Malta has a very favourable tax system for the setting up of both Malta Holding Companies as well as for Malta Trading Companies. Let us start by explaining the tax treatment for Malta Holding Companies.
While Malta enjoys a favourable tax regime as will be highlighted in this article, Malta is not a tax haven. Secondly, in view that Malta is a member of the European Union (EU), it is regarded as an onshore jurisdiction and not an offshore country.
However, when it comes to Malta Holding Companies, there are several attractive features
When there's a transition from an existing structure, e.g. having an offshore holding company moving to Malta, the entry into Malta can be done either by
Malta allows for inward redomiciliation of companies, which is a very smooth process if the laws of the foreign country allow for it. In this way, it's a continuation of the company with its subsidiaries without the need to set up a fresh new Malta company.
So if we have a redomiciliation, there is a continuation of an existing holding company to Malta, together with all its subsidiaries. With this option, Malta also offers a step-up of the base cost of the assets to their fair market value when a company is redomiciled to Malta.
If the move is accomplished through the setting up of a new Malta Holding Company, the setting-up of such Malta Holding Company is a very smooth process followed by the transfer of the subsidiary or subsidiaries.
A Malta Holding Company is usually set-up within 2 to 3 working days from when the corporate service provider submits the documents. While there are Know Your Client (KYC) documents to be completed up to the ultimate beneficial owner (UBO), the overall process is a very smooth one.
If one goes for the option of setting up a new Malta Holding Company, the transferring of the present subsidiaries to the Malta Holding Company doesn't trigger any Maltese tax or any Stamp Duty.
So, if for example, an existing company presently located in an offshore jurisdiction transfers its subsidiaries into a Malta Holding Company, from the Malta side, there will be no entry stamp duty or taxes.
So, to summarise, there are two options of setting-up a Malta Holding Company;
Malta adopts what is referred to as a Participation Exemption Regime, which is a desirable feature, subject to some minimum conditions being satisfied.
So let us start by giving an example.
Let us assume you have a Malta Holding Company which in turn holds 100% of an EU subsidiary and 100% of a non-EU subsidiary. If these underlying subsidiaries are actively trading, this qualifies as what is referred to as a participating investment provided that the 100% have the right to vote and right to dividends.
As a result, dividends flowing up to the Malta Holding Company, from these subsidiaries are tax-free in Malta under the participation exemption.
The attractiveness of this feature is that even though Malta is a full member of the European Union, in order to qualify for the above tax treatment, the subsidiaries need not be European.
As long as the underlying subsidiaries are engaged in active trade, the subsidiaries can be located anywhere in the world. As a result, dividends flowing to Malta would be tax exempt in Malta.
Apart from that, Malta has concluded double taxation agreements with over 70 countries. So, there is also the possibility that the withholding tax is mitigated.
In the event the underlying subsidiaries are located within a country with whom Malta does not have a double taxation agreement in place, a 10% withholding tax applies. Ironically, such a rate is often less than the reduced treaty rate of that agreed with many other countries.
As a result, even with countries where Malta does not have a treaty, the resulting tax impact is often less than many of the presently negotiated treaty rates with various countries.
Malta does not impose withholding taxes upon the payment of outbound dividends irrespective of the jurisdiction of residence of the recipient.
Another important feature is that Malta’s tax legislation provides for an exemption to non-Malta residents and domiciled persons or to companies owned by the non-Malta resident and domiciled persons when shares in a Malta company are transferred and a gain is realised. Such gain is therefore not taxable in Malta.
With ever increasing due diligence requirements and a push for greater transparency, the typical offshore centres are coming under pressure. In some cases when dealing with financial institutions offshore companies are viewed with something of a stigma,
Malta's tax systems are compliant with the EU non-discrimination principles. Moreover, the Maltese tax system has the OECD approval and is also approved at an EU level.
It is for the reasons above that Malta attracts a high interest as a jurisdiction in replacement of the traditional offshore.
To conclude, tax advantages for Malta holding companies and for Malta trading companies are definitely worth exploring!
Tax in Malta is levied on the basis of residence and is charged on all income and on certain capital gains.
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