Download our Mobile App on:

Malta has become an ideal jurisdiction to establish an EU holding company which would have the purposes of holding shares in one or more entities.  Typically, the holding company itself would not trade, but it is used to hold the assets or shares in another trading or operative company.  Malta’s attractiveness as a holding company jurisdiction has increased significantly following Malta’s accession to the EU, thus giving full access to applicable EU Directives and the recent amendments to the Income Tax Act (ITA). 

A Maltese Holding company can be setup to fulfil various purposes, including: 

  • holding shares and types of participations in resident and non-resident (NR) companies;
  • carrying out group financing activities and treasury operations;
  • holding and leasing brands, trademarks, trade-names and other intangible assets;
  • holding and leasing real estate situated in or outside Malta;
  • providing management and related services to related and non-related companies. 

Incorporation 

The share capital of a new company may be denominated in any foreign currency and not necessarily Euro (€).  There is a minimum capital requirement amounting to €1,165 in private companies with only 20% of the issued share capital necessary to be paid up;

The minimum number of shareholders is usually two, however a single member company may also be registered;

The shares of a Maltese holding company may be held by a trustee who is duly authorised to act as a trustee in accordance with Maltese Law. 

Re-Domiciliation 

  • Malta allows for both inward and outward re-domiciliation.  This occurs when a company incorporated under the laws of one country migrates into the legal system of another country, without the need of being liquidated;
  • It thus changes its place of incorporation, and becomes regulated by the laws of that country;
  • The income that would have arisen prior to re-domiciliation is not taxable in Malta, whilst the income arising after re-domiciliation becomes subject to tax on a worldwide basis but with the possibility of tax refunds. 

Main benefits of using a Maltese Holding Company: 

  • The participation exemption enables Maltese holding companies to incur a 0% tax rate on qualifying income or gains received;
  • Malta embraces a continually expanding network of double taxation treaties;
  • A substantial portion of any Maltese tax incurred could be claimed through tax refunds;
  • Malta withholds no tax on payments of interest, dividend, discount, premiums or royalties;
  • Generally, transfers of shares by NR persons are exempt from capital gains tax and duty;
  • Malta does not have any controlled foreign companies (CFCs), thin capitalisation or transfer pricing regulations. 

Participation Exemption 

Maltese law grants a 100% exemption to companies registered in Malta on dividend income or capital gains derived from its corporate shareholding or from the disposal of such a holding.  The said dividend income or capital gains must be derived from a participating holding (including some types of partnerships and branches) in which the Maltese registered company holds equity shares and:

  • owns at least 10% of the equity shares; or
  • has the option to acquire the remaining balance of the equity shares; or
  • has an investment amounting to at least €1,164,700 which is kept for an uninterrupted period of at least 183 days; or
  • has an entitlement for first refusal in the event of a proposed disposal, redemption or cancellation of the remaining balance of the equity shares;
  • has an entitlement to sit on the Board; or
  • holds shares for the furtherance of its business and not for the purpose of trading.

When dividends (not gains) are derived from a participating holding, the conditions set out in either paragraph (i) or paragraph (ii) must be satisfied in order to exempt: 

(i)                   Where the body of persons in which the participating holding is held satisfies one of the following 3 conditions:

a)      Resident or incorporated in a country or territory which forms part of the EU MS;

b)      Subject to any foreign rates of tax of at least 15%;

c)       Does not have more than 50% of its income derived from passive interest or royalties.

(ii)                 Where none of the above conditions are satisfied, the following 2 conditions need to be satisfied:

a)      the investment in the participating holding must not be held as a portfolio investment; and

b)      the passive interest or royalties derived by the participating holding would have been subject to tax at a rate of at least 5%. 

The fundamental benefits of the Participation Exemption are: 

  • No requirement to pay tax and then have it refunded at shareholder level, thus eliminating the cash flow disadvantage;
  • No requirement to distribute taxed profits to obtain refunds;
  • Avoids problems relative to the effect of non-deductible expenses on the availability of distributable profits for tax refund purposes;

An extension of the participation exemption has been granted to foreign branches on any income or gains derived by a company registered in Malta which are attributable to a permanent establishment (PE) (including a branch) outside Malta or to the transfer of such PE, provided that the taxpayer has not shown such income or gains as part of its chargeable income in the income tax return. 

