Sharing a Business Secret
Malta is the place in the Mediterranean where companies pay less tax.
Malta is a Mediterranean island nation and member of the Commonwealth. It has often been said about this little island that it is one of the Mediterranean's best kept secrets. One particular secret that should be shared amongst friends is that if you like to keep your taxes to a minimum and your privacy to a maximum Malta is the business place to go to. Malta became a member of the European Union in 2004. Moreover, the use of English is widespread, especially in the cities. The advantages of doing business in Malta are being summarized here for your information:
Professional services: are considerably cheaper than they are in the rest of the European Union, plus Maltese companies tend to be very cost effective to run.
No withholding tax on the distribution of dividends to the shareholders of the Maltese Holding Company.
Attractive tax rates. Some Maltese corporations pay a corporate tax of 35%, but there are automatic refunds that lower the effective tax rate to just 4.17%. Other Maltese corporations have tax rates that range from 12% to ZERO.
An average time frame of just two days to set up a new company.
All this, and the environment for English-speaking investors couldn't be better: a legacy of British administration of the island, which dates back to early 1800s. The British put in place a road network, educational system, parliamentary system, and a sound infrastructure. Today, English is the official language of Malta, jointly with Maltese.
Common Advantages of Maltese Companies Are Interestingly Good
Malta, which gained independence from Britain in 1964, joined the European Union on May 1, 2004. Any Maltese-registered company can freely trade under the "passporting" system, which also means that any license or authorization issued by a Maltese authority is automatically recognized in the other EU member states. The Malta Financial Services Authority (MFSA) issues licenses, including:
Remote gambling, e-gaming, internet casino, etc.
Investment advising
Banking
Stock broking
Collective Investment Funds, Professional Investment Funds, etc.
Whereas the requirements for the issue of such licenses are in line with the European Union directives, the MFSA is more user-friendly than the authorities of many other European jurisdictions. Maltese companies that are licensed by the MFSA to carry out these licensable activities will be able to trade within the EU on the strength of the Maltese license and these companies.
Furthermore, all Maltese companies have EU-compliant Value Added Tax (VAT) numbers, which can be used for trading within the EU.
Another advantage is that Maltese companies now benefit from the European Union's Parent/Subsidiary Directive, under which any dividend paid by a European company to a Maltese Holding Company cannot be taxed in the country of registration of the dividend paying company. This is a big advantage since dividends are received in Malta net of any withholding tax from the originating country, and there is no withholding tax in Malta on the distribution of dividends to the shareholders of the Maltese Holding Company.
Two Types of Companies, Each With Its Own Advantages
It is no longer possible to incorporate offshore companies in Malta, but there are two new types of Maltese companies that are very tax advantageous: the International Trading Company and the International Holding Company.
These companies are, in effect, normal onshore companies registered in Malta.
They are companies that have non-resident shareholders and carry out their trading activities from Malta, but they are not allowed to trade in Malta.
The tax concept behind the international companies is that these companies pay corporate tax at 35% on their world-wide profits, but a system of refunds and imputations turns these corporate structures into very tax efficient instruments for shareholders not resident in Malta.
A distinction is made between International Trading Companies and International Holding Companies. The first has an effective tax rate of 4.17%, whereas the second pays no effective tax at all.
International Trading Companies- offer an Effective 4.17% Tax Rate
International Trading Companies-as the name implies-are used for carrying on trade. The companies pay corporate tax at 35% at the end of their accounting year on their world-wide trading profits.
Following the payment of the corporate tax to the Maltese Inland Revenue, an automatic system kicks in whereby the non-resident shareholders receive a refund of 30.83%, making the effective tax rate just 4.17%.
Refunds are paid out by the Malta Inland Revenue Department within two weeks of payment of the corporate tax.
Here's an example of how that works...
ITC Profits Refunds Tax Paid
ITC world-wide profit 1,000.00
Corporate tax @ 35% 350.00
Distributed dividend 650.00
7.5% tax refund: gross profits 75.00
2/3rds tax refund: corporate tax 233.33
Totals 1,000.00 958.33 41.67
There are no further withholding taxes or other payments to be made by the ITC or by the shareholders and therefore the final total tax rate is always 4.17%. There are no taxes or restrictions on the exportation of the dividends from Malta.
International Holding Companies-Tax Rates From 12% To ZERO
International Holding Companies (IHC) are not allowed to trade. Their aim is to "hold" shares in one or more overseas companies and to own and manage assets held outside Malta.
