Substance has become a hot button issue with Malta company formation, international tax planning and in the restructuring of corporate structures.

OECD implemented BEPS (Base Erosion and Profit Shifting) to curb the use of tax avoidance strategies that exploit gaps and mismatches in tax rules to avoid paying tax. As an OECD jurisdiction, Malta abides by this legislation. Therefore, if you’re a foreign entity looking at Malta company formation and registration, you need to consider what substance you require when setting up your Malta company.

Minimum substance for a Malta company

Without a confirmed definition of the management and control requirement, Papilio Services recommend the below measures when setting up a Malta Company:

  • Having a Board of Directors with at least 50% or more being a Maltese national or having a permanent place of residence in Malta;
  • Business decisions take place in Malta and the minutes recorded locally such as regular board meetings and annual general meetings;
  • Economic substance is present within Malta, such as an office and employees.

However, it would help if you considered that different jurisdictions and countries vary with what substance they require when setting up a corporate structure. Therefore, we suggest taking a tailor-made approach according to the operations of the company.

Tips from Papilio Services

Here are Papilio Services tips to producing substance when planning to set up a new corporate structure or a Malta holding company.

  • Get a tax opinion before setting up the Malta company. By getting a qualified tax opinion, this will help in creating an airtight case and avoid making mistakes in the future.
  • Appoint a qualified individual director(s) who understand your business activity and can give practical advice.
  • Set up an office in the country you carry out your operations—for instance, a physical office with active employees to the bare minimum of a registered office.
  • Carry out regular board meetings in Malta. From the bare minimum of an annual general meeting (AGM), or more suitably one meeting per quarter. It is important to have these meetings documented and recorded.

Malta substance requirements will increase the costs for a company that lacks substance. However, being challenged by the tax authorities for the lack of substance will, without a doubt, be more costly and damaging in the future.

Contact Our Specialist Corporate Team

As Malta Company Formation specialists, our primary focus is that all businesses we advise in Malta are up to the highest level of compliance in order to reduce future issues. Contact our Malta tax advisors today for our opinion on how you can gain substance for your business in Malta but also how you can be as compliant as possible.

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