Tax planning opportunities arise when looking into establishing a Malta Holding Company. Typically, these tax advantages benefit large
corporations who are looking at structuring their business more efficiently. However, this can extend to SME’s also who plan on expanding operations or structuring their business to reduce tax leakage.
Malta Participation Exemption
Malta Participation Exemption when a Maltese company holds shares in another entity qualifying as a Participating Holding can be exempt from Malta tax on dividends received, and potential capital gains arising on the sale of shares.
Participating Holding is found when a Maltese company holds equity shares in another entity, and the Maltese company satisfies the below criteria:
- Holds directly at least 5% of the equity shares of another entity such as a company, body of persons or CIS. The 5% must confer the right to at least two out of the following three equity rights:
- the voting rights,
- the dividend rights
- the rights to assets on a winding-up of the equity shares; or
- Is an equity shareholder in another entity and is entitled to either sit on the Board or appoint a person to sit on the Board of the other entity; or
- Is an equity shareholder investing at least €1,164,000 (or the equivalent sum in a foreign currency) for an uninterrupted period of not less than 183 days in another entity; or
- Is an equity shareholder and is entitled to, at its option, call for and acquire the entire balance of the equity shares not held by it; or
- Is an equity shareholder and is entitled to the first refusal in the event of proposed disposal, redemption or cancellation of all the equity shares; or
- Is holding shares for the furtherance of its own business, and the holding is not held as trading stock for trade.
No Withholding Tax on Dividends Distributed
No Malta tax is generally withheld on the payment of dividends by a Maltese registered company to its shareholders, regardless of whether the shareholders are a resident or a non-resident in Malta.
No Capital Gains Tax on the Disposal fo Shares
Capital gains received by a non-resident shareholder upon disposal of shares in the Malta Company are usually exempt from Malta tax.
No Tax Upon Acquiring Shares in Subsidiaries
Acquiring shares in a subsidiary would not generate any Malta tax regardless as to whether the shares are obtained via a rights issue or a share transfer.
As Malta is a member of the EU, you can benefit from EU directives put in place.
- EU Parent-Subsidiary Directive – Dividends paid to a Maltese company by an EU subsidiary are not subject to a withholding tax. Moreover, this prevents the double taxation of parent companies on the profits derived from their subsidiaries
- EU Interest and Royalties Directive – Interest and royalties paid to Maltese company by an EU associated company are not subject to withholding tax.
- EU Mergers Directive – The Directive facilitates mergers between companies established in EU countries.
Intellectual Property (IP) and Royalty Structures
Setting up an IP and royalty structure in Malta maximises any potential future earnings. Any income earnt through the use of your intellectual property can benefit from Malta’s tax refund system as well as the participation exemption scheme.
The Maltese tax regime does not contain thin capitalisation rules.