Company in Malta

Malta is an EU Member State with
an Exceptionally Advantageous Tax Regime

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Malta Company Incorporation | Advantages

Malta Company Formation and Malta Citizenship Packages

€99 – Malta Company Formation | €14.950 – Malta Citizenship

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We specialize in Malta Company Formation and Malta Citizenship and Residency – Residence. We help you with Malta company formation, company set up and incorporation, management services, bank account opening, issue of passports and residence permits, taxation as well as Malta Residence and Citizenship Services in order to obtain Malta Company Tax and Malta Residence and Citizenship Advantages.

Malta provides unique advantages and constructive use of Malta state incentives can give you significant benefits. Tax, residency, safety and lifestyle advantages.

We are leading Company Formation and Citizenship professionals who are part of the FBS Kotsomitis Global Network. We will be your Partner in Malta for ALL your Malta Company Formation and Malta Citizenship- Needs.

Malta Tax Advantages Overview

Having amended its tax legislation in anticipation to EU Accession, Malta has enhanced its tax system that is ideally suited both to inbound and outbound EU investors.  Notable amendments were the introduction of a Participating Holding and a Participating Exemption regime.

Sunset provisions were also introduced, whereby companies incorporated on or prior to 1st January 2007 as International Trading Companies, had to adhere to an new income tax regime, negotiated and approved by the EU Commission in anticipation of EU membership, by 1 January 2011.

The credit imputation system was retained, however, the statutory impediment placed on International Trading Companies from trading domestically, thereby artificially segregating the EU common market, was removed.  The new tax climate offers to the investors the following Malta tax advantages:

  • Low taxation;
  • Onshore, EU– status;
  • Possibilities for tax planning in order to lower taxes even further (in some cases to 0%);
  • Extensive double tax treaty network;
  • Exemption from tax on dividends received;
  • Exemption from tax of profit generated from transactions in securities;
  • Exemption from withholding tax on the repatriation of income either of dividends, interest and royalties;
  • Access to EU directives

Malta Flexible & Modern Legislation

There are no restrictions concerning maximum allowable percentage participation, and all minimum monetary level of foreign investment in any enterprise / legal entity in Malta were lifted in 2004.

Malta’s Investment Policy allows 100% foreign participation in Malta Entities in almost all sectors of the economy irrespective of nationality.

  • Full exemption from all exchange controls – restrictions, both for EU and non-EU Nationals;
  • The legislation ensures full anonymity of foreign beneficiaries;
  • Save for licensable activities, such as Remote Gaming, Captive Insurance and Financial Services, Malta Entities, whether beneficially owned by foreign nationals or local persons can engage into either local or international activities without the need for any special permit.

Malta Excellent Infrastructure

  • Modern and efficient multilingual banking & financial services sector;
  • Excellent air and sea connections and telecommunications services;
  • Professional, reputable and efficient Government and Tax Authorities;
  • A mature professional services sector;
  • Very low expense level (fees) for financial and professional service provision compared to other EU Jurisdictions. The difference is more evident in the case of professional service recurring costs (administration, accounting & tax compliance) are estimated to be at 35- 40% of Western European rates. One could very easily be misled by the low quoted start up costs for major European Jurisdictions as to the final total costs which can be considerable if one calculates recurring costs.

Malta as an EU Financial & Business Centre

  • Malta is a member of the EU and a fully flexed, modern international business and financial centre, with excellent infrastructure, situated at a strategic geographic location and time zone. English is one of the two official languages, the other being Maltese, with French, Italian and German also widely spoken.
  • Malta has succeeded in differentiating itself from other financial centres. It has a favourable tax system with a wide network of very beneficial double tax treaties. As a result, Malta today is firmly established as a reputable, dynamic, international business, financial and commercial gateway for investments into or from Europe, Northern Africa, Asia and the Middle East.
  • Malta is a tax-incentive country and not a “tax-haven”. Malta Companies are fully-regulated, onshore, EU entities, which however allow their shareholders to reap full benefits from a series of attractive tax refunds (final tax rate, 5% or less in most cases);
  • Malta has an excellent infrastructure allowing clients to create “substance” to their tax planning in the form of setting up fully-flexed offices or operations in the island (avoidance, if deemed necessary, of brassplate operations).  This is particularly important in the case of licensed entities such as investment managers, fund administrators etc; where a minimum local presence requirements need to be maintained at all times;
  • Malta is the jurisdiction of choice for a prestigious, onshore but low-tax presence. During the past seven years, Malta has established itself as a leader in Remote Gaming with over 300 licensed entities, and secured an ever-increasing clout in financial services, particuarly throughout the licensing of Professional Investor Funds.

