Malta Company Uses by Corporations
One of the underlying hallmarks of Malta Entities is their marked flexibility, which make them suitable for any use. All Maltese companies, must in terms of Article 69 of the Companies Act, specify the objects clause, specifying the purposes for which they are incorporated. The trading objects of the Company may be drafted as wide as possible, and it is possible to have a number of principal trading objects.
A slight exception is made with regard to single member company and investment companies with variable share capital (SICAVs), whereby the objects clause of the Memorandum and Articles of Association must specify which activity of the company is to be its main trading activity. SICAVs must limit their objects to either one of the following:-
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 risks 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 to such object;
to act and operate as a Retirement Fund with the meaning of the Special Funds (Regulation) Act.
Likewise, companies intending to operate in the insurance sector also need to limit their objects to the particular business for which they seek authorisation.
Companies pursuing licensable activities such as the business of banking, Remote Gaming or any activity under the Investment Services Act or Financial Institutions Act must clearly indicate this object in the Memorandum and Articles of association.
Other than the aforesaid limitations, a Maltese company may change its trading objects easily by means of an extraordinary resolution of the shareholders, a matter which may be expedited within two (2) working days and which entails no registry fees payable to the Maltese registry of companies.
The flexible legislation also allows a Maltese registered company to pursue the function of both a trading and Holding Company simultaneously, thereby reaping full benefits of the income tax incentives such as the Participation Holding / Exemption, as well as the attractive tax credits allowed to shareholders. It is also possible to re-domiciliate a company in and from Malta, as well as to convert a private company into a public one and vice-versa.
Malta Company Uses By Corporations
The most common activities of Malta Legal Entities, which are currently being used, are set out below. (The list of such activities is not exhaustive).
Please contact us directly to discuss any operations not covered in this section.
[Note: The resulting Malta profits or funds can either be accumulated in Malta to be reinvested within the group or be repatriated to any jurisdiction - in any form dividend, interest or royalty using income transformation methods - without any additional Malta tax or exchange restriction].
International Trading, Commission Agent & Service
Such companies can be used for the invoicing / re-invoicing of goods and services (as well for the receipt of trading commissions) from any country to any destination and for transit trade activities in combination with the operation of bonded warehouses, bonded factories and the free trade zones.
Malta Companies may provide services such as sales promotion, accounting function, provision of labour – executive staff, consulting, market research, commission agency, intermediation, client introduction and many others. They may employ expatriate staff, who benefit from double tax treaty provisions, by paying tax and social insurance in Malta at low rates, thus avoiding the high tax rates in their home country.
In this way, profits made by the Malta Company, shall upon a distribution of dividends, entitle the shareholders to a tax credit, with the ultimate tax leakage on active trading income being of just 5% (in some cases even less). Trading from a low-tax, fully onshore EU jurisdictions such as Malta and using appropriate tax planning – structuring to mitigate Malta Tax sometimes to levels well below the aforesaid 5% is a far superior strategy nowadays than trading through an offshore company registered in a tax haven.
Maximisation of after-tax return on investments is the main goal. Therefore, investment structures which have the least tax leakage are the preferable investment vehicles.
A Malta Investment Vehicle can collect income, which can be a charge against high tax income in the investment country. Then, withholding tax is eliminated or reduced under double tax treaties or under EU Directives. The rate of tax in Malta is low, and may with the appropriate tax planning be reduced to 0% , in most cases relating to investments if foreign dividends are exempt and capital gains are subject to conditions. The income can then be repatriated in any form the investor (use of income conversion or transformation methods) wishes and to any jurisdiction without withholding tax.
There are no investment activities which are inappropriate for the Malta Tax Environment. However, there are investment activities which are indeed ideally suited to the Malta Tax Environment such as the ones explained in this section (among others are Holding Companies, Group Finance Companies, Royalty Companies, Head Office operations for South Europe, Middle East, Northern Africa and Central and Eastern Europe).
With holding companies being pivotal in international tax planning, the choice of a holding which is best suited to the structure, is crucial to minimise any tax leakages on income and gains.
Malta has, pursuant to the enactment of reforms to the Income Tax Act, and to the introduction of a Participation Holding and Participation Exemption regime, gained significant clout as a holding company jurisdiction.
