General information about Malta
- Republic of Malta is a small state situated in an island in Mediterranean Sea. The capital is Valletta. The currency is Euro. The official languages are Maltese and English.
- The legal system of Malta is principally based on English common law, however there are some elements of continental law.
- Malta is a member of UN, WTO, EU, Schengen Area and British Commonwealth.
- The main trading partners of Malta are Italy, Great Britain, Cayman Islands and Spain. The prevailing economic sectors are tourism, ship repair and shipbuilding industries.
Advantages of Malta
- Malta is a prestigious international business platform recognized worldwide.
- Not being an offshore jurisdiction, Malta does not figure in blacklists of any countries or international organizations as zero tax or low tax jurisdiction.
- Malta does not apply currency control rules, controlled foreign companies rules or transfer pricing rules.
- The banking system of Malta is stable and tax legislation is flexible.
- Malta is a first state that has regulated civil turnover of cryptocurrencies.
Legal forms of business in Malta
- Private limited company;
- Public limited company;
- Sole trader.
Main features of private limited companies in Malta
- The legal basis for incorporation and activity of private limited companies is Companies Act 1996 (“the Act”).
- Name. The name of a private limited company must end with the phrase «private limited company», or word «limited», or abbreviation «ltd».
- Address. Any company must have registered office address in Malta.
- Shareholders. As natural persons, so legal entities resident in any country can be Maltese companies’ shareholders. The minimum of shareholders is 2, the maximum is 50. However, the incorporation of a company that has got only one shareholder in its structure is permitted if some requirements drawn up by the Registrar are met. Nominee shareholding is permitted only if the Memorandum and Articles of Association contains the clause about the nominee.
- Shares and the capital. The minimum authorized share capital is 1 165 Euro. The payment of at least 20% of this amount (that is 233 Euro) is required for the incorporation of the company. Only ordinary shares are permitted by the Act, no bearer shares can be issued.
- Directors. As natural persons, so legal entities resident in any country can be Maltese companies’ directors. The minimum of directors is 1, the maximum is not established by the Act. Generally, the person who holds the director’s office may be company’s secretary at the same time.
- Secretaries. Any company has to have at least 1 secretary in its structure. Only natural persons resident in any country can hold this office.
- Meetings of shareholders. Companies must arrange ordinary meetings of shareholders annually. The first meeting must be held not later than in 18 months after the incorporation date. Minutes of meeting of shareholders must be kept in Malta.
- Redomiciliation. Foreign companies may transfer their domicile from the original jurisdiction to Malta in accordance with the Act, and, vice versa, Maltese company may transfer its’ domicile abroad if the legislation of such foreign jurisdiction permits to do so.
Taxation of Maltese companies
- Companies may be considered resident in Malta for taxation purposes in 2 cases:
- Incorporation in Malta or redomiciliation to Malta;
- Management and control of a company incorporated outside Malta is exercised in Malta (e.g. the administration body is located in Malta, meetings of directors and shareholders are arranged in Malta, attorneys of company reside in Malta, etc.).
- Worldwide income of resident companies is subject to taxation in Malta. This means that both incomes derived from Maltese sources and from any foreign sources form the income tax basis.
- Also, capital gains arising from acquisition of assets like real estate, shares and securities, intellectual property, etc., are taxable as a general income from business activity.
- The standard rate of income tax is flat and equals 35%.
- At the same time, there is a tax refund system designed for some particular cases. Thus, the effective tax rate in most situations can be lower than the standard one and may reach 5%.
- The procedure of payment and refund of income tax is governed by the current version of Income Tax Act 1949, Cap. 123.
- The tax period is calendar year.
- After the end of tax period the company must file financial statements and tax return with the Inland Revenue Department, and then it must calculate and pay the income tax at a standard rate of 35%.
