a. Oversea Companies and Branches
Maltese Law provides foreign companies the possibility of establishing a branch or place of business in Malta without the necessity of incorporation or re-domiciliation. In terms of the Companies Act, a foreign company which is incorporated or constituted outside of Malta is designated as an ‘oversea company’. There are no restrictions on the legal form of the corporate entity. Additionally, it is not necessary to establish a physical presence Malta, the only imposition is the appointment of a local representative for the branch.
Oversea companies setting up a branch of Malta are required to register the branch with the Maltese Registrar of Companies within one month from establishing business in Malta and provide the following information:
- An authentic copy of the charter, statutes or memorandum and articles of association of the oversea company or other constitutive document. Provided that if the document is not in English, a certified translation must be presented.
- List of directors and company secretary or persons vested with the administration or representation of the oversea company, containing the following information
- Individuals – name, residential address, nationality, business occupation
- Body corporate – registered or corporate name and registered or principal office
- Return listing the following:
- Name under which the branch or place of business is carrying on its activities where different from the name of the oversea company
- Address of the branch or place of business in Malta, together with the principal place of business in case of multiple branches
- Activities to be carried out by the branch or place of business in Malta
- Name and address of individuals resident in Malta authorized to represent the oversea company for the activities of the branch or place of business established in Malta
- The extent of the authority given to individuals falling within paragraph (iv), including whether such individual is authorized to act alone or jointly with others
- A return indicating
- information about the legal form of the oversea company
- information about the identity of the register in which the oversea company is registered and
- the number with which it is registered
- A branch in Malta of an oversea company, is taxable in Malta only on income arising in Malta and income arising outside of Malta but received in Malta
- The income of the branch is liable to the same tax rate applicable to Maltese companies
- A branch is entitled to claim all deductions provided to resident companies
Other Key Considerations
Other points which must be taken into consideration include:
- The establishment of a branch does not confer separate legal personality on the branch
- Registration fees depend on the share capital
- Changes after initial registration must be registered within one month from amendments
- Oversea companies are required to comply with the rules on financial statements similarly to those applicable to Maltese companies
- Once registered as an oversea company, the company must file copies of its balance sheet, a profit and loss account and the notes to the accounts within 42 days from the end of the accounting period.
b. Private Exempt Company
A private limited liability company may have the status of an exempt company, hence qualifying for certain benefits provided it satisfies the following conditions:
- The number of persons holding debentures of the company is not more than 50
- No body corporate is the holder of, or has any interest in, any shares or debentures of the company o is a director of the company, and neither the company nor any of the directors is party to an arrangement whereby the policy of the company is capable of being determined by persons other than the directors, members or debenture holders thereof.
Benefits of a Private Exempt Company include:
- It may make a loan to any person who is its director or a director of its parent company
- May enter into a guarantee or provide any security to a director or a director of its parent company
- May deliver to the Registrar an abridged balance sheet, all notes to the accounts relevant for the purposes of that balance sheet and the auditor’s report, without the director’s report
c. Holding Company
Malta holding companies can be set up in order to hold any business assets in any form such as real estate, fixed assets, aircraft, investments, bank accounts and intellectual property as well as personal assets including any luxury items such as yachts, residential property, works of art. Although there is no specific holding company regime, the domestic tax treatment afforded to the different types of income received by such companies as well as the participation exemption introduced in 2007 and typically available in holding company regimes make the setting up of Malta holding companies a very attractive option.
Participation exemption is not only applicable to holdings in companies but is also extended to holdings in other entities such as a limited partnership (the capital of which is not divided into shares, a non-resident body of persons, or a collective investment vehicle that provides for limited liability of investment.
In the event that dividends are received from a participating holding in a body of persons which does not satisfy the above anti-abuse mechanism, the five sevenths refund would apply (yielding a net effective tax paid in Malta of 10%). The Maltese company can either opt to avail itself of the exemption or pay tax at the rate of 35%, subsequent to which the shareholders of the Maltese company would be able to claim a 100% refund of tax paid at the level of the Maltese company. The latter option is particularly useful where proof of tax paid is required in the foreign jurisdiction.
Key considerations in setting up a Holding company in Malta
- Dividends received from its participating holding is not subject to tax in Malta;
- No Capital Gains tax on its disposal of all or part of its shareholding in its participating holding;
- Partnership is considered as entity for the purposes of Participation exemption;
- No withholding tax on outbound dividends, interest and royalty payments;
- Potential exemption from preparing consolidating accounts;
- Capital Gains exemption on certain transfer of shares & immovable property
d. Portfolio Company
Portfolio companies can be set up in Malta to hold a portfolio of securities. This is mostly common for high net worth individuals who would prefer to hold their portfolio of securities through a limited liability company as opposed to a fund or in their own name. Holding one’s portfolio of securities through a fund is an expensive option and often yields to complicated structuring which might now always be in the best interest of the client. On the other hand, holding the investments in one’s name might not be the most tax efficient way. In both situations, one can resort to use a Malta Portfolio Company which provides the client with an option to hold the investments in a separate entity that has a separate legal personality, simple to set up and administer and more cost effective. Furthermore, the tax on the income will vary as to the nature of the assets being held. The tax rate varies from 0% up to 10%, depending on the nature and value of the assets being held by the company.