In order to appreciate the merits of Malta as a holding company jurisdiction, it suffices to compare the main typical holding company “optimality criteria” (set out below) and the benefits provided by the Malta Holding Company Regime (also set out below):
Optimality Criteria for a Holding Company
Holding companies perform the following functions within a group:
- Asset ownership / participation interest in operating (“opcos”) & non-operating group companies;
- Accumulation of capital and shareholder value;
- Consolidation of business segments (including consolidated IFRS financial statements);
- Asset protection / mitigation of risks;
- Receiving dividends from operating companies (“opcos”);
- Distribution of profits to shareholders;
- Reinvestment of capital into new projects.
For illustration purposes, the company should ideally be resident in a jurisdiction which:
(only some of the main tax related criteria are listed – the following is not meant to be an exhaustive list).
- Enables the extraction of foreign sourced dividends at mitigated or preferably zero rates of foreign withholding tax – In choosing a holding company jurisdiction, one needs to take into account the benefits of a particular country’s Double Tax Conventions (Treaties) in order to reduce the incidence of foreign withholding tax. High tax jurisdictions generally do not enter into Double Tax Conventions with offshore jurisdictions. For this reason, if offshore (non-Malta) Companies are used to own shares in high tax jurisdictions, it is likely to increase the burden of tax, via the imposition of high withholding taxes, rather than reduce it;
- Enables foreign dividends received to be taxed at low or preferably zero rates of domestic corporation or other taxes in the country of residence of the holding company – Not only one should plan to have a holding company in a jurisdiction which can receive foreign dividends with reduced withholding taxes, but one also needs to ensure that those dividends are not highly taxed in the holding company’s country of residence;
- Permits the distribution of available profits to non-resident shareholders at low or preferably zero rates of withholding tax – Care needs to be taken that the jurisdiction chosen for a holding company is not one that will impose excessive withholding taxes on distributions of income to the shareholders of the company;
- Allows for the realisation of capital gains from the disposal of shares in foreign companies at low or preferably zero rates of both foreign and domestic corporation tax on the gains – All the leading holding company jurisdictions provide, for an exemption from taxation on holding companies realized gains, the disposal of shares in foreign companies;
Enables the tax-free liquidation of the holding company itself.
The Malta Holding Company Regime
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 Holding Companies are the following:
- Shares held by a Maltese company in another corporate company may qualify as a “participating holding” and would result in a tax-efficient regime for the Maltese company;
- The shareholders of the Maltese company would thus be able to claim a full refund on any tax paid upon any income or gains derived by the Maltese company from a participating holding or from the disposal of such holding and distributed to such shareholders;
- A Maltese company which qualifies for a participating holding can also claim a participation exemption, thus avoiding the need to pay any tax whatsoever any income or gains derived by it from the participating holding or from the disposal of such holding, thereby having cashflow benefits.
For this purpose, a ‘participating holding’ arises when there is a holding of equity shares in another company (Maltese or foreign) which satisfies any one of the following six (6) conditions;
1. holds directly at least ten percent (10%) of the equity shares of a company whose capital is wholly or partly divided into shares, which holding confers an entitlement to at least ten percent (10%) of any two (2) of the following:
(i) right to vote;
(ii) profits available for distribution; and
(iii) assets available for distribution on a winding up.
2. is an equity shareholder in a company and the equity shareholder company is entitled at its option to call for and acquire the entire balance of the equity shares not held by that equity shareholder company to the extent permitted by the law of the country in which the equity shares are held; or
3. is an equity shareholder in a company and the equity shareholder company is entitled to first refusal in the event of the proposed disposal, redemption or cancellation of all of the equity shares of that company not held by that equity shareholder company; or
4. is an equity shareholder in a company and is entitled to either sit on the Board or appoint a person to sit on the Board of that company as a director; or
5. is an equity shareholder which holds an investment representing a total value, as on the date or dates on which it was acquired, of a minimum of (€1,164,000) (or the equivalent sum in a foreign currency) in a company and that holding in the company is held for an uninterrupted period of not less than 183 days; or
6. is an equity shareholder in a company and where the holding of such shares is for the furtherance of its own business and the holding is not held as trading stock for the purpose of a trade:
Apart from satisfying the conditions of the Participating Holding, in the case of dividend income only, a participating holding acquired on or after 1 January 2007, must satisfy any of the following conditions:
- it is resident or incorporated in the EU; or
- it is subject to foreign tax of a minimum of fifteen (15) percent; or
- it does not derive more than fifty (50) percent of its income from passive interest and royalties.
