Malta Company Management and Control – Tax Rules and Issues
Management and Control
A Company which is registered in Malta shall be deemed to be tax resident in Malta from the date of its incorporation. However, in terms of Article 2 of the Maltese Income Tax Act ‘”resident in Malta” …when applied to a body of persons, means any body of persons the control and management of whose business are exercised in Malta….’
The wording of the aforesaid Article 2, right implies that a company established abroad shall become a resident of Malta if it is managed and controlled in Malta, and shall therefore be deemed to be tax resident in Malta.
Factors Which Determine Central Management and Control
As a general rule, the most manifest indication of where central management and control of the company is exercised, is the seat where the board of directors meets and resolves business. However, substance prevails over form and other factors should be assessed, for the location for the central management and control to be inferred.
Management and control is not established on the basis of clauses contained in the company’s Articles of Association but on the basis of the actual running of the company. If the central management and control of the company rests with an entity other than the board of directors (e.g. shadow directors) or the shareholders, the company would be managed and controlled in the country of residence of the aforesaid shadow directors / shareholders, irrespective of the clauses in the company’s Articles of Association.
It is possible for a body corporate to change its residence from one jurisdiction to another, insofar that the transition in management and control is done in good faith and can be clearly evidenced. Factors, which would typically indicate that the choice of residence where the company is effectively managed and controlled, is Malta, would be:
- Copies of Board minutes attesting that board meetings were held in Malta;
- Evidence that the company possesses an office in Malta;
- Evidence that the company’s accounts are audited in Malta;
- Evidence that the Company operates a Maltese Bank account (through bank statements etc.)
No factor is decisive on its own, and a thorough assessment of all criteria, cumulatively, should be entertained.
Malta Tax Rules
Malta asserts its right to tax on the basis of source jurisdiction and residence jurisdiction. All income that is deemed to arise in Malta, shall be taxable in Malta, irrespective of whether such income arising in Malta is remitted to Malta or not. With regard to foreign source income, the taxation of such income, is subject to socio-economic considerations (notably residence and domicile rules).
The basic rules relating to jurisdiction to tax derive from Article 4 of the Maltese Income Tax Act:
- Foreign source income derived by persons who are both ordinarily resident and domiciled in Malta is taxable in Malta, irrespective of whether such foreign source income is remitted to Malta (worldwide basis of taxation);
- Foreign source income derived by persons who are either not ordinarily resident but domiciled in Malta or domiciled in Malta but not ordinarily resident in Malta is taxable if received in Malta (remittance basis of taxation);
- Foreign capital gains derived by persons who are either (i) not ordinarily resident but domiciled in Malta or (ii) domiciled in Malta but not ordinarily resident in Malta, are not taxed in Malta even if remitted to Malta.
Having set the benchmarks, there are fiscal advantages to be reaped if the effective place of management and control of companies is satisfied. A company registered abroad that shifts its management and control seat to Malta is deemed to be resident in Malta and would be able to apply the tax credit imputation mechanism, taking full advantage of refunds which would be applicable to the shareholders of the company, on a final distribution of dividends.
Click here for more details on the credit imputation mechanism and the applicable tax refunds of a Malta Company.
Furthermore, a company registered abroad which is effectively managed and controlled in Malta, would only suffer tax in Malta on a remittance basis. Moreover, such company may ‘break off’ previous residence, if there are for instance, adverse Controlled Foreign Company (CFC) rules in its country of registration, that would not apply if the company were resident in Malta.
Tax Structures can legally mitigate one’s tax liabilities. More information can be provided on request. However, it must be noted that since some of the structures may be technically complex, they are ideally discussed at a meeting with Focus Business Services’ Directors. For bespoke tax advice, please click here to contact our tax advisors or send us an email on email@example.com or by calling at +356 2338 1500