Malta is internationally recognised as a brand denoting excellence in financial services. It offers an attractive cost- and tax-efficient base for financial services operators looking for a European Union-compliant, yet flexible, domicile.

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 Facts about Malta 

 

Lying at strategic crossroads between Europe and Africa, Malta is a meeting point of cultures and languages at the heart of the Mediterranean: the ideal location for efficient international business contacts. Malta is an island hub at the very core of the Mediterranean that is one of the fastest growing international financial service centres in the world.

 

The history of Malta is a long and colourful one dating back to the dawn of civilisation. Malta is really one big heritage park. There are open-air sites and indoor museums for every historical era - from Prehistory to World War II. The Knights of St. John were great patrons of the arts and during their 250 years rule left a legacy of masterpieces which can be found in museums, palaces and churches right across the Islands. Malta has three sites inscribed on the UNESCO World Heritage List. These are the City of Valletta, the Megalithic Temples and the Hal Saflieni Hypogeum.

 

Based on the strength of its location, the high education standards of its workforce and its varied history of influences, the island has long been a sought after destination for efficient international business. Thanks to its international airport, it is also extremely well-connected to Europe and the rest of the world. Additionally, the assorted range of cultural events, excellent hospitality facilities and well-equipped healthcare system make it a very safe and enjoyable place to do business.

 

With a strong, yet flexible single regulatory body in the Malta Financial Services Authority (MFSA), a  sophisticated ICT infrastructure that is well connected to the international backbone, a high broadband penetration, and a competitive market with the latest technologies like VoIP, Malta is able to offer the right environment for business.

 

Malta is also a major transhipment hub with the Malta Freeport (servicing 115 ports worldwide) being one of the most efficient and successful Freeport operations in the Mediterranean. Almost all goods being shipped through the port or being re-packaged for onward shipment do so tax-free.

 

Friendly relationships exist with Mediterranean rim countries and with countries representing the major investment markets worldwide. Through the bilateral agreements between Malta and the EU with third countries, and through Malta's traditional economic links, the country strengthens its position as a business location and financial centre in the wider Mediterranean region.

 

High standards of living as well as comparatively low daily running costs offer a refreshing change from other busy, chaotic and high-cost, business centres. The diverse range of shopping, cultural events and leisure activities and well-equipped public and private hospitals and clinics, as well as high quality homes and apartments satisfy the most demanding requirements, and excellent office space is offered at reasonable rents.

 

When FinanceMalta was set up in 2007, the first initiative the board and management undertook was to identify those key sectors where Malta had a strong value proposition. Five key sectors were identified which consist of insurance and pensions, investment funds and asset management, credit and financial institutions, trusts and foundations, and wealth management. 

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Today Malta is ranked very highly across various financial services criteria relevant to the financial sector. The World Economic Forum (WEF) Global Competitiveness Report classifies Malta as a leading financial jurisdiction ranked among the top 20 countries. Other attestations include Malta’s ranking as the most favoured European fund domicile by Hedge Fund Review, a preeminent hedge fund publication. 

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 Other facts and figures 

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Total area: 316km2• Capital: Valletta• Population: 413,000• Official languages: English and Maltese• EU Member: 2004• Currency: Euro (2008)• GDP per capita: €13,900• Inflation rate: 2.2%• Unemployment: 6.9%

 

 Relocating to Malta 

 

Whether you are planning on relocating your business to Malta by means of redomiciliation of your company, or by incorporating a new company in Malta we can offer you a holistic service, consisting of not only company incorporation, accounting, auditing and taxation services, but also help you in identifying the ideal business location for your premises.

 

 Advantages for Redomiciliation 

 

By means of Legal Notice 344/2002, companies that are incorporated outside of Malta may change their domicile to Malta under certain terms and conditions. This effectively means that the company in the foreign jurisdiction need not wind up and set up shop anew in Malta, but simply move to Malta and will be considered by the Maltese authorities as a continuation of the previous entity. This naturally means substantial cost savings for the company. Companies that choose the path of redomiciliation have the further benefit of utilising the favorable tax incentives offered to companies incorporated in Malta owned by non residents.

 

 The Malta Tax System 

 

The combination of Malta’s tax system and its extensive double tax treaty network means that, with proper planning and structuring, investors can achieve considerable fiscal efficiency using Malta as a base. Significant benefits of the Malta Tax System:

 

Only EU member state with full imputation system;

Extensive network of double taxation treaties, plus benefits even when no bilateral treaty is in force;

Refundable tax credit scheme – on revenues as dividends to shareholders, resident & non-resident;

Ideal tax residency status for individuals. One of the key advantages of Malta's tax system is that it is a full imputation system, and has been so since 1948 when income tax legislation was first enacted. Malta is, in fact, the only EU member state with a full imputation system of taxation in force.