Alternatively, if none of the abovementioned three (3) conditions are satisfied, the satisfaction of both two (2) ancillary conditions would need to be satisfied. These two additional criteria are that-
- (i) the shares in the non-resident company must not be held as a portfolio investment and the body of persons does not derive more than 50% of its income from portfolio investment.
In this respect, a ‘portfolio investment’ is an investment in securities held as part of a portfolio of similar investments for the purpose of risk spreading and where such an investment is not a strategic investment and is done with no intention of influencing the management of the underlying company; and
- (ii) the non-resident company or its passive interest or royalties have been subject to tax at a rate which is not less than 5%.
However, where more than 50% of the income of the non resident company consists of passive interest or royalties (and the company is not resident in another EU Member State or is not subject to tax at a rate of at least 15%), the following conditions also must be satisfied to qualify for participating holding status:
- the investment must not qualify as a portfolio investment; and
- the non resident company must be subject to foreign tax at a rate that is not less than 5%.
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 receipt of foreign dividends at zero rates of corporation tax or any other local taxes (subject to conditions – anti avoidance provisions that are easy to satisfy), i.e. “an EU Holding Company with no domestic tax leakage on holding activities”;
- 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.
Group Finance Companies
Group Finance Companies perform the following functions:
- Sourcing external debt finance;
- Accumulation of interest income and tax optimisation of high tax country group operating companies;
- Redistribution of funds within the group.
Such companies may take advantage of the Malta Double Tax Treaties by providing loans in treaty countries or other countries where withholding tax on interest is low or nil.
The use of Malta Entities for group finance are extremely attractive. Malta Finance Companies can fulfill intra-company and inter-company financial management functions, such as granting of loans for project financing or working capital requirements. Interest payments to the Malta Financing Company is tax deductible in the country of the borrower reducing the overall corporation tax liability. Choosing the right international jurisdiction for the use of double tax treaties can reduce or eliminate withholding taxes on interest payments.
These structures are particularly attractive for investment into high-tax countries where, local rules permitting, high debt structures are widely used.
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 are the following:
- 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” permitted by tax authorities;
- Low expense levels for professional / financial fees.
Group Tax Relief
The Malta Income Tax Act permits tax consolidation and sets forth circumstances in which members of a group of companies may surrender trade (but not capital gains) losses to one another.
In order for companies to be considered to form part of the same group:
(i) Both must be resident in Malta and not resident for tax purposes in any other country;
All Maltese companies are deemed to be resident in Malta, except when they are managed and controlled outside Malta.
(ii) One is the fifty-one percent (51%) subsidiary of the other or both are fifty-one percent (51%) subsidiary of a third party resident in Malta.
Group relief is applicable both with regard to direct and indirect groups as well as horizontal and vertical groups. In order to qualify for relief, thereby permitting allowable losses to be surrendered to a member of the same group, the following two cumulative conditions must be met:
(i) The surrendering company and the claimant company must have been members of the same group thorough the year preceding the year of assessment for which the relief is claimed;
(ii) Both companies must have identical accounting periods.
An exception is made with regard to newly incorporated companies, if such newly formed company, after its incorporation satisfied the aforesaid conditions, like any other company in the year preceding the year of assessment and has the same accounting period end date as that other company in that year preceding the year of assessment.
Allowable expenses which may be surrendered include any losses incurred in any trade, business, profession or vocation during the year preceding the year of assessment, which had it been profitable would have been subject to assessment in Malta, with the exception of allowances relating to the wear and tear of plant and machinery, and initial capital allowances.
Other important rules applicable for tax relief are the following:
- Claimant companies may not, in respect of any one loss, obtain more relief than could be obtained by a single claimant company;
- A surrendering company may surrender allowable losses by way of group relief in excess of the total income of the claimant company in the year preceding the year of assessment. The claimant company may carry forward and set off losses, as if incurred in its own trade.
