Doing business in Malta
Malta is a Southern European country consisting of an archipelago situated in the centre of the Mediterranean Sea. The country covers approximately 316 square kilometres in land area. Malta is a parliamentary democratic republic. It is a member of the Council of Europe, the EU and the OSCE. Malta has an attractive fiscal climate characterised by tax refunds to non-residents. In other words, foreigners who are resident of another country can set up a company in Malta and can claim a tax refund. This means that foreign businesspeople can minimise their taxes by setting up a company in Malta.
Types of companies
The Maltese Companies Act allows for the incorporation of the following types of companies: a limited liability company, a partnership en nom collectif and a partnership en commandite.
Limited liability company
A limited liability company can be either private or public. A private limited liability company restricts the transfer of shares, limits the number of its members to fifty and is prohibited from inviting the public to subscribe for any shares or debentures of the company. By exclusion, a public company is a company which does not qualify as a private company. The minimum authorised share capital of a private company is EUR 1,164.69 with at least 20% thereof paid upon subscription. The minimum authorised share capital of a public company is EUR 46,587.47 with at least 25% thereof paid upon subscription.
Partnership en nom collectif
A partnership en nom collectif can be formed by two or more partners who are unlimitedly and jointly liable for the obligations of the partnership. Every partnership en nom collectif registered in Malta must have a registered office in Malta.
Partnership en commandite
A partnership en commandite may be formed by two or more partners. The obligations of the partnership are guaranteed by (1) the unlimited and joint liability of one or more general partners and (2) the limited liability of limited partners. The limited partners are only liable to the amount of their contributions. The capital of a partnership en commandite may be divided into shares.
The corporate tax rate in Malta is 35%.
The taxable income for companies which are both resident and domiciled in Malta includes the worldwide income and certain capital gains.
Companies which are either not resident in Malta or not domiciled in Malta are subject to tax on any income and certain capital gains arising in Malta and on income arising outside Malta which is received on a Maltese bank account. Such companies are not subject to tax on any capital gains arising outside Malta.
Taxable profits of each year are the profits reported in the company’s audited financial statements adjusted by adding non-deductible expenses and by deducting exempt income.
Corporate income tax is levied on the following entities: (1) partnership en commandite, the capital of which is divided into shares, (2) a limited liability company, or any company constituted as such under any law in force in Malta, (3) any body of persons constituted, incorporated or registered outside Malta and of a nature similar to the aforementioned partnerships and companies, (4) any cooperative society duly registered as such in Malta, and (5) any fellowship, society or other association of persons, whether incorporated or unincorporated, and whether vested with legal personality or not. For partnerships not mentioned in (1), the tax is levied on the partners of the partnership and not on the partnership itself.
Malta does not levy withholding tax on dividends paid to shareholders, which is a nice feature for international businesspeople.
Royalties are not subject to withholding tax as well.
Pursuant to the “investment income provisions”, certain investment income such as interest paid by Maltese-licensed banks and other public entities may be subject to a withholding tax of 15%. Investment income payable to a collective investment scheme (CIS) investing at least 85% of its total investments in Malta-based securities is taxed with a withholding tax at the rate of 10% with regard to corporate or government bonds and 15% with regard to bank interest.
Tax refunds to non-residents
Malta offers tax refunds on distributed profits which have suffered tax in Malta (with the exception of profits derived from real estate or profits subject to a final withholding tax). In order to qualify for a refund, the profits must be distributed either to non-resident shareholders or to a Maltese holding company wholly owned by non-residents. The rates of the tax refund are: 6/7 of the Maltese tax paid on the distributed profits (total corporate tax burden in Malta is equal to only 5% in this case); 5/7 of the Maltese tax paid when the dividend is distributed from passive interest or royalties; 2/3 of the Maltese tax paid when the distributed dividend is derived from foreign sourced income that was relieved from double taxation.
This Maltese tax refund system is unique in Europe and is extremely attractive for international businesspeople who want to minimise the corporate tax leakage in a central location close to Europe, Africa and the Middle East.
Income derived from the ownership, leasing or operation of an aircraft used in the international transport of passengers or goods, is considered to be arising outside Malta. Consequently, a resident non-domiciled company will only be taxable in Malta if it receives its income in Malta.
The Malta Freeport is a customs-free zone located around the harbour of Marsaxlokk Bay. The Malta Freeports Act 1989 offers a number of tax incentives to companies licensed by the Freeport Authority. The incentives include exemption from customs duties, stamp duty, withholding tax (except for distributions to Maltese residents), exchange control and death duties.
Under the Investment Aid Regulations 2008 (IARs), Investment Tax Credits are available in respect of qualifying expenditure incurred on or after the first of January 2008 by companies which conduct business consisting solely of one or more qualifying activities. The qualifying activities include activities related to manufacturing, information and communication technology, research and development (R&D) and innovation, logistics operations as well as activities carried out by companies licensed under the Malta Freeports Act.
Pursuant to IARs, investment tax credits are calculated as a percentage of qualifying capital expenditure or wage cost of jobs created. The rates are as follows: 50% for small enterprises, 40% for medium-sized enterprises, and 30% for large enterprises. Investment tax credits are deducted from the tax due.
Under the Business Promotion Act (BPA), the following incentives are available: (1) investment allowances over and above the cost of the plant and machinery, land, industrial buildings and structures and (2) reduced tax rate for reinvested profits in respect of qualifying expenditure. The reduction amounts to 19.25%.
Various incentives are provided to stimulate enterprises to engage in R&D. For example, tax credits calculated as a percentage (10.5% to 35%) of qualifying R&D expenditure are available as a deduction from the tax liability. The credit is granted in addition to the normal deduction of the expenditure from taxable income.
Companies engaged in particular activities, including back office operations, development of warehouses, e-business, film servicing and reinvestment of profits may also qualify for incentives similar to the incentives for R&D.
Shipping organizations are not subject to income tax on income derived from shipping activities. However, they have to pay an annual tax based on tonnage.
Non-resident shipping companies pay taxes on all profits from the transport of passengers, mail, livestock or goods shipped in Malta. Non-resident shipping companies are not taxable on profits arising from the goods that are brought in Malta for trans-shipment or by a casual call in the port.
Double tax treaties
Malta signed double tax treaties with Albania, Australia, Austria, Bahrain, Barbados, Belgium, Bulgaria, Canada, China, Croatia, Cyprus, Czech Republic, Denmark, Egypt, Estonia, Finland, France, Georgia, Germany, Greece, Hong Kong, Hungary, Iceland, India, Ireland, Isle of Man, Italy, Jersey, Jordan, Korea, Kuwait, Latvia, Lebanon, Libya, Lithuania, Luxembourg, Malaysia, Montenegro, Morocco, Netherlands, Norway, Pakistan, Poland, Portugal, Qatar, Romania, San Marino, Serbia, Singapore, Slovakia, Slovenia, South Africa, Spain, Sweden, Switzerland, Syria, Tunisia, UAE, United Kingdom, and United States of America.