The Malta Participation Exemption

At CSB Group we understand that things can become rather complex when dealing with International Tax regulations and different Jurisdictions. Our team of professionals, can guide you with the best taxation approach in order to achieve a comprehensible tax optimisation scenario.

Holding Assets Through Malta Participation Exemption Rules

The Malta Participation Exemption is a pivotal element in the country's tax framework, attracting businesses with its strategic advantages. This tax regime offers eligible companies a compelling incentive by providing a complete exemption from Maltese taxation on specific income derived from qualifying participations. It has positioned Malta as a favourable jurisdiction for those seeking a tax-efficient environment to hold assets and conduct international business operations.

Malta's Participation Exemption

Delving deeper into Malta's Participation Exemption, it unveils a sophisticated mechanism designed to boost economic growth and stimulate investment. Companies meeting the qualifying criteria benefit from the full exemption on income derived from qualifying participations, creating a tax-friendly atmosphere. This framework not only serves as a catalyst for international investment but also reflects Malta's commitment to fostering a business-friendly ecosystem. Holding assets through Malta's Participation Exemption Rules becomes more than a strategic financial move; it becomes a testament to Malta's dedication to providing an attractive and supportive environment for businesses looking to optimise their global holdings and expand their footprint.

To qualify for this participation exemption, the Maltese company must maintain an 'equity' investment that meets the criteria of a 'participating holding'. A Maltese holding company possesses a Participating Holding if it holds shares in a company with registered shares or equity interests, does not own rights to any immovable property in Malta, and fulfills at least one of the subsequent criteria:

1. Holds directly at least 5% of the equity shares in a company, body of persons or collective investment scheme, which holding confers an entitlement to at least 5% to any two of the following rights:
   i.    Right to vote;
   ii.   Right to profits available for distribution;
   iii.  Right to assets available for distribution on a winding up; or
2. Is an equity shareholder and is entitled to purchase the balance of the equity shares or has the right of first refusal to purchase such shares or is entitled to sit as, or appoint, a director on the Board; or
3. Has an investment amounting to at least €1,164,700 which is kept for an uninterrupted period of at least 183 days; or
4. Holds the shares or units for the furtherance of its own business and the holding is not held as trading stock for the purpose of a trade.

Anti-Abuse Conditions for Malta Participation Exemption

Malta's Participation Exemption regime incorporates anti-abuse provisions to ensure the integrity of the tax framework. These conditions are designed to prevent the misuse of the exemption by entities engaging in abusive practices.

In relation to dividends, the Participation Exemption becomes applicable if the entity holding the Participation Holding meets any of the conditions outlined below:

-           Is resident or incorporated in an EU member state; or

-           Is subject to foreign tax of at least 15%; or

-           Has 50% or less of its income from passive interest or royalties; or

-           Is not a portfolio investment and has been subject to tax at a rate of at least 5%.

How we can assist you

At CSB Group, we are well-equipped to guide you through a thorough examination of your business's eligibility for participation exemption and offer guidance on the necessary steps if it qualifies. Additionally, we provide recommendations for potential corporate restructuring strategies that can optimise your eligibility for participation exemption, ensuring you can make the most of this advantageous tax provision.