- The relief does not necessarily be for the full amount available;
- The express consent of the surrendering company must be provided;
- The demand for relief must be made not later than twelve (12) months from the end of the company’s accounting period (default 31st December) which date falls within the year immediately preceding the year of assessment for which the claim is made;
- Where the allowable loss (had it been a profit) would have been allocated to the Immovable Property Account, Foreign Income Account or the Malta Taxed Account of the surrendering company, the claimant company may deduct such loss from its income which stands to be allocated to either its Immovable Property Account, Foreign Income Account or its Maltese Taxed Account and such loss may only be carried forward against the claimant’s total income arising in subsequent years as would stand to be allocated to any of these taxed accounts.
Royalty, Patent & Trademark
Due to the low withholding tax rates for royalties provided in most of Malta’s Double Tax Treaties and the use of the EU Directives, establishing a royalty company in Malta can be a very attractive proposition.
Royalties and licensing rights for intellectual property can be owned by or assigned to a Malta Company. Intellectual Property may include computer software, technical knowledge, patents, trademarks, trade secrets & methods, and copyrights.
Royalties and licensing fees for intellectual property can be owned by or assigned to a Malta Company.
The Malta Company can then enter into license or franchise agreements with other companies interested in exploiting these rights. Royalty payments would normally be deductible expense insofar that they are used in the production of the income.
The receipt of passive income from royalties, would entitle the shareholders of the Maltese Company to a tax credit, typically the 5/7ths income, ultimately resulting in a 10% tax leakage in Malta.
The use of the Malta’s Wide Double Tax Treaties Network and EU Directives reduces or eliminates the withholding tax on the collection of the Royalty payment.
Apart from the tax system’s generic features, the DTT Network and the adoption of EU Directives, other important tax system features beneficial to Malta Royalty Companies are the following:
- Absence or reduction (under a Double Tax Treaty or the Interest and Royalty Directive) of withholding tax on royalties paid to 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 (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.
Royalties Derived from Patent Rules
In 2010, by means of Legal Notice 429 of 2010, the Deduction on Royalties derived from Patent Rules (“the Rules”) were enacted.
The Rules provided a tax exemption on royalties and similar income derived from patents and inventions on or after 1 January 2010.
In order to qualify for this tax exemption, the qualifying patent (registered in Malta and in relation to which the research, planning, processing, experimenting, testing, devising, designing and developing was carried out in Malta or elsewhere), an application, together with the supporting documentation must be submitted to Malta Enterprise, a Government agency responsible for the promotion of foreign investment and industrial development in Malta. Upon satisfaction of the aforesaid criteria of eligibility, Malta Enterprise shall issue a determination, which upon filing to the Maltese Commissioner of Inland Revenue, shall entitle the holder of such qualifying patent to the aforesaid tax exemption.
Construction & Engineering
Malta is an ideal location for international construction and engineering companies due to the favourable tax treatment afforded to them and the existence of Malta’s Double Tax Treaties. Foreign contractors or engineers may avoid paying tax in a treaty country provided the project does not exceed the duration specified in the respective tax treaty.
Internet & E-Commerce
There are a growing number of companies, which choose to host their e-commerce site or venture in Malta, in order to take advantage of its beneficial tax regime, excellent telecommunications infrastructure and intellectual property protection laws.
Electronic commerce business companies may not only operate from Malta with minimum tax burden, but may also take advantage of Malta’s Wide Double Taxation Treaties Network, which may be extremely useful in the context of the internet server as a permanent establishment.
A Malta Company can own equipment and lease it to a high-tax country entity (HTCE).
Such an arrangement allows the HTCE entity to take advantage on the leasing payments. The equipment may come into the ownership of the Malta Company under a sale and lease back agreement with the HTCE entity.
A HTCE can sell its already depreciated assets to a Malta Company. The Malta Company is entitled to capital allowances on these newly acquired assets and will charge a leasing fee to the original owner. Such an arrangement will reduce the taxable profit in the country of the original owner.
Such companies can be used very advantageously for property management, especially in conjunction with Malta’s Double Tax Treaties and EU Directives.
The structuring of ownership through a Malta Company can reduce capital gains, transfer or stamp duties, and inheritance taxes and simplify a variety of other complex high-tax country issues.
