Malta an attractive option for Holding Companies

Updated: July 30, 2020 | 6 minute read

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What are the benefits of setting up a holding company in Malta?

  • A flexible participation exemption regime resulting in the exemption of dividend income and capital gains on certain qualifying investments;
  • Modern legal and tax framework;
  • Benefitting from Malta’s double taxation treaty network with over 72 countries as well as from EU directives since Malta is a full Member of the European Union;
  • Malta does not levy withholding taxes on the outward payments of dividend, interest and royalties by virtue of its domestic legislation irrespective of the country of residence of the recipient;
  • Comparatively low establishment and operating costs; and
  • Strategic location in the centre of the Mediterranean and convenient European time zone.

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A new Malta company or continuation of an existing foreign holding company?

Apart from the incorporation of new companies, Malta also enables the inbound redomiciliation of companies incorporated outside of Malta provided the foreign jurisdiction allows for such. Upon the redomiciliation of companies to Malta, Maltese tax legislation also allows for the step-up of the cost of assets of the company being redomiciled, provided certain conditions and timelines are satisfied. The benefit of a redomiciliation is to have continuity of the existing foreign company and potentially its subsidiaries.

 

What are the Malta tax considerations applicable to holding companies?

A) No stamp duty or other taxation is levied in Malta upon the acquisition of subsidiaries

The acquisition of shares in a foreign company would not attract any Malta stamp duty or other Malta taxes irrespective of the manner in which the shares are acquired.

B) Malta’s participation exemption regime

Dividends and capital gains derived by a Maltese company from a holding which qualifies as a participating holding would be exempt from tax in Malta under the participation exemption only where the investment in the subsidiary satisfies the following conditions:

One of the following conditions should be met for a holding to qualify as a participating holding:

a) A company holds directly at least five percent of the equity shares of a company whose capital is wholly or partly divided into shares, which holding confers an entitlement to at least five percent of any two of the following:

    1. Right to vote;
    2. Profits available for distribution; and
    3. Assets available for distribution on a winding up.

b) A company is an equity shareholder in a company and the equity shareholder company is entitled at its option to call for and acquire the entire balance of the equity shares not held by that equity shareholder company to the extent permitted by the law of the country in which the equity shares are held; OR

c) A company is an equity shareholder in a company and the equity shareholder company is entitled to the first refusal in the event of the proposed disposal, redemption or cancellation of all of the equity shares of that company not held by that equity shareholder company; OR

d) A company is an equity shareholder in a company and is entitled to either sit on the Board or appoint a person to sit on the Board of that company as a director; OR

e) A company is an equity shareholder which holds an investment representing a total value, as on the date or dates on which it was acquired, of a minimum of one million, one hundred and sixty-four thousand euro (€1,164,000) (or the equivalent sum in a foreign currency) in a company and that holding in the company is held for an uninterrupted period of not less than 183 days; OR

f) A company is an equity shareholder in a company and where the holding of such shares is for the furtherance of its own business and the holding is not held as trading stock for the purpose of a trade.

For the purpose of the above, "equity holding" shall mean a holding of the share capital in a company which is not a property company, when the shareholding entitles the shareholder to at least any two of the following rights:

  1. Right to vote;
  2. Profits available for distribution; and
  3. Assets available for distribution on a winding up.

Should any of the above conditions be satisfied capital gains realized by a Malta company upon the disposal of an investment in a participating holding, should be exempt from Malta tax. In the case of dividend income, however, for the participation exemption to be applied, the following extra conditions must also be satisfied apart from the above:

i) Where the body of persons  in  which  the participating holding is held satisfies any one of the following conditions, that is to say:

(1) The equity holding by the company registered in Malta in the body of persons not -resident in Malta is not a portfolio investment and for this purpose, the holding of shares by a company registered in Malta in a body of persons not resident in Malta which derives more than fifty per cent  of  its  income  from  portfolio investments  shall  be  deemed  to  be  a portfolio investment; and

(2) The body of persons not resident in Malta or its passive interest or royalties have been subject to any foreign tax at a rate which is not less than five per cent (5%).

 

Is VAT in Malta applicable to holding companies?

A Malta holding company would fall outside the scope of Malta VAT should it be set up as a pure holding company.  However, the company may be liable to pay VAT on the acquisition of services from other EU countries which are subject to the reverse charge system.

 

If the Malta company has other income which is not tax-exempt in Malta, how is it taxed?

If the Malta holding company has other income which is not exempt, the effective tax rate would vary between 0 and 6.25% by the application of Malta’s full imputation system and Malta’s favourable tax refund system as well as with the application of Malta’s double taxation relief mechanisms.

 

Will there be taxation in Malta upon the disposal of the investment in the Malta holding company?

As long as the shareholder disposing of the shares in the Malta holding company is not a resident in Malta, gains should generally be tax-exempt from Maltese taxation.

 
Written by
Yashica K. Pathak
Editorial Content Manager
 
Edited by
Antoinette Scerri
Director, Tax Advisory Services
 
 Profile: Antoinette is a director within the firm, leading the tax advisory arm. She is a Certified Public Accountant and is a member of the Malta Institute of Accountants and of the Malta Institute of Financial Services Practitioners. She assists clients in tax negotiations and in obtaining advance revenue rulings and tax confirmations from the tax authorities and is also involved in advising a number of multinational companies, financial institutions, funds and high-net-worth individuals and is often involved in cross-border and local financing transactions and re-organisations.

 

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