Malta Tax Incentives – Complete Breakdown

In preparation for Malta’s accession to EU Membership in 1 May 2004, a series of legislative measures were enacted to the main provisions regulating income tax in Malta mainly to the Income Tax Act and to the Income Tax Management Act.

The end result is a simplified, effective and transparent tax system in place that is fully EU, OECD and FATF compliant, blending the benefits of an onshore, fully-regulated jurisdiction with investor-friendly incentives.

All companies resident in Malta are subject to income tax on company profits at a rate of 35%. However, this is subject to Malta’s full imputation tax system, wherein tax paid by a company in Malta is, on the distribution of a final dividends, imputed to the shareholder as a tax credit against the shareholders’ tax liability. Therefore, a shareholder will, upon a distribution of the dividend, be entitled to a refund in part or in full of any advance tax levied on the distributing company.

The full imputation tax credit thereby renders Maltese companies highly efficient tax vehicles, with a number of applicable refunds to shareholders possible: (6/7ths refund, 5/7ths refund and 2/3rds refund). Effective Tax leakage in Malta on Net Trading Income can be of only 5% or less, in some case 0%. Contact us to help you setup in the most beneficial way according to your needs.

View Malta Full Imputation Tax System for a more detailed illustration.

The income of a Maltese company is divided into five (5) different tax accounts – as follows:

(i) Final Taxed Account

The Final Tax Account includes distributable profits that have suffered tax, including the following:

  • Profits after tax resulting from income which has been charged to tax under the investment income provisions;
  • Profits that are exempt under Maltese law and where the distribution of such profits by the company to the shareholders is exempt from tax;
  • The amount of chargeable income, the tax chargeable of which has been relieved from payment by any tax credits where the distribution of such profits is exempt from tax in the hands of the shareholders;
  • Dividends paid out of profits allocated to the final tax account of another company;
  • The profits after tax derived from the transfer of immovable property;
  • Any profits after tax which under the provisions of Maltese Law are not subject to tax when such profits are distributed by a company to any person and where upon such a distribution no person is entitled to claim any tax credit in respect of any tax paid on such profits;
  • Profits resulting from income or gains in respect of which the Participation Exemption may and has been applied;
  • Profits resulting from any grant or subsidy where the distribution of such profits is exempt from tax in the hands of the shareholders;and
  • Profits after tax derived from rental income received by the Housing Authority

(ii) Immovable Property Account

The Immovable Property Account includes distributable profits that have suffered tax, including tax derived (directly or indirectly) from immovable property situated in Malta and include:

  • Profits or gains from the transfer of immovable property;
  • Net profits or gains deemed to have been derived from immovable property;
  • Gross amounts which are deemed to have been derived from immovable property;
  • Annual Market Rent

(iii) Foreign Income Account

The Foreign Income Account includes distributable profits that have suffered tax, including profits resulting from royalties and similar income arising outside Malta and includes:

  • Profits resulting from royalties and similar income arising outside Malta and from dividends, capital gains, interest, rents, income or gains derived from a Participating Holding or from the disposal of such holding, and any other income derived from investments situated outside Malta, which are liable to tax in Malta and are receivable by a company registered in Malta;
  • Profits resulting from investments, assets or liabilities situated outside Malta, and licensed as a bank in Malta or in possession of a licence granted under the provisions of the Financial Institutions Act;
  • All profits or gains of a company registered in Malta, which are liable to tax in Malta and attributable to a Permanent Establishment (including a branch) situated outside Malta, and for these purposes “profits or gains” shall be calculated as if the Permanent Establishment is an independent enterprise opertaing in similar conditions and at arm’s length;
  • Profits resulting fom dividends and paid out of the foreign income account of another company registered in Malta;
  • Profits or gains resulting from a company registered in Malta under the Insurance Business Act

(iv) Maltese Taxed Account

The Malta Tax Account includes distributable profits that have suffered tax and have not been allocated to the foreign income account, which have suffered tax or which have been exempt from tax and where the distribution of such profits by the company is also exempt from tax in the hands of the shareholders.