A Malta Company can own Real Estate property both in Malta and in other countries including the beneficial shareholders’ country of residence. The Malta Company’s beneficial shareholders that own the property can sell their equity participation in the Maltese company instead of the property. The property’s legal ownership has not changed.
Where the shareholders of the company are non-resident in Malta and the immovable property is located outside Malta, there is an exemption from stamp duties and transfer duties in Malta.
Where the immovable property is located in Malta, the stamp duty payable on a transfer of shares shall be of €5 of every €100 or part thereof of the value of the property, if 75% or more of the assets of the Maltese Company consist of immovable property in Malta. In default, the applicable rate of duty on documents shall be of just €2 per every €100 or part thereof of the value of the property.
Malta offers ideal conditions for the location of multinational companies’ regional management and administrative centres throughout the world, with interests in the Middle East, North Africa and Southern Europe.
Administration & Treasury Management
Companies operating in regions where the local banking and administration infrastructure is not reliable can gain significant advantages from outsourcing this function in Malta. Further to the efficient banking system and tax beneficial regime in Malta, there is an abundance of qualified personnel within most of the professional disciplines to support even the most complex operations. The centralised administration and treasury management functions enjoy the advantage of a convenient time zone (Central European Time) ensuring uninterrupted service to global operations.
The cost of running such a function from Malta is significantly lower compared to maintaining this in a country with a high cost of living. The administration and treasury management services can be provided by Focus Business Services, should the size of the global operations not justify the setting-up of a fully-fledged office in Malta.
Such a set up opens up possibilities for sophisticated transfer-pricing planning to minimise tax and optimise timing for the incidence of costs and profit generation.
The use of Employment Companies provides an opportunity to use Malta as a centre in tax planning for individuals. Expatriates working for foreign companies, performing their duties outside Malta, and paid through a Malta Employment Company, would benefit from a tax-free status. Due to the existence of double tax treaties, expatriates on short assignments to various countries are treaty-protected if employed through Malta – they are entitled to tax exemption in Malta. At the same time, because of their short assignment in the other treaty country, they do not become tax resident there either.
Remote Gaming Companies
Malta has proven itself as a well-established, efficient and reputable i-gaming centre and has asserted its role as a front-runner to the i-gaming industry by becoming the first E.U. member state to regulate remote gaming. The flexibility and thoroughness of the Remote Gaming Regulations (L.N 176 of 2004) combined with an attractive fiscal treatment applicable to Maltese licence holders means that to date, there are over 350 licensed gaming companies currently operating in Malta, including some of the most prestigious names in the industry.
Some of the abovementioned major betting companies have located their business in Malta, with some operators opening fully-fledged support and call centres employing hundreds of employees. This translates to a skilled, specialised workforce, excellent infrastructure and competing collocation companies and has been conducive in attracting some of the top names in the business.
The management of remote gaming in and from Malta is a licensable activity. However, by virtue of Legal Notice 90 of 2011, it is possible for any person who is licensed by any Authority or authorisation issued by the government or competent authority of an EEA member State, or any other jurisdiction approved by the Authority to manage remote gaming in and from Malta.
Our in-house gaming unit has a proven track-record in advising and assisting clients in all aspects of remote gaming, from application for a licence to post-licensing compliance. We pride ourselves in providing a one-stop shop solution, bespoke to clients’ needs, in the most timely and efficient manner.
Captive & General Insurance
With companies facing increasingly expensive and more difficult insurance cover, many industry players have resorted to captive insurance to manage risks inherent in their business or subsidiaries and finance retained losses in a formal structure.
Malta has established itself as a front-runner in captive insurance business (referred to as “Captives”) through the establishment of a robust regulatory framework that combines tax efficiency with controlled foreign company legislation requirements and a comparatively low cost base in the EU.
The regulatory body is the Malta Financial Service Authority (MFSA), which is responsible for the licensing, regulation and supervision of insurance companies and intermediaries.
Insurance Business in Malta is regulated under the Insurance Business Act, which provides for the authorisation and supervision of insurance companies and the MFSA is the competent authority for the purposes of the Act.
Malta’s insurance legislation provides opportunities for captive insurance business and related activities such as:
- Insurance Management Companies;
- Protected Cell Companies;
- Regional Operations for Insurers;
- Insurance Brokers.
