MALTA, Competing Cyprus
MALTA, THE ISLAND
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Mediterranean island country
Member of EU since 2004 – use of EU directives
Member of the Eurozone
Common law system
English widely spoken and written
Reputable international business centre on the white list
High professional standards
MALTESE COMPANY
• Limited liability company
• Companies are registered with MFSA (Malta Financial Services Authority)
• Minimum shareholders’ 2 but private limited companies may be
incorporated as a single member company with physical persons and one
main activity
• Minimum 1 Director, physical person or legal entity
• Secretary (compulsory) – physical person
• Minimum Capital:
– private companies €1,165 with at least 20% paid i.e. in practice we
incorporate companies with capital of €1200 out of which €240 is
paid
– Public companies €46,590 with at least 25% paid
• Registered office in Malta
• Duration of registration – 1 day + 1 day for issue of certificates
MALTESE COMPANY
Tax Issues
• Companies and individuals are subject to income tax at the
flat rate of 35% on net profit derived from trading,
premiums, interest, royalties, rent, capital gains
• Effective tax rate is reduced substantially either by virtue of
refundable tax credit or by application of the participation
exemption
MALTESE COMPANY
Participation Exemption
• Dividend received by a Maltese company or capital gains derived from
the disposal of shares is tax exempt in the following circumstances
• If it holds more than 10% of equity or
• if participation is less than 10% but it has minimum equity
investment of €1.164.000 for an uninterrupted period of 183 days
Additional conditions apply to the above for dividend income to be tax
exempt:
 Maltese resident or EU country or
MALTESE COMPANY
Participation Exemption
 If not EU then the foreign tax rate to be at least 15%
or
 If less than 50% arises from passive income or royalties

e.g even if dividend is received from BVI company,
participation exemption applies if it is a trading/consultancy
company and less than 50% of income arises from passive
income.
• Capital gains tax exemption does not apply in case of trading
in securities and it is taxed as trading income
MALTESE COMPANY
Tax Refunds
• A non resident shareholder can claim a refund of part or all of the tax
suffered by the company on said profits
• 6/7 refund:
• it’s available on profits; generally trading income which does not
constitute “passive interest or royalties” or upon which the company
has not claimed double taxation relief
• After refund effective tax rate is 5% i.e 6/7 of 35% = 30 % refunded
• 5/7 refund: this refund applies to dividends distributed out of profits
which constitute “passive interest or royalties” and on which company
has not claimed double taxation relief. Effective tax rate is 10% i.e. 5/7
of 35% = 25% refunded
MALTESE COMPANY
Tax Refunds
• 2/3 refund on Maltese tax paid on dividend received on which Maltese
companies claim double taxation relief – Rarely used if WHT on dividend
is high and cannot claim participation exemption or in case of financing
company
Effective tax rate =6.25%
If no double taxation treaty exists then if a commonwealth country can
claim commonwealth relief; otherwise Unilateral relief is available at
flat rate foreign tax credit of 25% is available on companies.
• 100% refund : such refund would be available upon receipt of a dividend
paid by the Maltese company out of the profits (dividend income or
gains) derived from a participating holding (as an alternative to the
participation exemption)
MALTESE COMPANY
Other Tax Issues
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No CFC legislation
No thin capitalization rules
No transfer pricing
No transfer taxes
No Capital duty
No withholding tax on outbound interest or royalties from Malta
No WHT on dividends in Malta
No taxation on dividends received at the level of shareholders
Losses carried forward indefinitely
MALTESE COMPANY
Tax Refunds
Tax
A. Income tax rate on individuals & companies
Refund
35%
Effective
Tax
35%
If shareholders are non Maltese
a. For dividend arising from trading income
35%
6/7 @35%
5%
b. For dividend arising from passive income
(passive royalties & interest)
35%
5/7 @35%
10%
c. For active royalties i.e. if royalty is managed
35%
6/7@35%
5%
MALTESE COMPANY
Tax
Tax Refunds
Refund
B. DIVIDEND INCOME
(if conditions for participation exemption
apply)
0%
Conditions apply
for exemptions
(slide 5 &6)
Dividends received claiming double tax treaty
relief
(if conditions for participation exemption do
not apply)
35% a. Credit issued for
tax paid in other
country
b. Refund: (35%tax credit) @2/3
Effective
Tax
0
(35%-tax
credit) /3
Dividend Income
35% 100% refund
Available on dividend paid by Maltese
company out of profits derived from
participating holding, instead of claiming
participation exception. In this way you can get
