Malta, an attractive option for Holding Companies
The key purpose of any company is to maximize the revenue and minimize the taxation on the income generated. A whole list of benefits is being offered by the Maltese government which makes Malta, an attractive option for Holding Companies.
This article broadly focuses on:
- The factors to be kept in mind for the companies' location;
- Benefits of holding companies’ resident in Malta;
- Taxation on Malta Holding Companies and Rebates.
Important Factors while deciding the Holding Company Location
The utmost important decision for any international structure is to finalize the location of a holding company.
The location should be in a jurisdiction which helps and benefits the company to minimize the taxation on the income generated.
In doing so several factors should be kept in mind and preferably the holding company should be resident in a dominion which:
- Does not charge capital gains tax on the disposal of subsidiaries;
- Has a good double tax treaty network, thereby minimizing withholding tax on dividends received;
- Does not levy withholding tax on distributions from the holding company to its parent or shareholders;
- Exempts dividend income from taxation;
- Has certainty of tax treatment;
- Does not impose capital gains tax on profits arising from the sale of shares in the holding company by non-resident shareholders;
- Does not impose a capital duty on the transfer of shares.
Benefits of having a Holding company in Malta
Malta holds an upper hand when it comes to the Taxation system. All the holding companies’ resident in Malta can benefit from all the above-mentioned factors, making Malta an attractive option for Holding Companies.
Malta has a network of over 70 double tax treaties most of which are based on the OECD Model Convention.
Since 2004, Malta has been a part of the European Union, making it one of the beneficiaries of the EU Parent/Subsidiary Directive, thereby reducing withholding tax to zero on dividends from many EU countries.
In the graphical representation, where the trading company is located in the EU, the Malta company would benefit from the EU Parent/Subsidiary Directive, resulting in no withholding tax on the payment of dividends to the Malta company.
Where the holding is a “participating holding” there will be no taxation on dividends (subject to the satisfaction of certain conditions) and capital gains at the Malta holding company level.
Moreover, Malta does not levy withholding tax on the outbound payment of dividend, hence dividends can consequently be remunerated to the International company without any deduction of tax.
A participating holding is formed when a Malta resident company holds equity shares in another entity which does not own immovable property and the former:
- has at least 5% of the equity shares in the company not resident in Malta, body of persons or collective investment scheme, which holding confers an entitlement to at least 5% to any of the two following rights:
- Right to vote;
- Right to profit available for distribution;
- Right to asset available for distribution on a winding up; or
- is an equity shareholder in a company not resident in Malta and is permitted to the option to call for and acquire the entire balance of the equity shares and is entitled to the right to first refusal to purchase such shares; or
- is an equity shareholder in a company not resident in Malta and is entitled to sit on the Board or appoint a person to sit on the Board of that company as a director; or
- is an equity shareholder which invests a minimum sum of €1,164,000 or equivalent sum in another currency and such investment is held for a continuous period of 183 days; or
- holds the shares in a company not resident in Malta for the continuance of its own business and the holding is not held as trading stock for the purpose of a trade.
The participation exemption may also be claimed on gains released from the disposal of a participating holding in a Maltese company, provided that:
- The participating holdings don’t have direct or indirect rights over immovable property situated in Malta, and
- The beneficial owner of the gains is not resident in Malta and not owned and controlled by, directly or indirectly, nor acts on behalf of an individual/s ordinarily resident and domiciled in Malta.
Malta also does not levy any withholding taxes on outbound dividends, interest, royalties and liquidation proceeds. Zero withholding tax is applicable, regardless of where in the world the shareholder resides.
Taxation on Malta Holding Companies
Malta holding companies would be subject to tax on income less any applicable deductible expenses at the corporate income tax rate of 35%.
However, the shareholder of the Malta company would be eligible to receive refunds as follows:
- 100% of the Malta tax paid where the investment qualifies as a participating holding and in the case of dividend income, where such participating holding falls within the above conditions;
- 5/7th of the Malta tax paid, where the income received by the company is passive interest or royalties or income or capital gains from a participating holding which does not fall within the conditions (1) to (3) as detailed above;
- 2/3rd of the tax payable in Malta, where income has benefitted from double taxation relief; and
- 6/7th of the Malta tax in all other cases.
To summarize, Malta has become an attractive setting for the international trading groups because of all the tax advantages which Maltese holding companies are entitled too.