Requirements for a Captive Insurance
The MFSA is dedicated to process the application for the licensing of a captive within a statutory period of three (3) months provided the following conditions are met:
(i) An application is filed in writing in the prescribed form;
(ii) Sufficient information is made available on persons having any proprietary, financial or other interest in, or in connection with, the company – All qualifying shareholders, controllers, and all persons who will effectively direct the business of insurance are fit and proper to ensure the company’s sound and prudent management;
(iii) The company has appropriate own funds for the type of business to be carried on or being carried on by the company;
(iv) The company’s objects are limited to business of affiliated insurance and operations arising directly therefrom to the exclusion of other commercial business;
(v) A scheme of operations has been submitted in accordance with the relevant insurance rules.
The fees payable to the MFSA may be summarised as follows:
|Affiliated Insurance Company|
|Application for Authorisation||1800|
|Acceptance of Application||2500|
|Continuance of Authorisation||5000|
Minimum Guarantee Fund
Captive insurance companies are required to possess own funds. This minimum guarantee fund depends on the type of insurance business (long-term or general business insurance) and the risk insured.
The required guarantee fund of a long-term insurance business company is of:
(a) €3,500,000 in the case of general business;
(b) €2,300,000 in the case of general business restricted to certain classes;
(c) €1,100,000 in the case of an affiliated reinsurance company;
(d) €3,200,000 – EUR 3,500,000 in combined cases e.g. (i) general business and reinsurance; and (ii) long term business and reinsurance
In the case of an insurer which is authorised to carry on reinsurance where (i) the reinsurance premiums collected exceed 10% of the insurer’s total premium; or (ii) the reinsurance premiums collected exceed € 50,000,000; or (iii) the technical provisions resulting from its reinsurance acceptances exceed 10% of its total technical provisions, the minimum guarantee fund shall be of €3,000,000.
Where the business is restricted to that of an affiliated reinsurance company, the minimum guarantee fund shall be of €1,000,000. In the case of a pure reinsurer, other than an affiliated reinsurance company, the minimum guarantee fund shall be of € 3,000,000.
Every company authorised to carry on general business of a prescribed description must maintain an equalisation reserve in respect of its general business of that description.
The Equalisation Reserve is calculated by transferring a percentage of the net premiums at the end of each financial year. This percentage of net premiums varies in accordance with the business group up to a maximum of 75% of net premiums.
Captives carrying on general business of a prescribed nature are required to maintain an equalisation reserve and shall only be exempted if -
- Their head office is situated outside Malta; or
- less than 4% of net premiums written in that financial year in respect of all its general business and less than €2,500,000, and the insurer has no equalisation reserve to be brought forward from the previous financial year.
However, since technical provisions and equalisation reserves are allowed as a deduction in the computation of taxable income, Captives carrying on reinsurance business may still elect to hold an equalisation reserve if its business is less than the aforementioned thresholds.
Every insurer must maintain a margin of solvency which shall be calculated specifically with respect to long-term and general business and shall vary in accordance to each risk and business class insured.
A Captive must establish and maintain adequate technical provisions, in respect of the business it is authorised to carry. These technical provisions must be set aside by the insurer to meet its liabilities under or in connection with contracts of insurance.
The assets covering the technical provisions shall take account of the business and the classes of the business carried on by a company in such a way as to secure the safety, yield and marketability of its investments and shall remain unencumbered at all times.
Captives are required to cover their technical assets and margins of solvency requirements by admissible assets. To ensure safety, yield and marketability of the assets must be diverse and spread as set out by the Insurance Business (Insurers’ Assets and Liabilities) Regulations 2007.
Malta’s re-domiciliation regulations enable captives operating in other jurisdictions to carry out any insurance business in Malta subject to the authorisation of the MFSA. Such authorisation shall be granted if such body corporate:
- Originates from an approved jurisdiction;
- Approves such continuance by a corporate decision which is valid under the laws of its country of origin and that would be equivalent to an extraordinary resolution under Maltese Law.
Upon acceptance and registration and MFSA authorisation such company shall cease to be a body corporate under its previous jurisdiction and shall continue its corporate existence under the laws of Malta. The company will retain its assets, rights and liabilities as a company otherwise formed and registered under the Companies act and authorised under Maltese insurance legislation.