- Next, in case of distribution of profits to company’s shareholders they must claim the income tax refund and they will be able to receive it in 14 days from the moment of being entitled to such refund. The refund may be made in following proportions:
- 6/7 (refund of 85,7% of the amount of tax paid at a rate of 35%) in case if the income of the company is a result of trading activity;
- 5/7 (refund of 71,4% of the amount of tax paid at a rate of 35%) is applicable to passive interest and royalties (that is interest and royalties that were received not as a result of trading activity);
- 2/3 (refund in case of double tax relief application by Maltese company);
- 100% refund in case of participating holding, which is the following cases:
- Maltese company holds directly at least 5% of the equity shares that confer an entitlement to any two of the following rights: right to vote, profits available for distribution, assets available for distribution on a winding up;
- Maltese company is an equity shareholder in a company and it 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;
- Maltese company is an equity shareholder in a company and the equity shareholder company is entitled to 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;
- Maltese company is an equity shareholder in a company and is entitled to be member of the Board of Directors or to appoint directors;
- Maltese company is an equity shareholder which holds an investment representing a total value of a minimum of 1 164 000 Euro in a company and that holding in the company is held for an uninterrupted period of not less than 183 days;
- Maltese 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.
Maltese company has received income from its trading activity in the amount of 100 000 Euro and then has paid an income tax at rate 35% that equals 35 000 Euro. The single shareholder of this company is a natural or a legal person non-resident in Malta, his interest is 100%. Maltese company pays dividends in the amount of 65 000 Euro to its non-resident shareholder, who, in his turn, apply for refund of 6/7 of the tax paid before by sending the application to the Inland Revenue Department. Thus, the amount of the refund will be 35 000*6/7= 30 000 Euro, and must be paid directly to the shareholder. In this example the effective tax rate is 5% (the amount of tax that was paid to Malta’s budget after the refund is 5 000 Euro, the income was 100 000 Euro).
- Dividends received by Maltese companies may be fully exempt from taxation in Malta in case if the company meet the criterions of participating holding mentioned above. Furthermore, fullfillment of the following requirements may allow the company not to pay income tax on dividends at all (instead of payment of 35% tax and claiming refund of 100% of such tax paid):
- The foreign subsidiary of the Maltese company is incorporated or resident in the EU member state;
- Not more than 50% of income of the foreign subsidiary consists from passive interest or royalties;
- The income of the foreign subsidiary is taxable in its jurisdiction at a rate not less than 15%;
- The equity holding by Maltese company is not a portfolio investments and the subsidiary itself or its passive interest or royalties are subject to taxation at a rate not less than 5%.
- Withholding tax. Dividends paid to non-residents are not subject to withholding tax. Interest and royalties are exempt from withholding taxation if the beneficial owner, controlling person or representative of the recipient is not tax resident in Malta.
- Maltese companies must prepare annual return and file it with the tax authorities of Malta. The filing is to be made in 42 days after the company’s incorporation date anniversary every year.
- Preparation and keeping of financial statements that shows company’s commercial transactions is required. Financial statements may show the transactions in any currency and may be kept at any address (including those outside of Malta). Moreover, there is also a requirement to file financial statements with tax authorities not later than in 9 months from the end of the financial year.
- It is important that financial statements must be audited by independent specialists in most cases before being filed. The exceptions from audit requirement are made for companies that fulfill at least 2 of 3 following criterions:
Company’s total assets value does not exceed 46 587 Euro;
Company’s annual turnover does not exceed 93 175 Euro;
The number of company’s does not exceed 2 persons.
- Income tax return must be prepared by filling of special forms approved by tax authorities and submitted not later than in 9 months from the end of the financial year.
Maltese companies are obliged to provide the information about the directors, shareholders and beneficial owners to the registration authority. Details of directors and shareholders are publicly available.
Starting from 1 January 2018 the legislative requirement to prepare, keep, update and file registers of beneficial owners is in force in Malta. Beneficial owners are deemed to be natural persons directly or indirectly holding more than 25% of shares or voting rights of the company. If there are no such persons, then the beneficial owner is deemed to be the senior managing official of the company.
Registers of beneficial owners must contain the following information about each beneficial owner:
- the name;
- the date of birth;
- the nationality;
- the country of residence;
- official identification document number;
- the nature and extent of the beneficial interest held;
- the effective date on which a natural person became, or ceased to be, a beneficial owner of the company, or the date of change of the extent of beneficial interest.
The information from registers of beneficial owners is not publicly available and may be disclosed only to persons explicitly named by the law, primarily representatives of Maltese public authorities, at their request.
