Before the end of 1996 it was possible to register Maltese “offshore” companies, and these companies might continue operating until September 23 2004 or ten years from the date of incorporation, whichever is sooner.
The new system does away with the distinction between offshore and onshore companies, and Malta now offers two types of company which will be of interest to the tax planner: the International Holding Company (IHC) and the International Trading Company (ITC). An ITC is a normal onshore Maltese company, with the main distinction that its trading activities are carried out from, rather than in, Malta.
The principle corporate legislation is the Companies Act 1995, the Malta Financial Services Act 1994, the Investment Services Act 1994, the Banking Act 1994, the Financial Institutions Act 1994 and the Industrial Development Act 1988. In 1996 Malta substantially revised its corporate law and removed the difference between offshore and onshore companies, so that all Maltese companies obtain favourable treatment under the tax agreements.
Companies have such powers as are outlined in the Memorandum of Association of the Company. The language of legislation and corporate documents is English. Off-the-shelf companies are not available.
Confidentiality is governed by the Professional Secrecy Act, which sets a high common standard of confidentiality for all professional practitioners. Those who violate professional secrecy may be prosecuted under Section 27 of the Criminal Code and on conviction may be liable to a maximum fine of LM 20,000 and/or a 2-year prison sentence.
Trading and business activity are subject to the following restrictions:
- All objects of the Company are limited to trading activities outside Malta.
- A Company is not permitted to carry out trading activities with persons resident in Malta.
- A Company is not permitted to manage or service another Maltese Company, or act as a trustee for any trust established under the terms of the Trusts Act, 1988.
- A Company does not have the right to engage in the business of Financial Services.
Incorporation procedure entails the issuing of an exemption certificate from the Exchange Control Division, the depositing of the share capital and the filing of the Memorandum and Articles with the Registrar of Companies. As a matter of Maltese company law a Maltese Company is obliged to maintain a registered office address in Malta and must also appoint a licensed Maltese “Nominee Company” as company secretary or sole director. The “Nominee Company” is legally liable for all actions of the Maltese Company.
Company names are subject to the following requirements and restrictions:
- Any name identical or similar to the name of a company already incorporated or reserved is not acceptable.
- Any name that in the opinion of the Registrar of Companies is offensive or otherwise undesirable is not permitted.
- The name must be in the Latin alphabet.
- The name of the company must end with the word “Limited” or “Ltd”.
The identity of the beneficial owners of an International Trading Company may remain confidential if they incorporate the company through the services of a licensed nominee company. Confidentiality is maintained as long as the company and its beneficial owners are not involved in any money laundering activity.
The minimum number of directors is one, either corporate or individual, and details appear on the public file in Malta. In order to establish that the company is resident in Malta for tax purposes and therefore eligible for tax agreement benefits, it is necessary for the majority of the board of directors to be based in Malta. A Company shall have a company secretary, whose name and address shall appear in the Memorandum and Articles of Association. The secretary may be an individual or a corporate body, and must be resident of Malta. As a rule the minimum number of shareholders is two, but a “single member company” may also be registered. Details of shareholders appear on public file, but anonymity can be retained by the use of nominee shareholders.
The minimum authorised share capital is LM 500. The minimum issued share capital is LM 500, of which 20% is paid up. Share capital may be in any currency. A company may have different classes of shares; however, bearer shares are not permitted.
Annual Taxation and Fees
Taxation in Malta: companies are taxed as described below and are designed to take advantage of the tax agreements signed by Malta.
- Offshore companies pay a fixed rate of tax of 5% on world-wide income.
- An ITC is statutorily defined as a company that is engaged solely in carrying on trading activities from Malta with persons outside Malta and has objects expressly limited to such trading activities. An ITC may not hold foreign investments or equity.
- An IHC is a company whose activities are limited to foreign equity participation and other similar passive income-generating activities. Such entities are taxed in a particularly advantageous manner where income is received from “participating holdings”.
ITCs and IHCs pay tax on their world-wide income at a rate of 35%. There is however a system of credit and refunds available to shareholders, which reduces the net rate of tax to 4.2% in the case of ITCs and under 6.5% in the case of IHCs.
Malta has a wide network of double tax agreements as well as other methods for relieving double tax on cross-border transactions. These provide an excellent base for establishing tax efficient structures, including international trading and holding companies.
Licence fees are as follows: LM 100 minimum for a share capital of LM 2,000 or less.
Financial statements: companies must file an annual return and prepare audited accounts.
Economy and Infrastructure
Tourism is Malta’s primary source of foreign exchange. Its natural harbours host one of the most renowned dry-docks in the Mediterranean and a shipbuilding yard.
With the closure of the military base in 1979, it became imperative for Malta to launch a series of development programmes to reorient the economy. Today Malta has an adaptable labour force that has adapted to the challenges of modern technology. This has been the basis of Malta’s success in attracting foreign investors in light industry.
With more than 100 years of experience behind them, Malta’s banks are continually expanding and improving their services. Financial institutions have been streamlined to keep abreast of the transformations that are taking place in what has become a global marketplace.
Foreign currency reserves per head are among the highest in the world. The official currency is the Maltese Lira (LM), LM 1 equalling approximately EUR 2.1. Exchange control exists, but International Trading Companies (ITC’s) and International Holding Companies (IHC’s) are exempted. Due to adopt the euro in January 2008.