(v) Untaxed Account

Any profits which represent the total distributable profits or the total accumulated losses, deducting therefrom the total sum of the accounts allocated to other taxed accounts.

In summary, Malta is a fully-regulated, onshore Jurisdiction blending the EU acquis communitaire in a flexible, robust and sophisticated legislation, and retaining the following benefits:-

  • Friendly and investor-friendly Tax Authorities, always keen at helping foreign investors;
  • Possibility to obtain Advance Tax Rulings – binding on the Commissioner of Inland Revenue for two years from date of issue, or from change in law. Renewable for further periods of five years;
  • Tax only payable at the earlier of 18 months after year-end, or when a dividend is paid;
  • Tax losses may be carried forward indefinitely;
  • Full imputation tax system allows foreign tax paid to be taken into account for purposes of refund calculation, subject to the maximum refund not exceeding Malta Tax paid. Effectively, it is possible to envisage situations of 0% Maltese tax being suffered by the Maltese company;
  • No capital gains or income tax on the liquidation of participations or the liquidation of the Malta Holding Company itself.
  • No net worth taxes (as mentioned before no capital gains taxes) during the life of the Malta Holding Company;
  • Attractive Permanent Establishment (PE) rules and generous PE provisions available in the DTT Network;
  • No exchange controls;
  • Stamp duty exemptions for non-resident-owned companies in most cases;
  • No thin capitalisation, anti-CFC and similar rules;
  • Flexible transfer pricing considerations;
  • Invoices from offshore companies are acceptable in Malta Companies’ books and payments to offshore companies bear no withholding tax (tax planning point);
  • No specific substance requirements;
  • There is added commercial value and monetary benefits due to the ability to register for EU VAT in Malta;
  • No obligation for the Holding Company (or right) for VAT registration & compliance.
  • Trading in securities in Maltese companies by non-resident shareholders is tax exempt, provided the Maltese Company owns no immovable property in Malta;
  • The foreign beneficial owners of Malta Companies, Branches and Partnerships are not liable to additional tax on dividends or profits over and above the amount paid or payable by the respective legal entities;
  • Low personal tax rates that reach a maximum of 35% for income of person ordinary resident, 15% for returning migrants and individuals qualifying under the Permanent Residence Scheme;
  • No capital gains tax or net worth taxes except with respect to Real Estate situated in Malta;
  • Beneficial use of EU Directives that have been transposed into the Malta Tax Legislation;
  • Wide and exceptionally beneficial Double Tax Treaty Network;
  • Mergers, Takeovers and other Re-Organizations can take place within groups without tax consequence;
  • Unilateral tax relief is granted to all Malta Companies for foreign tax suffered irrespective of the absence of a double tax treaty;
  • Tax losses are carried forward indefinitely and can also be surrendered as group relief;
  • Interest deduction for borrowing costs provided;
  • Low registration fees on the establishment of companies;
  • Very low expense level (fees) for financial and professional service provision compared to other EU Jurisdictions. The difference is more evident in the case of professional service and/or recurring costs (administration, accounting & tax compliance) are estimated to be at 35- 40% of Western European rates. Note: One could very easily be misled by the low quoted start up costs for major European Jurisdictions as to the final total costs which can be considerable if one calculates recurring costs.

