Gustavia - Malta Companies

MALTA COMPANIES

The incorporation of Maltese Companies, which are EU compliant and EU approved, offer substantial tax incentives and other advantages to shareholders. Until 31 December 2006, Malta used to allow the incorporation of International Trading Companies and International Holding Companies, which allowed a special tax rate to the non-resident shareholders of these companies. With effect from the 1st January 2007 significant amendments to the Income Tax law have been introduced to remove the distinction between resident and non-resident shareholders, thus making Maltese companies compliant with EU regulations.

The effect of the amendments are that in place of the old International Trading Companies and International Holding Companies, Malta will allow the incorporation of Malta Companies which can have multiple or mixed sources of income (holding, trading or passive investment income) at very advantageous tax rates.

Briefly, the main advantages of a Malta Company are the following:

· Free trade within the EU since Malta has joined the EU on May 1, 2004

· Annual audited accounts - the submission of audited accounts to the Inland Revenue proves that the company is not a tax evasion structure

· Low effective tax rate on world wide profits as follows:

o 0% on dividends received from a participating holding, that is:
(i) where the parent company holds at least 10% of the equity in the subsidiary;or
(ii) holds an investment in the subsidiary of at least Euro 1.5 million and holds that investment for more than 183 days)

o 0% on capital gains made from the disposal of a participating holding

o 5% on dividends from non-participating holdings

o 5% on trading income

o 10% on passive income (interest, royalties etc)

· Complete anonymity of the beneficial owners

· European Union VAT number for EU VAT trading (where applicable)

· No withholding tax on distribution of dividends to the shareholders

· 48-hour registration

Malta’s economic policy is quite simply to create wealth and to have wealth permeate all levels of society – real wealth, generated from profitable commercial activities. Making the country richer means ensuring that it has an attractive business environment that encourages and rewards local and international investors. Fiscal and monetary regimes need to make good sense for business. Malta does business with the world. Goods and services have become global commodities and so too has money. Money moves in and through Malta in very large amounts.

Malta has put in place tax policies that are competitive and attractive to business, while at the same time being EU compliant from all aspects of law. Tax rates vary from zero to a maximum of 10%.

Until the 1st January 2007, Malta used to allow the incorporation of International Holding Companies and International Trading Companies, both of which were very attractive because of the generous refunds of tax allowed to the non-resident shareholders. These companies will remain in existence until the 31st December 2010 and it is no longer possible to incorporate them today. This follows on pressure from the European Union for Malta to end the tax discrimination between resident and non-resident shareholders of Maltese companies.

After an agreement reached with the EU, from 1st January 2007 Malta has amended the Income Tax Act to create what is today known as the Malta Company, while keeping in place the full-imputation system of corporate taxation which ensures that these companies are still the most tax-advantageous corporate structures within the European Union.

A Malta Company is a normal onshore Maltese company registered in Malta, which is allowed to carry on any kind of activity, be it trading, holding, investments or whatever. The company can also mix the nature of its business and is not limited in any way. A Malta Company, is a normal onshore company which files annual audited accounts. This makes it unlikely that foreign tax authorities will consider the company to be a tax avoidance structure. This advantage is increased by the use of the company's Maltese bank account and having the company's administration centered in Malta through the use of our back office administration services.

Malta Companies are EU compliant since they are fully subject to the ordinary rates of corporate taxation in Malta and being EU compliant, Malta Companies are also within the EU VAT system. They will retain their tax advantages in relation to all shareholders (whether resident in Malta or not) and are therefore a most attractive corporate vehicle for carrying on business within the European Union.

We have a company licensed by MFSA to register and incorporate Malta Companies and it is also licensed to act as a nominee shareholder, fiduciary, trustee or nominee director in representation of the undisclosed beneficial owner. This is a very important advantage that the registration of a company in Malta offers because it guarantees the complete anonymity and complete confidentiality of the underlying beneficial owners.

A company can be registered usually within 48 hours of receiving all the necessary documents. Shareholders are normally two, though it is possible to have a single share holder. There must be at least one director whose nationality is irrelevant. Since all companies must have a registered office in Malta, your company can make use of our own legal address if you do not wish to have your own premises in Malta. Moreover all companies registered by us must have a local company secretary and our firm can provide this for you.

Company meetings need not be held locally and can also be conducted over the telephone.

Registration of every company must be renewed annually and audited accounts must be prepared annually. We can take care of both these requirements.