 

A person’s liability to tax in Malta hinges on the twin concepts of residence and domicile. Persons that are both ordinarily resident and domiciled in Malta are subject to income tax on their worldwide income and certain capital gains. Companies incorporated in Malta are both resident and domiciled in Malta, irrespective of where the control and management of the business is exercised. Companies that are not incorporated in Malta are considered to be resident in Malta only when the control and management of their business is exercised in Malta, in which case they would be taxed as a resident non-domiciled company.

 

A company not resident in Malta but deriving income which arises in Malta as a consequence of an activity carried out in Malta is subject to the same tax rules as are applicable to companies resident in Malta. Such companies are therefore subject to tax at 35% and no further tax is levied when profits are remitted to head office. When the non-resident company distributes its profits to its shareholders, the tax refunds, as explained hereunder, will apply. Double taxation relief Maltese tax law provides for three main forms of double taxation relief (‘DTR’) of foreign-source income. These are available in the following order: • Treaty relief; • Unilateral relief; and • Flat rate foreign tax credit (FRFTC).

 

Treaty relief takes the form of a tax credit granted for foreign tax paid on income received from a country with which Malta has signed a tax treaty. The amount of the credit is the lower of Maltese tax on the foreign income and the foreign tax paid.

 

Unilateral relief operates in a similar way to treaty relief, but it only applies where treaty relief is not available.The rationale of the full imputation tax system is also extended in relation to foreign companies by extending the unilateral relief to the underlying tax borne by the foreign company on the profits out of which dividends are paid to a Maltese resident.

 

Relief for such underlying tax is available to both individuals and companies and is available in respect of dividends received from any shareholding in a foreign company and also in respect of the underlying tax paid by any subsidiaries in which the foreign company holds, directly or indirectly, at least 10% of the voting rights. The effect of the application of treaty relief and unilateral relief is that where the foreign taxes are equal to or exceed the 35% Malta tax, no tax is payable in Malta. In the case of dividends, no tax in Malta will be suffered when the foreign dividend withholding tax and the underlying taxes are equal to or exceed the Malta tax at 35%.

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 Tax Refund System :  Upon a distribution of profits by a company registered in Malta (i.e. a company resident in Malta or a non-resident company with a branch in Malta), its shareholders may claim the following tax refunds of the Malta tax charge of the distributing company: 

 

• 6/7 refund – applicable to taxable profits which are not derived from immovable property situated in Malta, or from passive interest and royalties, and did make a claim for foreign tax paid.

• 5/7 refund – applicable if the distribution relates to income from passive interest and royalties.

• 2/3 refund – applicable if foreign tax credit has been claimed.

• The application of these tax refunds can reduce the Malta tax liability to 5% or 10% and in some Malta holding companies may also benefit from other tax exemptions such as the exemption of income from qualifying patents.

   

  The most common tax refund is of 6/7ths, i.e. 30% (6/7ths of 35%) of the taxable profits. Where no double taxation relief has been claimed, the effective tax suffered in Malta on distributed profits will be 5%. On the other hand, provided the income is not allocated to the Foreign Income Account (‘FIA’), where the Malta tax charge has been reduced by DTR, the tax refund will still be computed by reference to the Malta tax charge before DTR, but cannot exceed the amount of the Malta tax paid. Therefore where the foreign taxes are 5% or more, the effective Malta tax after the tax refunds will be nil.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Where the income is allocated to the FIA and DTR has been claimed, the tax refund is 2/3rds of the Malta tax charge after deducting FRFTC but before deducting other types of DTR. The Malta tax suffered on FIA income after the tax refunds will generally be as follows:

 

Where the FRFTC has been claimed, the effective Malta tax suffered will be between     2.49%   and 6.25%;  Where another DTR is claimed the Malta tax incidence will depend on the extent of  the foreign taxes suffered and where these are 11.67% or more, the Malta     tax suffered is nil.

 

Where the distributed profits are derived from passive interest and royalties, the tax refund is reduced to 5/7ths of the Malta tax charge. Interest and royalties are considered to be of a passive nature when they are not derived from a trade or business and have suffered a foreign tax of less than 5%. In such cases the Malta tax suffered after the tax refunds will generally be 10%, reduced by any foreign taxes suffered below the 5% threshold. The 5/7ths tax refund is also applicable when the distributed profits consist of dividends received from a participating holding  and the participation exemption, or 100% tax refund, is not applicable.

