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MALTA, Competing Cyprus. MALTA, THE ISLAND. 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.
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MALTA, THE ISLAND 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 COMPANYTax 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 COMPANYParticipation 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 COMPANYParticipation 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 COMPANYTax 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 COMPANYTax 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 COMPANYOther Tax Issues • 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
MALTA HOLDING COMPANY HONG KONG Participation exemption Dividends 0% WHT* MALTA Dividend and/or gains 0% Malta effective tax ITALY No withholding tax in terms of domestic law irrespective of tax residence of recipient
MALTA TRADING COMPANIES PARENT Combined Overall Malta Effective Tax rate = 5% 0% WHT dividend MALTA HOLD company* Two tier Malta structure allows for: -Tax deferral in tax residence of Parent (refund without repatriation) -Refund +dividend recharacterised as dividend Tax refund 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 PARENT Finance Companies 0% WHT dividend MALTA HOLD company No WHT on interest in terms of Malta law (certain exceptions) Tax refund dividend MALTA TRADE company Assuming a 5% spread, the Combined Overall Malta Effective tax rate = approx. 0.2% on the gross interest payment interest loan FOREIGN loan 0% WHT interest BVI* *Sometimes 2 tier BVI structure
MALTESE COMPANYIncome 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 COMPANYIncome 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.
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
Double Tax Treaty between Malta and Russia in effect as from 2014
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 MALTA / CYPRUS COMPARISON