Double Taxation Relief

When a Maltese holding company incurs tax outside Malta, whilst still having the obligation to declare that same income in Malta; it is very likely that it enjoys the possibility of obtaining a relief in respect of such foreign tax suffered.

Malta offers three main mechanisms by which to claim relief from double taxation: 

         i.            Treaty Relief: Treaty relief is based on the availability of a double taxation treaty between Malta and the other contracting state. Malta boasts over 68 tax treaties, with the majority being based on the OECD Model Convention, and practices the credit method of double taxation relief. Most of the treaties provide for a reduced withholding tax on dividends, interest and royalties paid to Maltese residents. For an updated list of Malta’s network of double taxation treaties

        ii.            Unilateral Relief: Unilateral relief is a type of relief which may be claimed by Maltese resident individuals and/or Maltese registered companies including branches of overseas companies, who derive income arising outside Malta and in respect of which foreign tax would have been suffered. Unilateral relief may be availed of when a double taxation treaty is not in force between Malta and the State where the income has been sourced. Similarly to treaty relief, the credit provided will not exceed the total tax liability perceived in Malta. 

      iii.            Flat Rate Foreign Tax Credit (FRFTC): The FRFTC may be claimed by a Maltese registered company (including branches of overseas companies) in respect of income derived from abroad. The FRFTC involves a relief of 25% of the net foreign income, before deducting any allowable expenses. The FRFTC may be claimed without the need for the company to have incurred foreign tax, but a number of conditions must be satisfied. 

No Withholding Tax on interest, dividend, discount, premium or royalty payments 

Interest, discount, premium or royalties accruing to or derived by a person not resident in Malta are exempt from tax in Malta, provided that the exemption shall not apply in respect to:

  • NR engaged in a trade or business in Malta through a PE; and
  • The royalties or the debt claim in respect of which the interest, discount or premium, is paid are effectively connected with such PE.

Additionally, Malta does not impose any withholding tax on outbound dividends. 

Transfer of Shares 

A capital gain made by a NR on the disposal of shares in a Maltese holding company is exempt from tax in Malta.  Under certain conditions, no stamp duty is levied on the disposal of shares in a Maltese holding company.    

Capitalisation Rules 

Malta does not have thin capitalization rules, and therefore a full deduction of the interest paid by a holding company can be achieved.  Unabsorbed interest paid on loans utilised to finance an investment made by a holding company would not constitute a loss from trade/business and thus will not be carried forward.

Transfer Pricing Regulations 

Malta does not have transfer pricing rules and consequently our laws do not have a direct reference to the “arm’s length principle”. Since there is no transfer pricing legislation, no transfer pricing methods are present under Maltese law. 

CFCs 

There is currently no specific tax legislation or specific tax rules that regulate CFCs. 

VAT Obligations 

A pure holding company which simply holds shares and receives dividend income is not required to register for VAT in Malta, thus maintain compliance costs at a minimum.  Should the company receive services from suppliers established outside Malta, a special form of VAT registration may be necessary. 

Overseas Branches 

A branch or place of business of an oversea company is treated as a PE for tax purposes i.e. taxable in Malta on the profits attributable to the said Maltese PE.  Therefore, it is taxable in Malta on income arising in Malta and on income arising outside Malta but received in Malta.  

The income of the branch would be taxed at the same rates as that of a Maltese company (currently 35%).  In turn, the branch is covered by the tax accounting system and the refundable tax credit system, like a company.  

How can KSi Malta help you?

-          Formation of holding companies;

-          Registered office facilities;

-          Nominee (fiduciary) services;

-          Tax compliance and advisory services;

-          Accountancy and auditing services; 

If you would like further information on this subject, please contact our Tax Manager, Benjamin Griscti, on bgriscti@ksimalta.com or our Tax Advisor, Kristine Scerri, on kscerri@ksimalta.com.

Please or Register to post a comment

< Go Back