Malta Holding Companies

December 30 17:17 2015 by The Editor Print This Article

Setting up Holding Companies in Malta

Maltese holding companies can be registered as Limited Liability Companies with minimum share capital of €1,165, twenty percent of which needs to be paid up. Normally a company is set up with a minimum of 2 shareholders unless the company is registered as single member company.

Private holding companies can have up to 50 shareholders and whilst there is no limit on the number of shareholders for Public holding companies. The shareholders of Maltese companies can be Malta-resident or non-resident individuals or corporations.

A private Malta holding company must have at least 1 director whilst a public company must have a minimum of 2 directors. The directors of the company can be individuals, residents or non-residents and can also be local or foreign corporations. Companies are also required to have a company secretary. The company secretary has to be an individual. Unless the company is a private exempt company the company secretary cannot be the same person as the sole director of the company.

Participating Holdings in Malta Holding Companies

Holding companies in Malta can be set up to hold shares in other companies. Such holdings qualify as participating holdings if they meet either of the following conditions:

  1. The holding is at least 10% of the equity shares of a company whose capital is wholly or partially divided into shares and such holding gives right to at least 10% of 2 of the following:
    1. Rights to vote
    2. Right to profits upon distribution
    3. Rights to assets available for distribution on winding up
  2. The holding is an equity holding and the equity shareholder has the right to buy the remaining share capital of the company.
  3. The holding is an equity shareholding, giving the equity shareholder the right of first refusal in the event of disposal, cancellation or redemption of the remaining shares of the company.
  4. The holding is an equity shareholding and the equity shareholder is entitled to either sit on the board of the company or appoint a director on the board of the company.
  5. The holding is an equity shareholder with and investment value of at least €1,164,000 for a period of not less than 183 days.
  6. The holding is an equity shareholding and the holding of such shares is for the furtherance of the business of the holding company but not held for trading purposes.

Holdings by a Malta holding company in certain partnerships and certain collective investment schemes may also qualify as participating holdings if they meet either of the conditions above.

Participation Exemption for Malta Holding Companies

Any dividends received from a participating holding are exempt from Malta tax if they satisfy one of the following:

  1. The holding is in a body of persons resident or incorporated in a country within the EU
  2. The dividend has been subject to at least 15% foreign tax
  3. The holding is not in a body of persons which derives more than 50% of its income from passive interest of royalties
  4. The holding in a body or persons not resident in Malta is not a portfolio investment and the body of persons not resident in Malta has been subject to tax of at least 5%

The profit or gain from the disposal of a participating holding in company resident or not resident in Malta is also exempt from Malta Tax.

Application of the Participation Exemption

Malta Holding companies can be used in various scenarios for international tax planning. One practical case is where Malta Holding companies acts as a partner in a partnership set up in England or in Scotland.

In such a situation the participation in the partnership could qualify as a participating holding if the partnership is set up in a way that meets the definition of a partnership en commandite as per the Companies Act and the holding satisfies one of the 6 conditions to be a participating holding, for example, if the partner holds at least 10% of the capital of the partnership which gives rights to 10% of the profits and voting rights.

The profits of the partnership are taxed in the hands of the partners and not the partnership. The share of profits attributable to Malta Holding Companies (as partner in the partnership) will be exempt from tax in Malta since this is income from a participating holding in a body of persons resident in the European Union.

Other Tax Features for Malta Holding Companies

Malta offers a beneficial company tax regime due to its full imputation system and relief from double taxation under through the Double Taxation Agreements, Unilateral Relief and the Flat Rate Foreign Tax Credit (FRFTC).
Income of holding companies which does not qualify for the participation exemption is subject to tax at 35%, however various tax refunds are available upon distribution of profits to shareholders depending on the nature of the underlying profits and the application of any tax credits for foreign tax paid;

  • 6/7 refund – applicable to taxable profits which are not derived from immovable property situated in Malta, or from passive interest and royalties and did make a claim for foreign tax paid.
  • 5/7 refund – applicable if the distribution relates to income from passive interest and royalties.
  • 2/3 refund – applicable if foreign tax credit has been claimed.
  • The application of these tax refunds can reduce the Malta tax liability to 5% or 10% and in some

Malta holding companies may also benefit from other tax exemptions such as the exemption of income from qualifying patents.

Substance requirements for Malta Holding Companies

Under Malta legislation a Malta Company does not have any substance requirements. A Malta company is required to have a registered office in Malta but it is not required to have any employees or Maltese resident directors. However, a certain level of substance, such as Maltese resident directors, may be required to ensure that the company is Managed and Controlled in Malta and thus tax resident in Malta.

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