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The Malta Financial Services Authority
The Malta Financial Services Authority (MFSA) evolves from the Malta International Business Authority (MIBA) which had been set up to supervise financial services activities. It continues in MIBA's tradition of adopting a professional and pragmatic regulatory approach. This ensures the orderly functioning of the financial system, while
at the same time gives financial services operators the necessary flexibility demanded by the market.
The MFSA Regulatory Unit supervises activities in investment services, insurance and
banking sectors. The International Tax Unit (ITU) draws its staff from the Inland Revenue Department and is housed within premises of the MFSA. It ensures that all tax related matters with respect to international operations are dealt with speedily and effectively. The ITU is responsible for the issuing of Advance
Revenue Rulings which provide certainty on the tax treatment of any international undertaking.
Tax Planning Opportunities and Incentives
For companies providing financial services or trading operations, doing business in Malta makes good business sense.
In addition to the basic advantages of location, human resources, infrastructure and flexible operations cost base, excellent tax planning opportunities and incentives have been developed for key economic sectors.
Among the most significant tax planning benefits offered are:
Double Tax Agreements
Malta has double tax agreements with more than 30 countries including:
Australia, Austria, Belgium, Bulgaria,
Canada, China, Cyprus, Finland,
France, Germany, Hungary, India, Netherlands, Norway, Pakistan, Poland,
Sweden, Switzerland (*), United Kingdom and USA.
Double Taxation Agreements have been initialed with the Kuwait, Malaysia
and South Korea and are awaiting signature and ratification
(*) Agreement limited to profits derived from operations of ships and aircraft in international traffic.
Unilateral Relief
A company which receives income from a country not covered under a double taxation agreement can receive credit of the relevant tax against its tax liability in Malta.
Flat-Rate Foreign Tax Credit
This is available to companies where none of the other mechanisms for relief from double taxation is available. It applies to income or capital gains earned by the company from overseas. The credit is calculated at 25% of the amount of the overseas income or gain before deductions. A certificate issued by the company's auditors stating that the income arose from overseas is sufficient for this purpose.
International Trading Companies
An International Trading Company (ITC) is a company whose operations are restricted to carrying out trading activities from Malta, with individuals or companies not resident in Malta. The exception to this rule is that ITC can purchase locally manufactured goods for export. The status of the ITC is established by the issue of an Advance Revenue Ruling given by the International Tax Unit. Like all other companies, an ITC pays 35% tax on its taxable income. However Malta's full imputation tax system and the repayment (tax refunds) provisions contained in the legislation makes the ITC a very tax efficient vehicle for non-residents shareholders as these receive up to 30.8% tax refund on dividends paid by the company thus the final tax bill in the hands of the non-resident shareholder will be approximately 4.2% (This percentage may vary according as applicable to the circumstances of the individual shareholder).
International Holding Companies
Non resident shareholders of a company which has a participating holding in a non-resident company, qualify for a full refund of the tax paid on income arising from these foreign holdings upon a distribution of profits by the holding company. Like all companies, the imputation system and tax credits also apply to the IHC.
A participating holding may take one of a number of forms involving the Maltese company in:
-
having a
minimum 10% share holding in a non-resident company,
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holding
shares equivalent to a minimum of five hundred thousand Malta liri,
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being
entitled to sit on the Board of Directors,
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having the
ability to exercise rights to acquire the shares not held by it to the
amount allowed for by the law applicable to the non-resident company,
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being given
the right of first refusal in the event of a proposed disposal,
redemption or cancellation of all of the non-resident company's shares
not held by it, and
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holding a
strategic stake in the non-resident company to further its business
objectives.
(Note) With
an agreement reached with the EU, International Trading Companies and
International Holding Companies can no longer be registered after 1
January 2007. Present ITC and IHC have up to 2010 to either convert to
a normal company or wind up.
Malta – New Income Tax Provisions
Recent amendments to the
Income Tax Act and other legislation has brought the taxation of companies
incorporated after the 1 January 2007, in compliance with the EU
regulations.
Malta, as an EU member
state, was criticised on its use of International Trading Companies (ITC)
and International Holding Companies (IHC) as these constituted unfair
competition and distinguished between resident shareholders and
non-resident shareholders, when the question of tax refunds arose.
ITC and IHC companies
were stopped being registered by the Registrar of Companies at the Malta
Financial Services Authority (MFSA) on the 31 December 2006.
The new income tax
amendments were negotiated with, and approved by the EU.
Under the new
amendments, a number of definitions were amended and new definitions were
introduced.
Two significant new
definitions are “participating holding” and “passive income”
In certain cases the income received from “participating holding” is
tax exempt. This feature will surly help in the cash flow of holding
companies.