Click here for a more detailed description of the Re-Domiciliation of companies
Like all companies resident in Malta, Captives would be 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. The default refund applicable to Captives in respect of active trading income, is a refund of 6/7ths.
Furthermore, foreign tax paid can be taken into account for purposes of the refund calculation, subject to the maximum refund not exceeding Malta tax paid. Effectively, it is possible to envisage situations where no Maltese tax leakage would be suffered by the Captive in the manner set forth below:
|Maltese Company||No Foreign Tax||With Foreign Tax|
|Net Foreign Income||2000||2000|
|Grossing up with Foreign Tax||0||105|
|Tax at 35%||700||737|
|Credit- Double Tax Relief||0||105|
|Malta Tax Payable
(tax at 35% less tax credit)
|Shareholder of Maltese Company|
|Refund on distribution
(6/7 of Malta Tax Payable)
|Effective Tax Paid in Malta||100||0|
|Effective Tax leakage in Malta on Net Income||5%||0%|
*632 (6/7th of 737)
Malta has won ever increasing recognition and increased its clout as a financial centre with its sophisticated regulatory framework. Today, financial services account from approximately 12% of the island’s Gross Domestic Product (expected to increase two-fold by 2025) with over 7,000 persons employed in the industry.
The main reasons for this rapid expansion may be summarised as follows:
- Highly-responsive, receptive and reputable regulator;
- Relatively low-costs;
- EU-passporting rights;
- Highly skilled, multilingual workforce
The main driving force however, has been the enactment of sophisticated and flexible legislation. One such measures is the re-domicliation of companies in and from Malta is permissible even for licensed entities, minimising costs and circumventing the need to liquidate these entities. Other examples include the use of Incorporated Cell Companies, Protected Cell Companies and the use of Unit Trusts and Contractual Funds as Collective Investment Schemes.
The banking sector has proven its resilience by weathering the international recession through solid fundamentals and sound systems. The World Economic Forum’s Competitiveness Index 2009-2010 has ranked Malta’s Banking System as the 13th soundest in the world. In a similar vein, the City of London’s Global Financial Centres Index, has ranked Malta fourth out of 66 jurisdictions as a centre “that is most likely to increase in importance over the next few years“, behind only Dubai, Shanghai and Singapore. More impressively as of 2011, rating agency Moody’s has re-confirmed Malta’s A1 rating.
The Funds industry has registered steady growth and as of 2010, over 400 funds, mostly Professional Investor Funds have been domiciled in Malta, with a combined net asset value in excess of EUR 7 billion.
In the insurance sector, there are over 40 insurance companies, particularly Captive Insurances and protected cell companies, domiciled in Malta.
Shipping & Ship Management
Malta has a deeply-entrenched maritime tradition. Over the years, Malta’s shipping registry has earned a reputation for efficiency and the Malta Flag, is one of the most widely-recognised merchant shipping flags, establishing itself as a Flag of confidence. Today, Malta is one of the largest maritime nations in terms of registered tonnage worldwide, with a fleet of over 5,000 registered vessels, the 2nd largest in Europe, after Greece.
The Merchant Shipping Act (“the Act”), regulates the registration and operation of vessels under the Malta flag, and is based on its English Law counterpart. Under the Act, any type of vessel (including but not limited to oilrigs, platforms, barges etc;) may be registered in the Maltese Shipping Registry and fly the Malta Flag. Furthermore, the Act also allows for bareboat charter registration for foreign ships under the Malta Flag and also for the bareboat charter registration of Maltese ships under a foreign flag.
Advantages of the Maltese Flag
Maltese Law affords a number of fiscal benefits to ship owners or bareboat charterers operating tonnage tax ships – vessels of at least 1,000 net tonnes registered under the Malta flag and owned, chartered, managed or administered by a Shipping Organisation (a status automatically conferred on a company, partnership, trust or foundation having as its activities the owning, operating, administration or management of vessels). Some of most attractive advantages of registration under the Malta flag, may be summarised as follows:
- Automatic exemption from income tax in Malta on income derived from shipping activities of Maltese tonnage tax ships;
- Automatic exemption from donation and succession duty on the capital represented for Maltese tonnage tax ships;
- Automatic exemption from duty on documents and transfers (stamp duties) payable on the sale or transfer of Maltese tonnage tax ships, and on the allotment or transfer of any share or stock in any company owning such vessels;
- Registration of hulls/ vessels under construction and mortgages over such vessel is permitted;
- No restrictions on the nationality of the master, officers and crew serving on Maltese vessels;
- Uncomplicated and efficient procedure for registration and deletion of Maltese vessels, as well as for the registration and discharge of mortgages;
- Efficient procedures for the sale or transfer of shares or stock in Maltese shipping companies;
- No trading restrictions imposed on Maltese registered vessels.