tax credit for taxes paid at 35%
0
C. No withholding tax on outbound interest or
royalties or dividends
0
0
MALTA HOLDING COMPANY
Participation exemption
Dividends
0% WHT*
HONG
KONG
MALTA
0% Malta effective tax
Dividend
and/or
gains
ITALY
No withholding tax in terms of domestic law irrespective of tax
residence of recipient
MALTA TRADING COMPANIES
Combined Overall
Malta Effective Tax
rate = 5%
Two tier Malta
structure allows for:
-Tax deferral in tax
residence of Parent
(refund without
repatriation)
-Refund +dividend
recharacterised as
dividend
PARENT
0% WHT
dividend
Tax refund
MALTA HOLD company*
dividend
MALTA TRADE company*
Malta source Income
Foreign source income
No further Malta tax at level of Malta HoldCo (full imputation system)
MALTA BACK TO BACK INTEREST STRUCTURE
Finance Companies
PARENT
0% WHT
dividend
No WHT on interest in
Tax refund
terms of Malta law
(certain exceptions)
dividend
Assuming a 5%
spread, the Combined
Overall Malta
Effective tax rate =
approx. 0.2% on the
gross interest
payment
MALTA HOLD company
MALTA TRADE company
interest
loan
FOREIGN
loan
0% WHT
interest
*Sometimes 2 tier BVI structure
BVI*
MALTESE COMPANY
Income from Royalties
• Royalties and similar income derived from qualifying patents
in respect of inventions, whether in the course of a trade,
business, profession or vocation or otherwise, subject to the
satisfaction of certain terms and conditions, as well as any
dividends distributed out of profits derived from such royalty
income may likewise fall to be exempt
• Income from non-qualifying patents may be charged to tax
and subject to the 5/7 refund
MALTESE COMPANY
Income from aviation
• Income derived from the ownership, or the leasing or
operation of aircraft or of engines shall, be deemed to arise
outside Malta for Malta tax purposes. This deeming
provision shall also apply when the aircraft and/or aircraft
engine is registered in Malta; and/ or has called at, or Is
operated from, any airport in Malta. This entails that
payments made to non-Maltese resident owners, lessors or
operators such aircraft or aircraft engines should not be
subject to tax in Malta allowing for some interesting tax
planning opportunities.
MALTA GAIMING TAXES
Gaming Taxes in Malta depends on the gaming license class and type of
games offered:
Casino-type games: €4,600 per month during the first six months after issue
of the full license and subsequently €6,900 per month for the entire duration
of the license period. However, if a casino operator (under Class 1 license)
operates from the host platform (under class 4 license) the following taxation
apply:
Gaming tax payable by the casino operator is €1,150 per month;
Gaming tax payable by the host platform is as follows:
No gaming tax for the first six months of operation;
€2,300 per month for the subsequent six months; and
Subsequently, €4,600 monthly for the entire duration of the license.
MALTA GAIMING TAXES
Class 1
Class 2
Class 3
Class 4
License Fee €6, 900 per year
€6, 900 per year
€6, 900 per year
€6, 900 per year
Gaming
Tax
0.5% On gross
amount of
stakes
accepted
5% on net
income
No Gaming Tax
(Inherits tax of
its
sublicenses)
A. Under Class 4
sublicense:
€1, 150 per month
B. Standalone:
1st six months at
€4, 600 per month
€6, 900 per month for
the entire duration of
the license
Tax Capping: Maximum gaming tax payable in respect of any License class is €466,000
DOUBLE TAX TREATY WITH UKRAINE
Ukraine and Malta signed a tax treaty on 4 September 2013, but the treaty
is not yet in force.
When in effect, the treaty provides for a 5% withholding tax rate on
dividends paid to a company (other than a partnership) that holds directly at
least 20% of the capital of the payer company;
otherwise, the rate will be 15%.
The rate on interest and royalties will be 10%
This rule is standard for new agreements and protocols, Luxembourg. Gains
derived by a resident of a Contracting State from the alienation of shares or
other rights deriving more than 50 % of their value directly or indirectly from
immovable property situated in the other Contracting State may be taxed in
that other State.
Double Tax Treaty between Malta and Ukraine not
yet in force
DIVIDEND
•If 20 % ownership in the
subsidiary Ukrainian
company
5*%/10%
INTEREST
10%
ROYALTIES
10%
Double Tax Treaty between Malta and Russia in
effect as from 2014
DIVIDEND
•If 25% ownership in the
subsidiary Russian
company and minimum
investment of
•€ 100.000
5*%/10%
INTEREST
5%
ROYALTIES
5%
DOUBLE TAX TREATY WITH RUSSIA
•Russia and Malta signed a Double Tax Treaty on 24 April 2013 which will come
into effect in 2014
•Withholding tax rates will be:
for dividends – 5 % if the beneficial owner is a company which holds directly
at least 25 % of the capital of the company paying the dividends and this
holding amounts to at least 100,000 Euro; 10% in all other cases;
for interest and royalties – 5% as long as they are at the market level.