 

The refund increases to 100% when the profits distributed are derived from a participating holding, A participation holding is defined as a shareholding by a Maltese company in a non-resident company or a qualifying body of persons and where it: 

• has at least 10% of the equity shares in the non-resident company; or

• is an equity shareholder in the non-resident company and is entitled to purchase the balance of the equity shares of the non-resident company,

• is an equity shareholder in the non-resident company and is entitled to either sit on the Board or appoint a person on the Board of that subsidiary as a director; or

• is an equity shareholder which invests a minimum in the non-resident company of EUR 1,164,700  (or the equivalent in a foreign currency) and such investment is held for a minimum interrupted period of 183 days; or

• holds the shares in the non-resident company for the furtherance of its own business and the holding is not held as trading stock for the purpose of a trade.

 

Furthermore the non-resident company in question must either satisfy any one of the following three conditions: 

• it is resident or incorporated in the EU,

• it is subject to foreign tax of a minimum of 15%,

• it does not derive more than 50% of its income from passive interest and royalties;

 

or, if none of the above conditions are met, the holding must satisfy both of the following conditions: 

• the shares in the non-resident company must not be held as a portfolio investment; and

• the non-resident company or its passive interest or royalties have been subject to tax at a rate which is not less than 5%.

 

 Trusts treated as companies 

 

A trustee resident in Malta, and who has been granted authorisation to act as trustee, may elect to treat the trust as if it were a company ordinarily resident and domiciled in Malta. Such an election is to be made within 30 days from the constitution of the trust or 30 days from the appointment of a resident trustee whichever is the later. Once made, the election cannot be revoked. The trust will then be treated as if it were a company incorporated in Malta and charged to tax at the current rate of tax. The accounts of the trust are to be audited by a certified public accountant in Malta. Profits available for distribution shall be allocated in the same manner applicable to companies and distributions will be considered as dividends. When distributions are made to non-resident beneficiaries, such non-resident beneficiaries become entitled to claim a refund of the tax paid by the trust as if it were operating as a company.

 

The option to treat the trust as a company ordinarily resident and domiciled in Malta is useful in those instances where the trustee wishes to claim relief form double taxation on income that has been subject to withholding taxes outside Malta.

 

Tax on Trusts and Foundations:  Malta Tax Treatment of Settlements

 

No Malta tax would be chargeable upon a settlement of property on trust when:

 

The settler is not ordinarily resident and domiciled in Malta for Malta tax purposes and the assets settled on trust are situated outside Malta; or

 

The assets settled on trust do not represent chargeable assets in terms of Malta's tax on capital gains (that is, immovable property, securities (excluding securities having a fixed rate of return), business goodwill, copyright, patents, trademarks, trade-names and the full or partial beneficial interest in a trust).

 

 

Tax on Trusts and Foundations:  Malta Tax Treatment of Trustees

 

The trustee of a trust would be wholly transparent for Malta tax purposes (such that all income and gains otherwise attributable to the trust would be deemed to have been derived directly by the beneficiaries of the trust) when:

 

• none of the beneficiaries are persons ordinarily resident and domiciled in Malta; and

• the relevant income and gains have a foreign source for Malta tax purposes and/or comprise Malta source interest, royalties or gains realised pursuant to the disposal of shares in a Maltese non-property company.

 

Likewise, the trustee of a trust would be wholly transparent for Malta tax purposes (such that all income and gains otherwise attributable to the trust would be deemed to have been derived directly by the beneficiaries of the trust) when:

 

• none of the beneficiaries are persons resident in Malta; and

• the relevant income and gains comprise dividends distributed by a Malta company and/or have a foreign source for Malta tax purposes and/or include Malta source interest, royalties or gains realised pursuant to the disposal of shares in a Maltese non-property company.

 

Should a Malta trustee not qualify for fiscal transparency, then all income and gains attributable to the trust would be chargeable to tax in Malta at the flat rate of 35% when at least one of the trustees of that trust is a person resident in Malta for tax purposes.

 

Tax on Trusts and Foundations:  Malta Tax Treatment of Transfers of Beneficial Interests

 

No Malta tax would be chargeable upon any transfer by a beneficiary of his/her beneficial interest in a trust when:

 

• the trust property does not include any chargeable assets; or

• the transferring beneficiary is not ordinarily resident and domiciled in Malta and the trust property does not include any chargeable assets.