Starting a business in Malta: Economy
Since 2008, the Maltese economy has grown steadily, with GDP growth at an average of 3.1 percent per annum. Throughout the past 3-4 years, the Maltese government has introduced a variety of tax incentive programs not only for acquiring residency on the Maltese islands but also for setting up a company in Malta.
Some of the key benefits to consider when starting a business in Malta are:
• Strategic geographic location: the island is connected by air to almost every major city in Europe and to key locations in Middle East;
• Trusts and Foundations: Trusts and Foundations are flexible and dynamic tools used for asset protection and succession planning. They are mainly used to hold or own assets and wealth, to provide proper and responsible management of assets and wealth and to provide for proper and flexible distribution of income from assets and wealth (and, in certain circumstances, to provide for the distribution of the actual assets and wealth);
• Malta Maritime: situated in the middle of the Mediterranean Sea, Malta offers natural harbours, advanced maritime facilities and high quality maritime skills;
• Schengen area: Malta became part of the Schengen area in January 2008;
• Workforce: a multilingual skilled workforce owing to the excellent academic programs;
• Taxation: favorable double taxation treaty network with over 80 countries in the world. In addition, the Malta tax system allows for advantageous international tax planning and corporate structuring thus making it a serious option to consider when setting up a business on the Maltese islands;
• Citizenship and residency: Malta has become one of the top desired locations among expats in Europe to relocate to. Expatriates get to enjoy not only sunny weather throughout almost the entire year but also may consider tax efficient residency programmes which we can assist with:
o The Residence Programme;
o Malta Global Residence Programme;
o Highly Qualified Persons Rules;
o Malta Citizenship by Investment Programme: possibly the most attractive feature of the residency program for non-EU nationals is the opportunity of visa-free travel throughout the Schengen zone;
o Malta Residence and Visa Programme: it enables beneficiaries visa-free travel within the Schengen area and rights to reside indefinitely in Malta;
• iGaming industry: Malta may be small; however, it is one of the most attractive jurisdictions to many gaming companies to either move management and control or to set up operations on the Maltese islands owing to the tax efficient regime in place. One of the most recent updates in the iGaming business is the launch of the skill games license by the Malta Gaming Authority (MGA) for daily fantasy sports companies which happened in January, 2017.
Malta offers both local and foreign individuals an EU compliant domicile when setting up a company. There is a variety of forms to conduct business in Malta such as: a limited liability company (private or public), limited partnerships, or general partnerships.
Every company registered in Malta must have a registered office in the country. Companies must submit a valid memorandum and articles of association, normally subscribed by at least two persons.
Under certain conditions, it is also possible to register single member companies. Firms are registered with the Registry of Companies which is based at the Malta Financial Services Authority, and the incorporation may take as little as 48 hours.
Papilio Services Limited is registered to act as a Company Service Provider by the Malta Financial Services Authority and can assist you further when registering your business.
Malta’s corporate income tax rate is 35%, however its full imputation tax system and associated tax refunds can reduce the effective tax rate to as low as around 5%. This regime has been approved by the European Commission, while Malta is also included on the so-called ‘white list’.
Malta has become a preferred vehicle for corporate structures among other competitive jurisdictions such as Dublin, Luxembourg and Hong Kong to many investors, entrepreneurs and hedge fund managers. As a member of the European Union, the country is now a hotspot for efficient international transactions and international tax planning.
One of the most common types of business entity when incorporating a company in Malta is the limited liability company. A Malta company is the ideal vehicle for a wide range of business activities such as holding or trading companies, iGaming operations and eCommerce activities.
Malta’s network of 70 double taxation treaties allow companies to claim double taxation relief under certain conditions. For instance, this might be a solution to many where the foreign income is exempt from tax or the foreign income has been taxed at a reduced rate.
Companies are chargeable to tax in Malta at a rate of 35%. However, the Malta tax system operates a full imputation tax system and associated refunds can reduce the effective tax rate to as low as around 5%.
Malta participation exemption
A full (100%) Malta participation exemption applies when dividends and capital gains are derived from a participation holding or from the transfer of part or all such participating holding based on the Income Tax Act.
A participation holding constitutes where a company resident in Malta holds equity shares in another entity and the former:
• Owns at least 5% of the equity shares in the non-domiciled company;
• Right to vote;
• Right to profits available for distribution;
• Right to assets available for distribution on a winding up; or
• The investment in a non-resident entity amounts to at least EUR 1.164 million or more, subject to a time duration test of 183 days; or
• Has the option to acquire the remaining balance of the equity shares in the non-resident company; or is entitled to first refusal to purchase such shares in the event of the proposed disposal, redemption or cancellation of the remaining balance of the equity shares in non-resident company; or
• Is entitled to sit on the Board of the non-resident company; or
• Holds shares in the non-domiciled entity that are for the furtherance of the business of the Maltese company provided further that the shares are not held for trading purposes.
Participations in certain forms of partnerships may also be considered to be a “participating holding”.
Dividends and capital gains from a “participating holding”
As an alternative to claiming a participation exemption, the holding company may choose to pay tax at the normal corporate income tax rate of 35%. When such profits are distributed, shareholders may claim a full-refund of the Malta tax paid on those profits.
When the participation in the non-resident company does not involve a “participating holding”, then the income is subject to tax at the normal corporate income tax rate of 35%. Consequently, dividends distributed by the holding company entitles shareholders to claim one of the following refunds of tax:
• 6/7ths of the Malta tax; or
• 5/7ths of the tax paid in Malta; or
• 2/3rds of the tax paid in Malta.
As an example, a trading income, may qualify for a 6/7th refund on the tax paid if it satisfies certain conditions and thus bring the effective tax rate down to around 5% whilst a 5/7th refund is generally available on passive income such as interest or royalties.
The Advantages of a Holding Company in Malta
Malta is increasingly attractive as a holding company jurisdiction because it allows for tax efficient planning and may entitle owners to a certain tax refund, without getting taxed on dividends and on capital gains. As an EU member state businesses in Malta can take advantage of the Parent Subsidiary Directive which allows for the transfer of profits between one EU Member State to another to not be taxed twice by granting either a full exemption or a tax credit.
Holding company as a choice for doing business in Malta?
The Mediterranean islands are becoming a popular jurisdiction for setting up a Malta holding company not only because holding companies benefit from the application of all EU directives but also because of:
• flexibility a Malta holding structure has;
• various forms of double taxation relief;
• tax rate may be reduced to a possible 0% by benefiting from the Participating Holding or the Participation Exemption;
• no withholding taxes on payments of interest and royalties to non-resident persons.
Why starting a business in Malta?
Malta’s pleasant climate and welcoming people make living on the island an exceptional experience. As an EU nation that forms part of the Schengen area, EU nationals can live and work while foreign residents are encouraged to settle in Malta and benefit from various fiscal advantages. As a non-EU citizen, Malta offers many residency programs that allow for visa free travel and other tax benefits.
The cost of living in Malta remains one of the lowest in Europe, with a wide range of properties available to rent or purchase, from fully furnished apartments to rustic farmhouses, villas with pools, and even palaces.
The island’s cuisine is a delightful mix of Mediterranean flavours and styles, with strong influences from neighboring Sicily and North Africa.
Maltese people are friendly and welcoming to foreigners, and the island offers plenty in terms of tradition, culture and diversity, with spectacular feasts that indulge local heritage.
Malta company formation – point of contact