EU Directives, Malta’s Double Tax Treaty Network

Beneficial use of EU Directives enacted into Malta Law (effectively “copied” – transposed into Malta Law and their benefits extended to residents of Third Countries):

  1. Parent / Subsidiary Directive (no withholding tax on payment of dividends, no transitional period [immediate effect], no minimum participation [shareholding limits], no minimum holding period, dividend exempt subject to conditions, tax credit for tax withheld abroad);
  2. Interest / Royalties Directive (no withholding tax on interest paid to non-residents, no transitional period [immediate effect];
  3. Merger Directive (involves resident and Non-Resident Companies, leads to elimination of the tax consequence of any reorganisation, merger, division, transfer of assets, and exchange of shares).

Malta has a wide and beneficial Double-Tax Treaty (DTT) Network. There are currently 50 DTTs in force and several others being negotiated. The existence of these treaties, combined with the low overall tax paid by Malta Companies, offer significant possibilities for international tax planning through the island.

A significant number of double tax treaties concluded by Malta, lowers or eliminates foreign withholding taxes on dividends, interest and royalties or capital gains paid out from or arising in the contracting states, some also include particularly beneficial tax sparing credit provisions for dividends, interest and royalties.

In conclusion, the Malta Tax System Enables:

  • The extraction of foreign sourced dividends, at mitigated or zero rates of foreign withholding tax (owing to the use of the Parent Subsidiary Directive or the Use of Double Tax Treaties if the Directive is not applicable);
  • The distribution of available profits to non-resident shareholders at zero rates of dividend withholding tax, irrespective of jurisdiction or the absence of a DTT (even to offshore jurisdictions).
  • Allows for the realisation of capital gains from the disposal of shares in foreign companies at zero rates of corporation and capital gains tax on the gains”, irrespective of holding period and shareholder percentage and no capital gains tax on the liquidation of the Holding Company itself.

Malta (Group) Finance & Royalty Companies

Apart from the generic features of the tax system, the DTT Network and the adoption of EU Directives, other important features of the tax system beneficial to Malta (Group) Finance & Royalty Companies are the following:

Important Features of Malta (Group) Finance Companies:

  • Absence (under a Double Tax Treaty or the Interest and Royalty Directive) of interest withholding tax;
  • Low overall tax burden;
  • Possibility of deducting interest expenses from taxable income;
  • Absence of thin capitalisation rules or their inapplicability in the case of “back to back” financing;
  • Absence of interest withholding tax in connection with interest paid on loan financing irrespective of jurisdiction or the absence of a DTT (even for interest payments to offshore jurisdictions);
  • Reasonable level of “margin” required by tax authorities;
  • Low expense level for professional / financial fees.

Important Features of Malta Royalty Companies:

  • Absence or reduction (under a Double Tax Treaty or the Interest and Royalty Directive) of withholding tax on royalties paid to the Malta Company;
  • Low overall tax burden;
  • Tax deduction of royalty payments;
  • Effective tax depreciation of investments in intellectual property;
  • Absence of withholding tax on royalty payments irrespective of jurisdiction or the absence of a DTT (including to offshore companies) for rights used outside Malta – the usual case;
  • Neutral VAT treatment;
  • Reasonable level of “margin” required by tax authorities;
  • Effective protection of intellectual property rights by Legislation and the participation of Malta in international agreements;
  • Low expense level for professional / financial fees.

Malta Business Incentives – Complete Breakdown

The Malta Enterprise Corporation has devised a number of incentives aimed at promoting Small and Medium Sized Enterprises (SMEs) as well as investment by local and foreign companies in industries such as Information Technology, biotechnology, and manufacturing etc;

Until recently, the legislative framework for incentives to business were the Business Promotion Act and the Business Promotion Regulations which allowed for generous tax credits and tax holidays to qualifying enterprises carrying out qualifying activities. However, most of the incentives granted by the BPA and the BPR are now subject to sunset provisions and are now no longer available to new applicants.

Currently business incentives are entrusted to the following three (3) regulations;

  • Investment Aid Regulations;
  • Assistance to Small and Medium-Sized Undertakings Regulation; and
  • Enterprise Support Incentives Regulations, 2008.

