Malta Company Formation

Malta Trading Company

The Malta Company

The recent changes to Maltese tax laws following Malta‘s entry to the European Union, continue to place Malta as an ideal location for the purpose of carrying out international trading operations. Through the establishment of a company registered under Maltese law, international entrepreneurs are able to reap the advantages of the Maltese imputation system of taxation when distributions are made to them as non resident shareholders.

The definition of a ‘company registered in Malta‘ has been widened to include oversea branches set up in Malta, companies which although not resident in Malta carry out activities in Malta and also companies which are neither registered nor resident in Malta provided that such companies are registered with the local tax authorities. The objects of the company must include operations of a trading nature.

In an international tax-planning scenario, the choice of the place of the active trading company is one of the most important decisions to make. The old Maltese ITC was a regular company registered in Malta that had its objects limited to trading outside Malta with persons who are not resident in Malta. As from 1st January 2007, this restriction was lifted but the advantageous effective tax rate for such companies registered in Malta has remained.

The Amendments Approved by the EU

Act II of 2007 has provided for a phasing out period until 31st December 2010 for the old ITC regime. The New regime maintains the low effective tax rate whilst removing the restrictions that the old ITC maintained. The recently amended Maltese Trading Companies can now also trade in Malta, and will be entitled to receive refunds and tax credits provided that such overall trade does not exceed 10% of the total turnover/income. Therefore, 90% of the company‘s total turnover/income must be emanate from foreign sources.

Tax Implications

The profits of an Malta trading company are taxed at the statutory rate of 35%. However, the shareholder of the Maltese company would be able to claim income tax refunds of 6/7ths of the Malta Tax Paid by the company after the dividend distribution.

No withholding tax is paid on any dividend distributions of the profits of a Maltese trading company. After the tax refund above, the non-resident shareholder is left with a global effective income tax rate of 5% suffered in Malta.

Combining the Maltese Holding Company with a Maltese subsidiary/trading company (Dividend feeder)

It often happens that the tax treatment of the tax refunds in the home jurisdiction of the non-resident shareholder of a Maltese trading company is rather unclear. In order to mitigate this problem, it is very common to interpose between the non-resident ultimate beneficial owner (individual or corporate) and the operative trading Maltese company, a Maltese Holding Company.

This latter Maltese holding company would have the sole use of receiving the dividend from the operative trading Maltese company, and claiming for the income tax refund on the dividends received. This company is typically referred to as the Dividend Feeder Company. By adding this additional company, the non-resident ultimate beneficial owner would be able to receive a final dividend that includes the taxed profits of the operative Maltese trading company and the income tax refund. The global effective tax rate would still remain of 5% since no withholding taxes would be levied on any dividend distributions of the Maltese holding and/or trading company.

Additional Advantages of the Maltese Trading company include:

  1. Exemption from stamp duty on the transfer of securities held in the Maltese Company;
  2. Ability to claim the benefits of Malta‘s extensive treaty network.

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