Company Formation

The formation of a company is undoubtedly, the key which opens the door to the world of business. Malta recognises this fact, and being a flexible jurisdiction, also recognises the ever-evolving landscape and demands of business. In light of this, Malta offers a myriad of benefits to foreign shareholders choosing to form their companies in Malta. These range from the simple process required for a Malta company formation, to the very significant tax benefits associated with having a Malta based company structure. These tax benefits can reduce the effective tax rate for foreign shareholders to as low as 5%.

First and foremost, one should note that in Malta, a company is set up by means of the registration of a Memorandum and Articles of Association (‘M&A’), which are drafted by considering the specific requirements of the client and, subsequently filed at the Malta Business Registry (‘MBR’) supported by other documentation in relation to the company’s directors, secretary and shareholders. The M&A, therefore, serves to govern the members and the relationship between them, defines corporate procedures and sets out the diverse rights and obligations pertaining to the officers and those held by the company vis-à-vis third parties.

In Malta, under the Companies Act[1] (‘The CA’) several options are available to enable an entrepreneur to form a company. The CA, for instance, caters for the Private Limited Liability Company, which is a particularly sought-after mode of doing business and which is formed and incorporated in a matter of days. Another available option is the establishing of Public Limited Liability Companies, which can be used to freely issue a wide array of securities – for e.g. shares – after the finalisation of the listing procedure. There is also the possibility of establishing an Exempt Limited Liability Company, which company would be able to reduce costs, provided that they do not exceed specific thresholds.

The CA also caters for the possibility of a sole individual setting up a company, which is provided for by means of the Single Member Company with one shareholder. The Single Member Company enables the single shareholder to enjoy all the benefits of a Private Exempt Company, meaning that larger-scale companies, could also opt for the Private Exempt Company and Single Member Company respectively, if structured appropriately. These structures are also often used by small and family business, making these corporate structures very versatile.

Fiscally, the tax refund mechanism is the most efficient tax structure in the EU, which allows foreign owned companies to set-up their companies in Malta, to greatly minimise their tax footprint. This is done through a series of refunds, whereby the shareholder of a Maltese Company, should it qualify for the refund, may apply for the tax refund on tax already paid on the profits generated on the Maltese Company. As a standard, the Malta corporate tax rate is that of 35%, but depending on the source of the income, a tax refund can be applied for varying between 2/3, 5/7th and 6/7th of the profits generated by the company.

Moreover, Malta utilises the full imputation system, which ensures that once company profits are taxed at company level, they are not taxed again. To this effect, no further tax is levied in Malta on dividends received from Maltese Companies.

Through EU membership, Malta also allows for the participation exemption which applies between parents and subsidiaries, with the effect that no tax would be levied on dividends between the parent and the subsidiary, subject to certain conditions being applicable. A more recent amendment was also introduced, which allows for groups of companies, to be considered as a single fiscal unit for tax purposes, and subject to certain conditions being satisfied, the mechanism for the refund would also not be needed, and the final effective tax would be paid immediately, greatly improving cash flow for the Company.

Moreover, Malta boasts one of the most extensive double taxation networks in the world, boasting more than 70 double taxation treaties with a number of jurisdictions. Such treaties effectively eliminate double taxation in its entirety or significantly reduce it. Furthermore, the taxation system adopted by Malta provides for different ways through which double taxation may be avoided, such as the possibility of a Flat Rate Foreign Tax Credit which is deemed as a credit on tax levied on foreign source income applicable even in cases where there would not be any paid foreign tax.

All in all, therefore, Malta is one of the foremost jurisdictions behind the creation of convenient and time-friendly methods of facilitating company formation and attracting foreign business, evidencing the importance it places on embracing the ever-changing methods of carrying out business in the modern age. Today, the MBR’s register has exceeded one hundred thousand companies, and this is no mere coincidence. The Malta company has become the cornerstone for the financial industry in Malta as it is the ideal jurisdiction of choice for businesses to form their companies either as part of their international structure, or to start in Malta from scratch.

Author: Karl Cauchi

For additional information and assistance, please contact Dr Josef Cachia Fenech Gonzi.

[1] Cap.386 of the Laws of Malta

Disclaimer This article is not intended to impart legal advice and readers are asked to seek verification of statements made before acting on them.
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