| Following
the payment of the corporate tax to the Maltese Inland Revenue, an automatic
system kicks in whereby the non-resident shareholders receive a refund
of 30.83%, making the effective tax rate just 4.17%.
Refunds are
paid out by the Malta Inland Revenue Department within two weeks of payment
of the corporate tax.
Here’s an
example of how that works…
ITC Profits
Refunds Tax Paid
ITC world-wide
profit 1,000.00
Corporate
tax @ 35% 350.00
Distributed
dividend 650.00
7.5% tax refund:
gross profits 75.00
2/3rds tax
refund: corporate tax 233.33
Totals 1,000.00
958.33 41.67
There are no
further withholding taxes or other payments to be made by the ITC or by
the shareholders and therefore the final total tax rate is always 4.17%.
There are no taxes or restrictions on the exportation of the dividends
from Malta.
International
Holding Companies—Tax Rates From 12% To ZERO
International
Holding Companies are not allowed to trade. Their aim is to “hold” shares
in one or more overseas companies and to own and manage assets held outside
Malta.
The company
will receive royalties, dividends, interest, capital gains, rents, and
other income arising abroad or derived from foreign investments, as well
as its own dividends. At the end of its financial year, the company audits
its accounts and pays corporate tax at 35% on its world-wide income. Shareholders
then benefit from considerable tax benefits through a system of tax refunds.
Non-resident shareholders of holding companies, upon payment of the corporate
tax, become entitled to tax refunds as follows:
• 100% refund
of the corporate tax paid where the overseas investment from which the
income derives is considered to be a “qualifying participation,” making
an effective ZERO rate of tax; or
• 2/3 refund
of the corporate tax paid where the overseas investment from which the
income derives is not a qualifying participation, making an effective tax
rate of 11.67%.
A qualifying
participation means any one of the following:
• The IHC holds
10% or more of the shares of an overseas company;
• The IHC is
entitled at its option to purchase or has the first right of refusal on
a disposal of the balance of the equity shares of the overseas company;
• The IHC is
entitled to be represented on the Board of Directors of the overseas company;
• The value
of the shareholding exceeds Lm500,000 (approximately US$1.5 million) or
equivalent in foreign currency;
• The shares
are held in the overseas company for the furtherance of the business of
the IHC.
Once again
there are no withholding taxes or other taxes on the dividends distributed
to the non-resident shareholders.
Please refer
to the table on the next page to help you compare the advantages of ITCs
and IHCs.
You Might
Not Have to Pay Tax in Your Home State, Either! Depending on where you
live, your government may or may not tax you on the profits from a Maltese
company you own or control.
If you live
in a country like Panama, which doesn’t tax foreign income, there will
be no further taxation beyond that imposed by Malta. If you live in a country
that does tax these profits, thanks to Malta’s network of more than 34
tax treaties, it may be at a lower rate than would otherwise apply.
Even if you
live in a country such as the United States that does not have a tax treaty
with Malta (it expired in 1997), you can generally use “foreign tax credits”
to avoid double taxation.
Another issue
is whether your Maltese company qualifies as a “controlled foreign corporation”
(CFC) in your country of residence, and thus is required to pay tax on
profits as they are earned. It’s possible to avoid CFC status with careful
planning, but the time to do it is before you form the company. It goes
without saying that obtaining proper professional advice is essential.
All This
And Shareholder Privacy, Too!
Apart from
the obvious tax advantages, the International Trading or Holding Company
can have nominee shareholders; nominee shareholders are provided by Maltese
service providers licensed for this purpose by the Malta Financial Services
Authority. The use of nominee shareholders makes the ultimate beneficial
owners anonymous and the identity of the beneficial owners may only be
revealed by the nominee to a Maltese court in the course of a money laundering
investigation.
The use of
nominee shareholders and local directors (which are not a requirement)
will ensure full anonymity of the beneficial owners of the company and
will help to keep the management and control of the company centered in
Malta. The company is allowed to have either corporate or individual directors,
both resident and non-resident in Malta.
There are various
fees associated with International Companies. Certainly, you should get
professional advice before considering setting up shop in Malta.
Sidebar
Will
the EU Spoil Malta’s Party?
There is some
reason to consider that the EU might ask Malta to abolish or amend its
near-zero taxes to certain shareholders in certain Maltese companies.
Reason: If
you live or do business in Malta, you don’t qualify for these special tax
breaks, which are allowed only to non-residents. That’s a no-no for the
EU. This is why Ireland had to change its law a couple years ago to tax
all corporations at 12.5%, rather than just certain “offshore” corporations
at 10%.
That said,
it’s very unlikely that people who form a Maltese company that qualifies
for the rebates will be hit by a 4.17% tax one year and 40% the next year.
These companies receive an Advanced Tax Ruling from the Inland Revenue,
which in any case guarantees their tax status for at least two years.
It’s much more
likely that, should the EU apply pressure on Malta, Malta will do what
a lot of the other new EU member states are doing—instituting a fairly
low corporate tax rate of around 10%–20% in the next year or two. But this
is still significantly more than the 4.17% that qualifying shareholders
in some of these companies now pay.
Governments
move slowly, and the EU moves slower than most. Still, it’s something to
bear in mind before incorporating in Malta.
Additional
Information
- International
Trading Companies and International Holding Companies
- General
Information
- Type of
Company ITC IHC
- Average
timeframe to set up a new company 2 days 2 days
- Average
timeframe to activate shelf company N/A N/A
- Migration
of domicile possible? Yes Yes
Corporate
Requirements
- Standard
authorized share capital (in any foreign currency) Lm 500 (in any Lm 500
(in any
- 20% to be
paid up on incorporation foreign currency) foreign currency)
- Bearer shares
allowed? No No
- Nominee
shareholders permitted Yes Yes
- Minimum
number of shareholders One One
- Minimum
number of directors One One
- Corporate
directors permitted? Yes Yes
- Local directors
required? No No
- Local meeting
required? No No
- Company
secretary required? Yes Yes
Taxation
- Corporate
tax rate 4.17% (after tax 0%–12% (depending
- refunds
to non-resident on source of income shareholders) and after tax refunds
to non-resident shareholders)
- Ordinary
tax base worldwide income worldwide income
- Tax exemptions
N/A
- Withholding
tax on dividends - tax rate None
- Withholding
tax on interest - tax rate None
- Withholding
tax on license fees and royalties None
- Double taxation
treaties Treaties with 32 countries
- Value Added
Tax rate 18% EU VAT Not required
Disclosure
and Reporting Requirements
- Disclosure
of beneficial owner to Company Registrar (No when using nominees)
- Government
register of directors Yes Yes
- Government
register of shareholders Yes Yes
- Annual return
Yes Yes
- Submission
of accounts Yes Yes
- Audit required?
Yes Yes |