The director of a Malta company, under most circumstances will be given a Work Permit to be able to work as a director of the company while living in Malta. If the directors do not live in Malta, they need no permits.

We are also able to claim the tax refunds due to the company by the Inland Revenue Department on your behalf.

Finally, Malta Companies are EU compliant and have EU VAT numbers issued to them to facilitate their trading activities. Normally however, the management and control of the company must be exercised in Malta in order to acquire a VAT number from Malta.

TAXATION & VAT

The tax regime governing taxation of profits of a Malta Company depends on the source of the company's income. There are basically four sources of income from which a Malta Company can derive profits and each source of income has its own level of taxation.

For a start, let us look at this table:

Source of income	Corporate Tax Paid	Refund of tax to shareholders	Effective tax

Dividend income from holding activities with participating holding in subsidiary (where the parent company (a) holds at least 10% of the equity in the subsidiary or (b) invests a minimum of Euro 1.5 million in the subsidiary and holds that investment for more than 183 days)	nil	nil	zero
Capital gains accruing from the disposal of a participating holding	nil	nil	zero
Dividend income from holding activities without participating holding in subsidiary or other company income not falling within any other category	35%	6/7ths of corporate tax paid	5%
Trading income	35%	6/7ths of corporate tax paid	5%
Passive income (interest, royalties etc)	35%	5/7ths of corporate tax paid	10%

Let us assume the company makes a yearly profit on its global transactions of EURO 1,000. Let us further assume a profit of Euro 250 from each source of income listed above. At the end of the accounting year the company pays corporate tax on its global profits, with the exception of dividends received from a participating holding, which is exempt from corporate tax (subject to certain minor limitations relating to anti-abuse provisions).

Therefore the company pays corporate tax at 35% on dividend income from non-participating holdings, on trading income and on passive income. Using the figures assumed above, in all the company pays Euro 262.50 tax on its profit from these three sources of income, i.e. Euro 250 x 3 x 35%. The remaining balance of Euro 737.50 is distributed as a dividend to the shareholders. At this stage, Maltese Income Tax law provides that the shareholders of the company may claim a refund from the Inland Revenue of the corporate tax already paid by the company, according to the table above. The refund is paid to the shareholder within 21 days of the claim being submitted. Using our example therefore:

	Profit	Tax paid	Distribution to share holders (net of tax)	Refund of tax to shareholders
Source of income:
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	1,000.00	262.50	737.50	212.50
Effective dividend received by shareholders			737.50	212.50
Effective receipt in total by shareholder 950.00
Effective tax rate 5%

Therefore using the above figures as an example, from the profit generated by the company of Euro 1,000, the shareholder effectively receives Euro 950.00, which means that only Euro 50.00 is paid by way of final tax - that is an effective tax rate of 5%. No withholding taxes, stamp duties or exchange control restrictions apply on distribution of the dividends to the shareholders or on the tax refunded to the shareholder. Therefore apart from the "effective tax" there are no other taxes or restrictions on the exportation of the dividends and tax refunds from Malta.

Naturally, the figures can vary depending on the sources of income of the company and the above is only by way of example. Let us take another example:

	Profit	Tax paid	Distribution to share holders (net of tax)		Refund of tax
Source of income:
a) dividend from participating holding or capital gain from disposal of same	500.00	nil (exempt)	500.00		nil (exempt)
b) dividend from non-participating holding	0	0	0		0
c) trading income	500.00	175.00	325.00		150.00
d) passive income	0	0	0		0

Totals	1,000.00	175.00	825.00		150.00
Effective dividend received by shareholders				825.00		150.00
Effective receipt in total by shareholder 975.00
Effective tax rate 2. 50%

Therefore, using the above figures as an example, from the profit generated by the company of Euro 1,000, the shareholder effectively receives Euro 975.00, which means that only Euro 25.00 is paid by way of final tax - that is an effective tax rate of 2.50%.

Malta has forty two Double Taxation Agreements in place. As from the 1st May 2004, Malta has joined the European Union and therefore Malta companies will have an EU VAT number which will render them more transparent and better able to carry on trade within the European Union. However to obtain a VAT number, the companies must be managed and controlled from Malta.

VAT should have no major impact on these companies because most of the VAT they charge or pay will be 'neutral' under the reverse charge mechanism and VAT paid by these companies for services and supplies received can be set-off as output vat against their input VAT.

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