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Malta Holding Company
Malta is an ideal EU jurisdiction to establish a holding company for the purpose of holding shares in one or more entities, both within the EU and beyond. This is due to the participation exemption and other features available to the Malta Company
Taxation
Income derived by a Maltese company from a qualifying ‘participating holding’ in a subsidiary company would be wholly exempt from tax in Malta. Whilst Dividend income is exempt provided that the required criteria are met, the participation exemption is always available in respect of capital gains realised upon a disposal of a participating holding.
A Maltese company would have a ‘participating holding’, by having either a resident or non-resident subsidiary not owning immovable property situated in Malta or any real rights over such property and the following conditions are met:
- the shares held by the Maltese company in the subsidiary carry at least two of the following rights: (i) a right to votes; and/or (ii) a right to profits available for distribution; and/or (iii) a right to assets available for distribution in the event of a winding up;
- at least one of the six following criteria also be met:
- the Maltese company holds more than 10% of the shares in the subsidiary; or,
- the Maltese company holds shares in the subsidiary having an acquisition value of at least €1,164,000 and it retains the shares for an uninterrupted period of at least 183 days; or
- the Maltese company holds shares in the subsidiary and is entitled, at its option, to call forand acquire the balance of shares in the subsidiary; or
- the Maltese company holds shares in the subsidiary and is entitled to first refusal in the event of the proposed disposal, redemption or cancellation of the shares in the subsidiary; or
- the Maltese company holds shares in the subsidiary and is entitled to sit on the board or to appoint a person to sit on the board of the subsidiary as a director; or
- the Maltese company holds shares in the subsidiary for the furtherance of its own business and not as trading stock.
Whilst capital gains realised upon a disposal of an EU and a Non-EU participating holding, and dividends derived from a participating holding in an EU resident company are in all cases exempt from tax in Malta, dividends derived from a participating holding in a non-EU resident company are exempt from tax in Malta provided that at least one of the following additional criteria are satisfied, namely:
- the said non-resident company derives less than 50% of its income from passive interest or royalties; or
- the non-resident company is subject to foreign tax at a rate of not less than 15%; or
- the holding in the non-resident company is not a portfolio investment and that company is subject to tax at a rate of not less than 5%.
Alternatively, at the option of the Malta company, income or gains derived from a participating holding may be taxed at a flat rate of 35% less any available double taxation relief. In such circumstances, however, upon a subsequent distribution of dividends by the company out of the said taxed income or gains, the shareholder/s of the Malta company would be entitled to a full (100%) refund of the Malta tax originally paid.
Non-qualifying participating holdings
When a Holding company is not eligible to the participation exemption any dividend or gain upon a disposal would be taxable at the normal rate of 35%. However due to the double taxation relief and the application of the tax refund system, the Malta effective tax for the company and its shareholder will reduce to 6.25% or less.
Double Taxation Treaties
Malta has an extensive treaty network of over 60 treaties in force and as an EU Member State Malta has adopted the EU’s Parent-Subsidiary Directive and the Interest and Royalties Directive.
Other important features
- Malta does not levy any withholding taxes on payment of dividends;
- Malta has no thin capitalisation rules or debt-to equity ratios;
- Malta has no capital duty and wealth taxes;
- Malta does not have CFC rules;
- No stamp duties on share transfers in companies owned by non-residents;
- The holding company can also have trading activity. Profits deriving from trading activity would be taxed at the normal rate of 35%; however on the application of the tax refund system the Malta effective tax for the company and its shareholders will reduce to 5%;
- Under the re-domiciliation provisions it is possible to migrate companies into and out of Malta without the need of winding up.