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Every company registered in Malta needs to file the corporate income tax return on an annual basis. The income tax return would need to be based on the audited financial statements of the company. In fact the usual process is for the audit of the financial statements to be carried out first, subsequent to which the income tax return is completed and submitted.
Malta as a Holding Company Jurisdiction
The international tax sphere has radically changed through the introduction of Base Erosion Profit Shifting Project (BEPS). This led to a change in the way tax intermediaries do tax optimisation or tax planning. Tax optimisation can minimise the tax leakage of an enterprise in a lawful or coherent way by the use of a Malta holding company. When defining a Maltese Company, there is no distinction between a Holding and a Trading Company however the difference may lie in the objects of the company. This is also true from a Malta Tax perspective of what constitutes a Malta Company. Malta is increasingly attractive as a Holding Company Jurisdiction due to the use of a Malta Holding Company for tax optimisation purposes which results into a very tax-efficient vehicle in international tax planning or tax optimisation methods. Setting up a Holding Company in Malta may entitle clients to a tax refund, no Malta tax on dividends and no Malta tax on Capital Gains.
Establishing a Holding Company in Malta
A group Holding Company may be established for a variety of reasons including:
- the consolidation of existing subsidiaries (perhaps regional subsidiaries) under one company so as to enhance management, reporting and fiscal efficiencies;
- for use as a vehicle for additional acquisitions and as a platform for the expansion of business operations in new markets;
- to raise capital and achieve greater efficiencies in the distribution of such capital amongst group subsidiaries.
Why Malta for your Holding Company?
Malta, a member state of the European Union and of the Euro Zone, is increasingly attractive as a holding company jurisdiction not least in view of its:
- modern legal and tax framework;
- large and expanding international tax treaty network (almost 70 treaties currently in force) and additional unilaterally available double taxation relief mechanisms;
- access to the EC Tax Directives;
- hard working professional tradition (with English being a national language);
- comparatively low establishment and operating costs;
- strategic location at the centre of the Mediterranean and convenient European time zone.
- In addition, whilst Malta does not operate a specific holding company regime, the benefits typically available under such regimes are equally available to Maltese companies in respect of their holding activities. In fact, such benefits would be available to a Malta company (‘MaltaCo’) even if its business is not strictly limited to holding assets but includes additional activities such as treasury/financing functions, trading activities etc.. This adds valuable flexibility to a Malta holding structure.
Malta Tax Considerations
No Malta Tax upon acquisition by the Malta Company of shares in subsidiaries
The acquisition of shares in a subsidiary would not trigger any Malta tax irrespective as to whether such shares are acquired via a rights issue or a share transfer.
Dividends and capital gains derived by a Maltese company from a qualifying ‘participating holding’ in a subsidiary would be exempt from tax in Malta. A Maltese company would have a ‘participating holding’ in a subsidiary where the following conditions are satisfied:
A. The shares held by the Maltese company in the subsidiary carry at least two of the following rights:
- a right to votes; and/or
- a right to profits available for distribution; and/or
- a right to assets available for distribution in the event of a winding up; and
B. The subsidiary does not own immovable property situated in Malta (or rights over such property) and does not hold, directly or indirectly, shares or interests in a body of persons which owns immovable property situated in Malta (or rights over such property); and
C. At least one of the following 6 (six) additional qualifying criteria is satisfied:
- the Maltese company holds more than 10% of the shares in the subsidiary; or
- the Maltese company holds shares in the subsidiary having an acquisition value of at least €1,164,000 and it retains the shares for an uninterrupted period of at least 183 days; or
- the Maltese company holds shares in the subsidiary and is entitled, at its option, call for and acquire the balance of shares in the subsidiary; or
- the Maltese company holds shares in the subsidiary and is entitled to first refusal in the event of the proposed disposal, redemption or cancellation of the shares in the subsidiary; or
- the Maltese company holds shares in the subsidiary and is entitled to sit on the board or to appoint a person to sit on the board of the subsidiary as a director; or
- the Maltese company holds shares in the subsidiary for the furtherance of its own business and not as trading stock.
The participation exemption would always be available in respect of capital gains derived from a participating holding (even upon a disposal of a participating holding, in whole or in part, in a Malta resident company).
On the other hand, the participation exemption would only be available in respect of dividends derived from a participating holding in a non-resident subsidiary and only if any one of the following additional conditions is satisfied:
- the subsidiary is resident or incorporated in a country or territory which forms part of the European Union; or
- the subsidiary is subject to foreign tax at a rate of at least 15% (fifteen); or
- no more than 50% (fifty per cent) of the subsidiary’s income is derived from passive interest or royalties; or
- the Maltese company’s holding in the subsidiary is not a portfolio investment and the said subsidiary is subject to any foreign tax at a rate which is not less than 5% (five per cent).
No Malta withholding tax on dividends distributed by the Malta Company
No Malta tax is generally withheld on the payment of dividends by a Maltese registered company to its shareholders, whether such shareholders are resident or non-resident in Malta.
No Malta tax on capital gains realised pursuant to the disposal of shares in the Malta Company
Gains realised by a non-resident shareholder upon a disposal of shares in the Malta Company are generally exempt from Malta tax.
The Malta Company would fall outside the scope of Malta VAT should it be set up as a pure holding company. However, the company may be subject to VAT payments on Intra-Community Acquisitions of Services which are subjected to the reverse charge rules.
Non-exempt income or gains derived by the Malta Company may be taxed in Malta at a combined overall effective rate ranging between 0% and 6.25% by application of Malta’s full imputation and refundable tax credit system and the Flat Rate Foreign Tax Credit.
We’ve been using CSB services for four years and they have been a great asset to our business. We’ve been very impressed with their friendliness and responsiveness and with the staff constantly producing quality work in every aspect of their business – from book keeping to tax preparation. We’re glad to have CSB as part of our team.