•“participating
holding” under new provisions
•A
Maltese company is considered to have a participating holding if
it holds equity shares in a non-resident company or a qualifying
body of persons and it:
•(i) is an equity shareholder which
invests a minimum in the non-resident company of Lm500,000 (or
equivalent in a foreign currency) and such investment is held
for a at least a period of 183 days; or
•(ii) 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;
•The definition is being extended to
include certain partnerships (of a similar nature to a partnership en
commandite the capital of which is NOT divided into shares) thus
enhancing Malta’s competitiveness as a holding company jurisdiction.
•Furthermore
for an “exempt participating holding” the non-resident
company in question must 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 alternatively must satisfy both of the following
conditions:
•(a) the
shares in the non-resident company must not be held as a portfolio
investment; and
•(b) the
non-resident company or its passive interest or royalties have been
subject to tax at a rate which is not less than 5%.
Tax refunds were extended
in the “trading”, “non-participating holding” and “passive
income” areas.
Certain conditions and
anti abuse provisions apply.
A table summary is shown
hereunder
|
Source of
income
|
Corporate
Tax Paid
|
Refund
of tax to share-holders
|
Effective
tax
|
|
Dividend income
from holding activities with participating holding in subsidiary
|
nil
|
nil
|
zero
|
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Capital gains
accruing from the disposal of a participating holding
|
nil
|
nil
|
zero
|
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Dividend income
from holding activities without participating holding in subsidiary
or other company income not falling within any other category
|
35%
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6/7ths
of corporate tax paid
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5%
|
|
Trading income
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35%
|
6/7ths
of corporate tax paid
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5%
|
|
Passive income
(interest, royalties etc)
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35%
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5/7ths
of corporate tax paid
|
10%
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A short worked example having an income of 1000 Euros
from the different sources
|
Source of
income:
|
Profit
|
Tax
paid
|
Distribution
to share holders
|
(net
of tax)
|
|
a) dividend
from participating holding or capital gain from disposal of same
|
250.00
|
NIL
(exempt)
|
250.00
|
NIL
(exempt)
|
|
b)
dividend from non-participating holding
|
250.00
|
87.50
|
162.50
|
75.00
|
|
c) trading income
|
250.00
|
87.50
|
162.50
|
75.00
|
|
d) passive income
|
250.00
|
87.50
|
162.50
|
62.50
|
|
Totals
|
1000.00
|
262.50
|
737.50
|
212.50
|
|
Effective
dividend and tax received by shareholders
|
737.50
|
212.50
|
|
Effective
receipt in total by shareholder
|
950.00
|
|
Effective tax rate
|
5%
|
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Continuation of Companies
This is also known as Migration of Companies or Re-domiciliation
of Companies.
This is possible. Companies registered in a non EU
country may find it beneficial to re-domicile in Malta - being an EU
member country.
A Quick Overview
| Company
Minimum Requirements |
| Number of Shareholders |
One |
| Number of Directors |
One
Can be of any nationality |
| Company secretary
required? |
Yes |
| Minimum share capital |
Lm 500 (approx Euros 1250) |
| Nominee shareholders
allowed? |
Yes |
| Local company address
required? |
Yes |
| General
Information |
| Shelf companies available? |
No |
| Barer shares allowed? |
No |
| Migration of domiciliation
possible? |
Yes |
| Disclosures |
| Disclosure of beneficial
owners to the Registrar of Companies / Inland Revenue? |
No - If using nominee
shareholder |
| Filing of annual return? |
Yes |
| Filing of accounts? |
Yes
An abridged version for private companies |
| Audit required? |
Yes |
Collective Investment Schemes
Collective Investment Schemes are tax exempt and therefore do not qualify for relief from double taxation. However, where such schemes are not structured as a unit trust, they may opt to be taxed. In this case, tax is applied at the rate of 25% and relief from double taxation can be obtained by taking advantage of Malta's network of double taxation agreements and the relevant tax planning opportunities.
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Incentives for Investment Service Expatriates:
Expatriates who are employed with an investment service company are not taxed on benefits received in kind. These incentives are available for ten years starting from when the expatriate becomes liable to pay tax for the first time in Malta.
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Incentives
for Investment Services Companies
Companies licensed under the Investment Services Act benefit from various fiscal incentives. These include double deductions on building occupancy costs and on salaries paid to Maltese staff for the first ten years. Such companies also enjoy relief on excess funds invested in their own schemes.
Trusts
With the introduction of the Trusts and Trustees Act, one can now have a
Maltese Trust.
If you require further information about Trusts, please contact us
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