Companies

Introduction

Malta, situated in the heart of the Mediterranean, gained its independence from British Crown in 1964 and has since developed into a democratic republic with the principles of the rule of law and protection of human rights enshrined in its written constitution. With E.U. membership in 2004, its competent workforce, and due to English being an official language, Malta is rapidly gaining a reputation as a dynamic and technologically advanced state with an increasingly services-based economy, mainly in the financial services and tourism sectors. Indeed, financial intermediation activities alone directly contribute to around seven percent of the country’s GDP.

Over the last twenty years Malta has greatly developed its legislation in the field of financial services, bringing it in line with European Union Directives and Regulations and ensuring an effective regulatory framework, complemented by several incentives for the carrying out of such activities. This, together with excellent telecommunications facilities, a good supply of professionals and a pro-business regulator – the Malta Financial Services Authority (MFSA) – make Malta a competitive and attractive financial services centre.

Companies are incorporated in Malta in terms of the Companies Act 1995 and are deemed to be resident in Malta unless their management and control is exercised outside Malta.

Company Taxation

Tax revenues in Malta are derived on one hand through direct taxation by means of income tax (which includes also a tax on capital gains) and on the other hand indirect taxation in the form of value added tax (VAT). Furthermore stamp duty is chargeable on the transfer of immovable property. Malta levies no estate duty other than on the inheritance of immovable property situated in Malta and shares in Maltese companies whose assets mainly consist of immovable property. Import duty is chargeable only on goods imported from non-E.U. countries. The Maltese tax system provides certainty and clarity especially on international tax issues through advance revenue
rulings.

The corporate tax rate and the highest personal tax rate are both 35 percent. However one of the essential characteristics of the Maltese tax law is the full-imputation system. Through this system the tax paid at company level is regarded as a prepayment for the tax due by the shareholder upon the eventual distribution of profits. Hence after the dividends are paid out the 35 percent paid by the company is given as credit for the tax due by the shareholder, whether he is resident in Malta or not. Where the shareholder’s personal tax rate is lower than 35 percent he qualifies for a refund of corporate tax. This system reduces tax induced economic distortions and avoids the double taxation of corporate profits. The Government of Malta has concluded an agreement in 2006 with the European Commission that effectively safeguards the full imputation system.

Furthermore the Maltese tax system utilises different tax accounts namely the Malta taxed account, the foreign income account and the untaxed account. The segregation of profits into the different tax accounts is important since income allocated to the foreign income account also benefits from the flat-rate foreign tax credit method of relieving double taxation and also from the tax refund provisions. The tax accounts
system ensures that the profits will be treated according to their provenance. Income arising in Malta will be fully taxed but income arising outside Malta is allocated to the foreign income account which leads to significant benefits when that income is distributed by way of dividends to non-resident shareholders i.e. persons who are not resident in Malta.

As from January 1st 2007 non-residents may apply for a refund of 6/7ths of the Malta tax paid hence resulting in an effective Malta tax rate of five percent on such distributed foreign income.
 
Furthermore an advantageous system for holding companies ensures that in instances where there is a “participating holding” the non-resident shareholders qualify for a 100 percent refund of the tax paid on income arising from these foreign holdings upon a distribution of profits. A participating holding arises where the Maltese company directly holds a minimum of 10 percent of the equity shares of the non-resident company which distributes dividends.

Relief of Double Taxation

Another positive aspect of Maltese tax law is the possibility of relief of double taxation. Malta boasts of an extensive list of double tax treaties with more than 40 other states across Europe, North America, Africa and the Middle East. Such treaties are largely based upon the OECD model. Furthermore relief is provided through domestic rules in the form of unilateral relief and the Flat-Rate Foreign Tax Credit (FRFTC). Unilateral relief provides relief from double taxation on a unilateral basis
where the overseas tax is charged in a country with which Malta does not have a tax treaty. Such overseas tax is allowed as a credit against the tax chargeable in Malta on the gross amount up to the extent that the credit does not exceed the total tax liability in Malta.

On the other hand the FRFTC is available to Maltese companies, which receive income or capital gains from overseas allocated to the foreign income account. This flat rate for deemed foreign tax paid is set at 25 percent even if no actual foreign tax has been charged and hence is an attractive option.

Malta also offers incentives for group taxation whereby group companies may surrender tax losses so as to be set off against the tax profits of another group company. Furthermore a company claiming losses from a group company may carry
them forward so as to be used for set-off against future profits. Transfers of assets between group companies do not give rise to capital gains tax and duty is exempted on restructuring within a group of companies through mergers, demergers, amalgamations and reorganisations within a group of companies.

Company Formation

For any limited liability company to be registered in Malta it must register with the Registrar of Companies its memorandum and articles of association. The memorandum must contain:

1. the name, surname and residence of each of the subscriber/s thereto;
2. the name of the company;
3. the registered office in Malta of the company;
4. the objects of the company;
5. the amount of share capital with which the company proposes to be registered, the division thereof into shares of a fixed amount, the number of shares taken by each of the subscribers and the amount paid up on each share.
6. the number of the directors and the name and surname of the first director or directors, and in the case of any such director being a body corporate, the name of the body corporate. The board of directors need not meet on Maltese territory.

A private company under Maltese law is a company which by its memorandum or articles:

1. restricts the right to transfer its shares; and
2. limits the number of its members to 50; and
3. prohibits any invitation to the public to subscribe for any shares or debentures of the company.

Single-member companies are allowed, in which case the objects of the company must specify the main trading activity of the company, and the business of the company must consist principally in that activity.

The following information is required to set up the company:

(a) Certified copies of passport and confirmation of permanent residential address of the shareholders, and if the shareholder is a body corporate all incorporation documents are required; i.e. memorandum and articles of association and certificate of registration with local authority;

(b) Proposed Name of company, with alternative names if available.

(c) Director's and Company Secretary's full details;

(d) The proposed share capital (minimum € 1250 or currency equivalent) of which at least 20% must be paid-up by deposit with a bank and the deposit slip is made available for company registration purposes.

(e) A suitable character reference from a recognised professional (advocate, accountant, auditor, etc.) and/or a financial integrity reference by a recognised foreign bank for each shareholder and director;

Registrar of Companies - Registration Fees

The fees payable by a company to the Registrar of Companies upon registration are calculated according to the company's authorised share capital. Please click here for further information.

Claims for Tax Refunds

Following the payment of tax due by a company, the claim for a refund is submitted by the shareholder on a claim form and the refund is processed and paid to the bank account indicated on the claim form, within two to three weeks.