Business Services (Malta) Limited shall carry out a formal search with the Maltese Registrar of Companies. A formal notification signaling the refusal of the company name or acceptance is to be expected within 24-48 hours from the date of submission of such search. Some of the reasons, why the name may be refused by the registrar is on the following grounds:
(i) if it is the same as a name of another commercial partnership or so nearly similar as in his opinion it could create confusion; or
(ii) if the name is in his opinion offensive or otherwise undesirable; or
(iii) if the name has already been reserved by the Registrar for another commercial partnership as long as not more than three months have elapsed since the date when the name for the other commercial partnership has been reserved.
It is customary for Focus Business Services (Malta) Limited to request the applicant a series of names, in order of preference. This will ensure, that in the case of a refusal, an alternative name search shall be submitted to the Registrar of Companies. As a general rule, clients would be well advised to avoid overly generic names such as “Malta Trading Company Limited” as these will almost certainly be refused, and give preference to more specific names, which are distinct and more difficult to emulate.
Exemption from Duty on Documents and Transfers
Following incorporation of the company, it is also customary to have file an application to the Commissioner of Inland Revenue, in appropriate cases, for exemption from duty on documents and transfers in terms of article 47 of the Duty on Documents and Transfers Act. If an exemption is granted, acquisitions or disposals of marketable securities (as defined in the said Act) by or issued by the company will be considered as exempt from the provisions of the Act.
The application is made on one of two printed forms:
(i) a Form DDT 10A which is intended for use by companies operating a “foreign income account” which have the majority of their business interests outside Malta and fall within the provisions of Article 47(3)(d) of the Duty on Documents and Transfers Act; and
(ii) a Form DDT 10B which is intended for use by collective investment schemes, investment services companies and international trading companies.
The two forms contain a printed certificate which is to be signed by an authorized representative of the Commissioner of Inland Revenue if the application is accepted. The certificate issued by the Commissioner of Inland Revenue states that the exemption will automatically lapse
(i) if the company ceases to satisfy the provisions of Duty on Documents and Transfers Act under which it was issued; or
(ii) if the company has been registered as being continued in Malta in accordance with the provisions of the Continuation of Companies Regulations, but does not submit a copy of the certificate of continuation issued by the Registrar within 15 days of the issue of such certificate.
The registration of a company entails the payment of a fee payable to the Registrar of Companies, generally referred to as the “registration fee”. The obligation to pay the registration fee arises from the Companies Act (Fees) Regulations made under the provisions of article 425(1)(a) of the Companies Act. The fees depend on the authorised capital of the company: starting at EUR 245 for a company whose authorised capital does not exceed EUR 1,500, and rises accordingly to higher authorized share capital. Where the share capital is designated not in Euro but in any other designated currency, an exchange rate mechanism will be applied to calculate the extent of these registry fees.
Fees for copies of memorandum and articles of Association
Together with the delivery of the memorandum and articles of association for registration, it is common practice to order from the Registry of Companies a number of certified copies of the memorandum and articles of association. The certified copies would typically become available 24-48 hours after the company is registered. Focus Business Services (Malta) limited would usually retain a copy and deliver the remaining copies to the subscribers, directors, VAT Department and the company’s bankers. The fee in respect of the certified copies is generally paid together with the registration fee.
Date of Incorporation – Legal Effect
The legal consequences of the registration of the memorandum and articles of association and the issue by the Registrar of the certificate of registration are that the company shall come into existence and shall be authorized to commence business as from the date of registration indicated in the certificate of registration. The certificate of registration is evidence that the company has been registered and is in itself, proof that the company has complied with all the requirements of the Companies Act, which warrant its incorporation.
The issuance of the certificate of registration is that the company comes into existence as a juridical person and is authorised to commence business as from the date of registration or from such later date as may be indicated in the certificate. The company will in effect have a legal personality distinct from that of its member or members. Such legal personality shall continue to subsist until the name of the company is struck off the register (whereupon the company shall cease to exist).
Since its foundation in 1998, the Focus Business Services Group has gone from strength to strength and has cemented its reputation as one of the most respected service providers in Malta, and in a number of jurisdictions where it operates. Its mission is to render the aforesaid, which may appear daunting to the non-professional, a seamless and expedient process.
For any further detail or clarification contact one of our officers to initiate the incorporation of a Maltese registered company and start reaping the full benefits of an onshore, low-tax, EU jurisdiction. Simply fill in the contact box below or contact us by email on firstname.lastname@example.org or by calling at +356 2338 1500