Malta

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Key Corporate Features

General Information

Great Britain formally acquired possession of Malta in 1814. The island staunchly supported the UK through both World Wars and remained in the Commonwealth when it became independent in 1964. A decade later Malta became a republic. Since about the mid-1980s, the island has transformed itself into a freight transshipment point, a financial center, and a tourist destination. Malta joined the EU in 2004.

The Maltese Islands are 100 km south of Sicily, with a population of 400,000; the climate is warm. The official languages are English and Maltese.

Major resources are limestone, a favorable geographic location, and a productive labor force. Malta produces only about 20% of its food needs, has limited fresh water supplies, and has few domestic energy sources. The economy is dependent on foreign trade, manufacturing (especially electronics and pharmaceuticals), and tourism. Continued sluggishness in the European economy is holding back exports, tourism, and overall growth.

Manufacturing, tourism and shipping go some way towards paying for imports, but the gap cannot be closed without the development of a financial services sector. There is a reasonably sophisticated business and professional infrastructure. Business sectors with offshore activity include banking, investment fund management (there is a stock exchange with a growing array of mutual fund listings), trust management, shipping (a particularly strong sector) and investment holding.

Company Information

Malta International Trading Companies

Before 1996, Malta offered two basic forms of corporate structure to non-residents: the onshore company with an issued share capital of Lm10,000 (USD25,000) and the low-tax (5%) offshore trading or zero-tax non-trading company.

In 1996, in view of the closure of the offshore regime, a new form of company structure was introduced to cater for the growing demands of non-residents who wished to establish their business or holding interests in Malta.

The International Trading Company (ITC) is a normal onshore Maltese company with no distinction from other local companies. ITCs are taxed at the normal corporate tax rate of 35%. But: non-resident shareholders may benefit from partial refund of tax, potentially reducing tax to 4.17%.

International Holding Companies

An International Holding Company (IHC) is a company resident in Malta formed with the object of holding overseas investments and to distribute that income to non-residents. Non-resident shareholders of IHCs qualify for a full refund of the Maltese tax paid by the company on profits and gains arising from “participating holdings” when such profits are distributed.

While IHCs are subject to the normal corporate tax rate of 35%, the extensive network of double taxation agreements, together with the full imputation system of taxation and provisions for tax refunds contained in the legislation make Malta a very tax efficient jurisdiction for non-resident shareholders.

Non-resident shareholders qualify for a full refund of the Malta tax paid by a company on profits and gains arising from “participating holdings” when such profits are distributed.

Compliance

According to the Income Tax Act, an International Trading Company (ITC) is defined as totally owned by non-residents of Malta und carrying on its business from Malta, but not in Malta, with persons who are not residents of Malta.

To ITCs, the net tax on company profits is only 4,1 %. The provisions in the Maltese tax law provide for the taxation of all companies at the standard Company rate of 35%. But further provisions in the law allow shareholders in International Trading Companies to reclaim refund of tax suffered of 30,9 % on profits distributed to them as dividends. This means that although the company pays the full 35%, the shareholders will get a refund of 30,9% once a dividend is distributed.

Under certain conditions, an International Trading Company can also reclaim all Value Added Tax suffered on its operations in Malta.

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