The company will receive royalties, dividends, interest, capital gains, rents, and other income arising abroad or derived from foreign investments, as well as its own dividends. At the end of its financial year, the company audits its accounts and pays corporate tax at 35% on its world-wide income. Shareholders then benefit from considerable tax benefits through a system of tax refunds. Non-resident shareholders of holding companies, upon payment of the corporate tax, become entitled to tax refunds as follows:
100% refund of the corporate tax paid where the overseas investment from which the income derives is considered to be a "qualifying participation," making an effective ZERO rate of tax; or
2/3 refund of the corporate tax paid where the overseas investment from which the income derives is not a qualifying participation, making an effective tax rate of 11.67%.
qualifying participation means any one of the following:
The IHC holds 10% or more of the shares of an overseas company;
The IHC is entitled at its option to purchase or has the first right of refusal on a disposal of the balance of the equity shares of the overseas company;
The IHC is entitled to be represented on the Board of Directors of the overseas company;
The value of the shareholding exceeds Lm500,000 (approximately US$1.5 million) or equivalent in foreign currency;
The shares are held in the overseas company for the furtherance of the business of the IHC.
Once again there are no withholding taxes or other taxes on the dividends distributed to the non-resident shareholders.
Importantly you might not have to pay tax in your home state. Depending on where you live, your governemnt may or may not tax you on the profits from a Maltese company you own or control.
If you live in a country like Panama, which doesn't tax foreign income, there will be no further taxation beyond that imposed by Malta. If you live in a country that does tax these profits, thanks to Malta's network of more than 34 tax treaties, it may be at a lower rate than would otherwise apply.
Even if you live in a country such as the United States that does not have a tax treaty with Malta (it expired in 1997), you can generally use "foreign tax credits" to avoid double taxation.
Another issue is whether your Maltese company qualifies as a "controlled foreign corporation" (CFC) in your country of residence, and thus is required to pay tax on profits as they are earned. It's possible to avoid CFC status with careful planning, but the time to do it is before you form the company. It goes without saying that obtaining proper professional advice is essential.
All This And Shareholder Privacy, Too!
Apart from the obvious tax advantages, the International Trading or Holding Company can have nominee shareholders; nominee shareholders are provided by Maltese service providers licensed for this purpose by the Malta Financial Services Authority. The use of nominee shareholders makes the ultimate beneficial owners anonymous and the identity of the beneficial owners may only be revealed by the nominee to a Maltese court in the course of a money laundering investigation.
The use of nominee shareholders and local directors (which are not a requirement) will ensure full anonymity of the beneficial owners of the company and will help to keep the management and control of the company centered in Malta. The company is allowed to have either corporate or individual directors, both resident and non-resident in Malta.
There are various fees associated with International Companies. Certainly, you should get professional advice before considering the abovementioned advantages. Business Meetings Malta will help you in this respect.
Will the EU change all of this?
There is some reason to consider that the EU might ask Malta to abolish or amend its near-zero taxes to certain shareholders in certain Maltese companies.
One main reason, being, if you live or do business in Malta, you don't qualify for these special tax breaks, which are allowed only to non-residents. That's a no-no for the EU. This is why Ireland had to change its law a couple years ago to tax all corporations at 12.5%, rather than just certain "offshore" corporations at 10%.
That said, it's very unlikely that people who form a Maltese company that qualifies for the rebates will be hit by a 4.17% tax one year and 40% the next year. These companies receive an Advanced Tax Ruling from the Inland Revenue, which in any case guarantees their tax status for at least two years.
It's much more likely that, should the EU apply pressure on Malta, Malta will do what a lot of the other new EU member states are doing-instituting a fairly low corporate tax rate of around 10%-20% in the next year or two. But this is still significantly more than the 4.17% that qualifying shareholders in some of these companies now pay.
Governments move slowly, and the EU moves slower than most. Still, it's something to bear in mind before incorporating in Malta.
Additional Information
* International Trading Companies and International Holding Companies
* General Information
* Type of Company ITC IHC
* Average timeframe to set up a new company 2 days
* Average timeframe to activate shelf company N/A
* Migration of domicile possible? Yes
Corporate Requirements
* Standard authorized share capital (in any foreign currency) Lm 500 (in any Lm 500 (in any
* 20% to be paid up on incorporation foreign currency) foreign currency)
* Bearer shares allowed? No
* Nominee shareholders permitted Yes
* Minimum number of shareholders One
* Minimum number of directors One
* Corporate directors permitted? Yes
* Local directors required? No
* Local meeting required? No
* Company secretary required? Yes
Taxation
* Corporate tax rate 4.17% (after tax 0%-12% (depending
* refunds to non-resident on source of income shareholders) and after tax refunds to non-resident shareholders)
* Ordinary tax base worldwide income worldwide income
* Tax exemptions N/A
* Withholding tax on dividends - tax rate None
* Withholding tax on interest - tax rate None
* Withholding tax on license fees and royalties None
* Double taxation treaties Treaties with 32 countries
* Value Added Tax rate 18% EU VAT Not required
Disclosure and Reporting Requirements
* Disclosure of beneficial owner to Company Registrar (No when using nominees)
* Government register of directors Yes Yes
* Government register of shareholders Yes
* Annual return Yes Yes
* Submission of accounts Yes
* Audit required? Yes
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