Tax treaties of Malta
As at the end of 2018 Malta has 70 Double Tax Avoidance Agreements (DTAAs) in force that were concluded with the following jurisdictions:
|1. Albania||19. Germany||37. Luxembourg||55. Singapore|
|2. Australia||20. Greece||38. Malaysia||56. Slovakia|
|3. Austria||21. Guernsey||39. Mauritius||57. Slovenia|
|4. Bahrain||22. Hong Kong||40. Mexico||58. South Africa|
|5. Barbados||23. Hungary||41. Moldova||59. South Korea|
|6. Belgium||24. India||42. Montenegro||60. Spain|
|7. Bulgaria||25. Ireland||43. Marocco||61. Sweden|
|8. Canada||26. Isle of Man||44. Netherlands||62. Switzerland|
|9. China||27. Israel||45. Norway||63. Syria|
|10. Croatia||28. Italy||46. Pakistan||64. Tunisia|
|11. Cyprus||29. Jersey||47. Poland||65. Turkey|
|12. Czech Republic||30. Jordan||48. Portugal||66. United Arab Emirates|
|13. Denmark||31. Kuwait||49. Qatar||67. United Kingdom|
|14. Egypt||32. Latvia||50. Romania||68. United States of America|
|15. Estonia||33. Lebanon||51. Russia||69. Uruguay|
|16. Finland||34. Libya||52. San Marino||70. Vietnam|
|17. France||35. Liechtenstein||53. Saudi Arabia|
|18. Georgia||36. Lithuania||54. Serbia|
The majority of these DTAAs provide for the lower rates of withholding tax for certain types of passive incomes (dividends, interest and royalties) and mechanisms of setting off the tax paid in one jurisdiction with the one payable in another jurisdiction for the same income.
Exchange of tax information
The participation of Malta in international exchange of tax information upon request is regulated by the provisions of DTAAs concluded with foreign jurisdictions (most of them include a separate provision on the exchange of information with other party of DTAA). Also, Malta has concluded Tax Information Exchange Agreements (TIEA) with Bahamas, Bermuda and Gibraltar. TIEAs with Cayman Islands and Macao are expected to enter into force.
Being a party to Multilateral Competent Authority Agreement (MCAA) on automatic exchange of financial account information Malta has committed to start exchanging in September 2017.
According to information provided by the Organization of Economic Co-operation and Development’s website Malta has activated bilateral automatic exchange relationships with 67 jurisdictions.
Cryptocurrencies regulation in Malta
As it was mentioned previously, Malta is a first state that has established legislative regulation of civil turnover of cryptocurrencies. The basis of regulation of cryptocurrencies and commercial activity connected with its tokens, Initial Coin Offer (ICO) are Virtual Financial Assets Act and Innovative Technology Arrangement and Services Act.
The most important aspect of this regulation is that cryptocurrencies are recognized as a type of assets. This is a key issue because most systems still do not allow to ascertain the legal status for this new technically complicated object that has become popular in business activity: whether cryptocurrencies are assets or property rights, are they attributable to the existing types of assets (such as securities) or they are a separate one, etc.
Thus, the existing deficiency of law was eliminated in Malta and cryptocurrencies became an integral object of civil law rights after the Virtual Financial Assets Act has entered into force in November 2018. So, cryptocurrencies may be object of property and other similar rights, may be subject of the transaction, inheritance, court proceedings, etc.
It is also substantial that the activities like mining of cryptocurrencies and ICO are to be licensed. In order to obtain such license, the applicant must prepare a whitepaper that describes business model of the company in details, the procedure of cryptocurrencies public offering, information about their issuer and its governing bodies, and submit it to competent agency, Maltese Financial Services Authority. In addition to this, the applicant must pay the license fee.
It is necessary to mention that legislative definition of the “issuer” of cryptocurrencies clearly provides that such may only be a legal entity that was licensed to act so. The advertisement of ICO, including posting on the website of the issuer, may begin only after the official publishing of issuer’s whitepaper by public authorities.
At the same time, the special division named Malta Digital Innovation Authority has been created for purposes of monitoring of transactions with cryptocurrencies and their tokens that will minimize fraud risks (as it is known, the cryptocurrencies market is decentralized and the transactions made are of pseudonymous character). One more competence of this authority is to be a subject of legislative initiative in case if it is necessary to amend current cryptocurrencies legislation.
Therefore, Malta is a first state to establish legal frames for cryptobusiness, licensing and public control procedures for such activity.