The aforesaid exemptions, may, by bespoke application, also apply to vessels below 1,000 net tonnes.
Malta Company Uses by Individuals
Maltese Company Law places no restriction on the nationality of shareholders, effectively meaning that individuals of any nationality (whether EU or otherwise) may subscribe for shares in a Maltese company, free to pursue any trading activity.
Furthermore, the minimum share capital requirements for a Maltese private company are set at just EUR 1165, or any equivalent amount in any other currency, of which only 20% needs to be fully paid up. This low threshold makes it accessible to many individuals.
Although the Companies Act prescribes that a private limited liability company has at least two shareholders, it is possible to have a single member company, provided that the main trading activity of the Company is specified in the Memorandum and Articles of Association of the Company.
The most common activities of Malta Legal Entities that are currently being used by individuals are set out below:
(The list of such activities is not exhaustive).
Entrepreneurs & Professionals
Entrepreneurs and professionals, who start off with a Malta Structure can receive strategic benefits. The use of Malta Entities offers entrepreneurs enhanced investment returns, access to global markets, better after-tax profits, and improved risk mitigation. A Malta Entity can own corporate assets without exposing the entrepreneur’s personal assets – this also reduces business risk.
Executives can use Malta Entities for various aspects of their corporate agendas. This can also help them restructure their compensation and stock programs, so as to take advantage of reduced tax, asset protection, and access to global markets.
Entertainers, Authors & Athletes
Entertainers are taxable in Malta at 10% of gross payments on performances which exceed 15 days a year in Malta. It would be therefore beneficial for entertainers, who exceed the aforesaid threshold of performances a year, to incorporate a Maltese company and benefit from lower rates of taxation (ultimate tax leakage of 5% or less).
Furthermore, entertainers may make use of a Malta Entity, to enter into contractual obligations performed by themselves. The Malta Entity earns income, and the entertainer, author or athlete is compensated for services rendered to that company, thereby mitigating their personal tax liability.
Intellectual Property Owners
Link to Royalty, Patent & Trademark Above.
Wealth Inheritors – Individuals
Individuals who inherit wealth can use a Maltese Entity to reduce their inheritance taxes by converting the inheritance into money in low or non-tax jurisdictions, instead of high-tax jurisdictions.
Gains of a capital nature are not taxable in Malta, so any inheritance remitted to Malta, shall insofar that it does not constitute a gain of an income nature, not be taxable in Malta.
Individuals can also restructure the income that their inherited portfolio generates so as to protect their assets and the income compounds to be tax-free. As a rule of thumb, immovable property is regulated by the lex situs, so any immovable property owned by the testator shall be regulated by Maltese Law. Whilst the devolution of immovable property in Malta, even by succession, may give rise to duty on documents tax, there are no inheritances taxes in Malta, and most assets devolved by way of inheritance, may be exempt from tax.
Non – Tax Uses of Malta Entities
In addition, a number of significant non-tax benefits that can be achieved from Malta Structures include:
- Use of the “High Credibility EU Status” of Malta Entities in order to transact internationally. Examples:
(i) it is a well known fact that EU Service Providers are subject to significantly less stringent due diligence requirements by banks and other institutions and entities,
(ii) EU VAT Registration and verifiability of company details on the EU VIES system are widely considered as a criterion of added commercial credibility.
- Pre-immigration planning;
- Hedging against currency fluctuations;
- Reduction in securities transaction costs;
- Exemption from exchange controls;
- Deployment of expansion strategies;
- Asset Protection and shielding from litigation;
- Confidentiality in Business and Financial affairs (anonymity);
- Estate planning;
- Access to new sources of finance;
- Improved investment returns;
- Creation of an International Equity base;
- Reduction in employee costs;
- Easier repatriation of funds.
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
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