The Malta Enterprise Corporation offers assistance in the following manners:

  • The development of new businesses;
  • Small sized start-ups;
  • Innovation;
  • The use of experts;
  • The participation in fairs and exhibitions;
  • The preparation and submission of proposals for the participation in projects funded through the initiatives promoted by the European Union such as the FP7 and the CIP;
  • The use of ICT and e-business

Investment Aid Regulations

The Investment Aid Regulations allow tax incentives aimed at stimulating investment and job creation by attracting new investment projects and promoting the expansion or diversification of existing enterprises into certain targeted fields of business defined in these regulations as qualifying activities. In order to qualify for tax credits under the Investment Aid Regulations, undertakings solely carrying out a qualifying activity may organise themselves in the following legal forms:

  • a partnership constituted under the Companies Act, or
  • a body of persons constituted, incorporated or registered outside Malta and of a nature similar to a partnership set up under the Companies Act; or
  • an oversea company registered in accordance with the Companies Act; or
  • a co-operative society duly registered under the Co-operative Societies Act.

The regulations provide an exhaustive list of activities which may be eligible to receive tax incentives, as follows:

  • Manufacturing;
  • Information and Communications Technology (I.C.T.);
  • Research and development and innovative start-ups;
  • Eco-innovations, waste treatment and environmental solutions;
  • Biotechnology;
  • The provision of facilities directly required in the development or production of feature films;
  • Science and technology private tertiary educational services;
  • Private health-care services;
  • Logistics services;
  • Activities set forth in the Malta Freeports Act

The tax incentives take the form of an investment tax credit, calculated either as:

  • A percentage of the capital expenditure on the qualifying activity; OR
  • A percentage of the wage costs for wages paid in connection with the jobs created as a result of the qualifying project

The amount of credit varies in proportion to the size of the undertaking and is capped at the percentages prescribed in the Incentive Guidelines.

These tax credits may be granted on eligible costs incurred by an enterprise in running:

  • Industrial Research Projects;
  • Experimental Development Projects

The following costs are considered as eligible as long as they are incurred in relation to an approved Industrial Research or Experimental Development project.

Personnel costs

Wages of researchers and technicians, to the extent and for the duration that they are directly engaged in the research project.

Instruments and equipment

Costs of instruments and equipment to the extent and for the duration of the research project. If such instruments and equipment are not used for their full life for the research project, only the depreciation costs corresponding to the life for the research project, as calculated on the basis of good accounting practices shall be considered as eligible.

Costs for building

Depreciation costs of buildings calculated on the basis of good accounting practice corresponding to the duration of and direct use in the research project.

Material, supplies and similar products

The costs of material, supplies and similar products, bought specifically for the research project and incurred directly as a result of the research activity.

Contractual research, technical knowledge and patents

Costs of contractual research, technical knowledge and patents bought or licensed from outside sources at market prices (where the transaction has been carried out at arm’s length and there is no element of collusion involved), as well as costs of consultancy and equivalent services used exclusively for the research activity.These costs may not exceed 25% of the total project costs.

Additional overheads

Additional overheads incurred directly as a result of the research project. These costs may not exceed 10% of the total project costs. The following cost items incurred by an SME for obtaining and validating patents and other intellectual property rights in relation to an approved Industrial Research or Experimental Development project shall also be eligible:

Costs preceding grant of IP rights

Costs preceding the grant of the right incurred for:

  • the preparation, filing and prosecution of the application of the right in the first legal jurisdiction;
  • renewing the application before the right has been granted.

Translation costs

Translation costs incurred in order to obtain or validate the IP right in other legal jurisdictions;

Costs incurred in defending the validity of the right

Costs incurred in defending the validity of the right during the official prosecution of the application and possible opposition proceedings, even if such costs occur after the right is granted. The following additional provisions shall apply to any costs that may be supported through this incentive:

  • The summation of costs incurred in relation to contractual research, technical knowledge and patents and additional overheads must not exceed 25% of the total project cost;
  • Any Tax Credit must be claimed on costs incurred by the applicant after the aid is approved;
  • All transactions relevant to the approved project must be accounted for separately;
  • Subcontracting is not considered to be effective collaboration.