•Gains derived by a resident of a Contracting State from the alienation of shares or
other rights deriving more than 50 % of their value directly or indirectly from
immovable property situated in the other Contracting State may be taxed in that
other State. This rule is standard for new agreements and protocols, including
those that Russia has recently signed, i.e. with Cyprus and Luxembourg.
DOUBLE TAX TREATY WITH RUSSIA
•The treaty contains a standard Exchange of Information provision, which is
practically identical to the one recently introduced in the Russia-Cyprus DTT.
•The treaty also contains Limitation of Benefits provision. It stipulates that
restrictions should not apply as long as a company is engaged in substantive
business operations in one of the Contracting States. It’s worth noting that the
equivalent provision in the Russia-Cyprus DTT does not stipulate such a
requirement, stating that a company merely needs to be registered in one of the
Contracting States.
•If the treaty comes into force in 2014, Malta could be seen as a replacement for
Cyprus as a venue for creating holding companies.? But since the treaty
establishes withholding tax rates for interest and royalties, it is unlikely that Malta
could carve out a niche as a financial or licensing centre for Russian corporate
groups. Another reason is that their banks are very conservative and refuse to
accommodate the banking needs of Russian clients
COMPARISON
COMPARISON
MALTA / CYPRUS
CYPRUS
MALTA
International Business
Center, small island country
in Europe
√
√
Common Law System (both
ex English colonies)
√
√
English widely spoken
More multilingual
Limited liability companies
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√
Minimum shareholders
1
2
Minimum directors
1
1
Physical or legal entity
Physical only
Minimum capital
€1
€1 165 and at least 20%
prepaid
Registered office
Cyprus
Malta
Languages
Secretaries
COMPARISON MALTA / CYPRUS
Taxes are paid on worldwide
income
VAT
Tax rate for companies
Capital Gains Tax from sale of
shares
CYPRUS
MALTA
Management and control in
Cyprus
Ordinarily resident domiciled in
Malta for tax purposes
18%
18%
12,5 % corporate tax
35% income tax but tax refunds
Nil without conditions
Participation exemption is
granted if:
1. Participation more than 10%
shareholding or
If less than 10% with minimum
equity €1.164.000 for 1 year
minimum
2. European company or if not
European company to have tax
rate at least 15% or if not less
than 50% to arise from passive
income. Above must apply for
dividend to be exempted but it
does not have to apply for
exemption of capital Gains.
COMPARISON MALTA / CYPRUS
CYPRUS
MALTA
Trading in securities tax
NIL
35% which upon distribution
of dividend to non residents
falls to 5% *
Tax on dividend
Nil
Nil under conditions
12,5 %
6/7 refund on 35% if
shareholders are foreign:
effective rate 5%*
Tax on passive income
- passive royalties
- interest
2,5%
12,5%
10%
10%
Active royalties
2,5%
5,%
0%
0%
Tax on
*But this creates the need
for two level company and
increases the costs
trading income
WHT on outbound interest
royalties / dividend
COMPARISON MALTA / CYPRUS
DTT WITH RUSSIA
CYPRUS
MALTA
Withholding on Dividend
5*/10%
* If more than €100.000
investments
5*/10%
* If more than €100.000
investments and over 25%
shareholding
Withholding on interest
0%
5%
Withholding on royalties
0%
5%
Exchange of information
provision
Yes
Yes
Limitation of benefits
provision
In force
Will not apply if merely
Will not apply provided
company is registered in one substansive business in one
of the States
of the states
Yes
Expected in 2014
COMPARISON MALTA / CYPRUS
DTT WITH UKRAINE
CYPRUS
MALTA
Withholding on Dividend
5*/10%
* If more than €100.000
investments
5*/10%
* If minimum 20%
shareholding
Withholding on interest
2% but Cyprus issues tax
credit
10%
Withholding on royalties
5% but Cyprus issues tax
credit
10%
Exchange of information
provision
Yes
Yes
Capital gains on the sale of
shares of ukrainian real
estate
Right to tax in cyprus and it
is 0%
Right to tax in Ukraine
Limitation of benefits
provision
Will not apply if merely
Will not apply provided
company is registered in one substansive business in one
of the States
of the states
In force
Yes
Expected in 2014