Assistance to Small and Medium-Sized Business

The incentives prescribed by these Regulations aim to provide financial aid by way of cash grants to SMEs (undertakings which employ less than 10 persons and have a turnover of less than EUR 2 million) carrying out the specific types of business activities listed therein.

There is an exhaustive list of the business activities which may be entitled to receive financial aid under these regulations. The qualifying activities are equivalent to those which may receive an investment tax credit under the Investment Aid Regulations, with the exception of activities in connection with the provision of logistical services and those activities set forth in Malta Freeports Act. However, undertakings which undertake selling by retail, dividing, sorting, packaging, mixing of goods which are acquired in bulk, as well as undertakings carrying out business activities in connection with the preparation and the production of food in the course of catering are disqualified from obtaining financial assistance.

Enterprise Support Incentives Regulations

The Enterprise Support Incentives Regulations (ESIR) provide the necessary legal basis by which Malta Enterprise Corporation may provide monetary grants to those undertakings which carry on or intend to carry on an activity which may contribute to the economic development of Malta.

In line with the above, the ESIR only lists down the undertakings to which these incentives do not apply, which include those operating in the fishery and aquaculture sectors and those operating in the primary production of agricultural products (excluding undertakings that operate in the processing or marketing of agricultural products).

Assistance may be granted in several forms, including the assistance for participation in trade fairs, assistance for collaboration with other undertakings, assistance for business development projects, assistance in the engagement of advisors and assistance for the development of international competitiveness.

Any incentives, benefits or grants received by virtue of these regulations are exempt from income tax in the hands of the relevant beneficiaries. Further, where such benefits are received by a partnership which is a transparent entity for tax purposes, the partners or members of the partnership will also be exempt from income tax.

Malta Tax Credit Schemes – Eligibility Criteria, Exclusions and Qualifying Costs

Small and medium sized businesses and self-employed individuals form the backbone of most economies.  In order to incentivise growth of these businesses and provide assistance to self-employed individuals, there are specialised Malta tax credit schemes being offered by Malta Enterprise, to encourage businesses and individuals to innovate, expand, invest and develop their operations.  Eligible enterprises can benefit from a tax credit of up to €25,000 for the duration of the incentive.

Eligibility Criteria

The MicroInvest scheme, which runs until 31 March 2012, shall be eligible to all micro enterprises including micro start ups and must satisfy the following criteria cumulatively:

  • The enterpise must not employ more than nine (9) persons full time;
  • The annual turnover of the enterprise must no exceed EUR 2 million;
  • Enterprises should be registered with the VAT Department and in possession of regulatory licences and permits where applicable;
  • Applicants must have paid all VAT, income tax and social security dues, if any

Exclusions

The incentive will not apply to the following:

  • Aid granted to undertakings active in the fishery and aquaculture sectors;
  • Aid granted to undertakings in the primary production of agricultural products;
  • Aid to export-related activities toward third countries or Members States, namely aid directly linked to the quantities exported, to the establishment and operation of a distribution network or to other current expenditure linked to the export activity;
  • Aid contingent upon the use of domestic over imported goods;
  • Aid granted to undertakings in difficulty

Aid intensity

Applicable enterprises may be eligible for a tax credit of up to 40% of eligible expenditure, up to a maximum of €25,000.  Enterprises based in Gozo (Malta) shall be eligible for up to 60% of eligible expenditure, up to the same capping of €25,000.

Qualifying Costs

Eligible costs include:

  • Investments in refurbishing and upgrading of business premises;
  • Investment in machinery, technology, apparatus and plant to enhance operations, reduce energy expenditure;
  • Investment required for compliance of Health and Safety regulations;
  • Investment in one motor vehicle used for the carrying of goods;
  • Wages covering a 12 month period.

Conversely, the follows costs are excluded:

  • Purchase of land and/or property;
  • Acquisition of works of art, antiques and assets not directly related to the trade and business of applicant;
  • Costs that are assisted (even partly) through other incentive measures.

Effectively, the microinvest tax credit helps to further incentivise investment in Malta, by complementing the already highly attractive tax treatment applicable to Maltese companies.

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 enquiries@fbsmalta.com or by calling at +356 2338 1500

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