Company Formation in Malta – The Definitive Guide (Malta Limited)
Company Formation in Malta – The Definitive Guide
his is the Ultimate Guide to Company Formation in Malta 2018…
and please let me clarify something at the outset:
This will not deal with half-truths, hypothetical possibilities or questionable tax tricks.
Simply put, it will deal with the current state of affairs, important issues that deserve your attention and mistakes that you should definitely not make.
Then let’s begin.
CHAPTER 1Why Malta? An Overview of Malta’s Advantages
This Chapter deals with the great question “Why?”
Certainly, Malta does not immediately come to mind as a location for forming a company.
And there are good reasons for that.
Just have a look for yourself.
When I left the financial metropolis of London in 2011 to move to Malta, people were generally astonished.
“Really? What do you want there? Where is Malta anyway?”
What many didn’t know was that I had been dealing with Malta for a while and knew the advantages.
And there it was:
It was exactly the rights decision. Malta is growing and flourishing. In my capacity working at the Law Offices of Dr. Werner & Partner, the pre-conditions could not have been better. The reasons for this are the following advantages, which Malta offers to entrepreneurs and to companies:
Maltese Politics Support Companies Operating in a Cross-Border Framework
Imagine Malta: a small island with lots of limestone and rocky farmland. Agriculture was therefore never particularly bountiful. Rather, for a long time it was shipping that kept the country afloat. Even today, the fishing industry still plays a strong role in Malta’s economy (if not the same central role it used to play which is today occupied by tourism).
But that’s not ideal and never was.
Malta wanted to play a part at the top. It wanted to be a modern and attractive location for companies. All wheels were therefore set into motion. Malta opened itself up and has been an EU-member since 2005 (the relevant advantages of which I will discuss further below).
The focus of the Maltese government has always been promoting companies in Malta, in particular those, led by foreign investors.
When Joseph Muscat became Premier Minister of Malta in 2013, this course was strengthened even further. The Maltese government is constantly creating new incentive for entrepreneurs to form companies in Malta or to relocate their companies here.
This is evident not only in tax policies (which I will discuss momentarily) but, for example, in regard to its support of infrastructure advancement or as regards the gaming sector.
By the way: Malta is one of only a few countries with a regulatory authority for gaming. Operating out of Malta, online-gaming companies such as Tipico or Pokerstars enjoy unparalleled infrastructure while being courted and nurtured.
The Sun Shines on Malta – High Quality of Life
Malta’s weather in terms of annual averages. Source: Google Rich Cards
You may smile that I would choose to discuss this point first, but for many founders in Malta this fact was also important:
In Malta, there is plenty of sunshine.
In summer, there is practically no rain, and family trips to the seaside are a must. For me, that contributes to a high quality of life.
There’s also the Maltese winter. At the beginning of December, I could still take my three-year-old daughter to enjoy the sun at our favorite beach in Malta. In December!
At this point, however, I should probably clarify the following:
If you don’t like sun, then maybe Malta is not the best place for you to form a company.
English as an Official Language – Easy Foreign Company Formation
Many people don’t know that English is an official language in Malta.
That’s right! Not Maltese (or “Malti” as the language is referred to locally) but English determines correspondence in Malta. This is an enormous advantage for foreigners forming a company.
Simply put: Living in a country where one does not understand the local language is one thing but successfully navigating bureaucracy in a language that you don’t understand would be impossible. You won’t have that problem in Malta.
Whereas the locals may still converse in their national language of Malti (an interesting mix of Italian and Arabic), nearly everyone speaks English and, in any case, it is used by all public institutions.
The fact that English is spoken is a residual of the English colonial period, which stretched into the 1960’s. Other residual elements include: left-hand traffic, red telephone booths and, most importantly, an obsession with soccer football.
Legal Tax Advantages of Forming a Malta Limited
Here’s the information that you have likely been waiting for:
Malta’s Tax Advantages.
I make a conscious effort not to state these at the start because I believe that one should also be convinced of Malta for other reasons. Malta’s tax advantages can then provide the rest.
The Maltese tax system actually does foresee reimbursing shareholders of a dividend-paying Malta limited (which is the technical term for a Maltese company) 6/7 of paid corporate taxes.
That means the following: Of the 35% corporate tax due in Malta, a shareholder (but not the company per se) gets a large portion back.
Whereas not too long ago this reimbursement was still allotted to investors outside of Malta’s, this regulation was correctly reversed given pressure from the EU-Commission.
Many will now calculate as follows: pay 35%, get 6/7 reimbursed, result: only 5% taxes! But wait!
Whereas this number is posted all over the internet, the fact is that the reimbursement to the shareholder is taxed at normal rates; a detail which is sometimes wrongly concealed from company founders.
In this context, it’s important to note that holding companies registered as Malta Limiteds can profit from the tax reimbursement. This is commonly known as the Malta Holding Model (which is not further discussed in this article).
For these reasons, more and more companies every year are selecting Malta as their corporate and business location, not the least since Malta has achieved greater focus as a result of the disappearance of so-called “tax havens”.
- The Maltese government supports entrepreneurship in Malta.
- Malta is a place to feel good. The sun shines the entire year and the winters are mild.
- The official language in Malta is English – therefore bureaucratic matters and daily life are easy to manage.
- Malta offers tax advantages, which however are linked to the fulfillment of certain requirements.
CHAPTER 2Why a Company in Malta is a Legal Solution
Of course, it must be tax evasion!
That’s what many people think about a Malta Limited.
That, however, is factually wrong.
I want to explain why a Malta Limited is recognized in Germany and other European countries and why this has NOTHING to do with tax evasion.
Some are quick to make claims about tax evasion, and I think I may know why.
Many might think:
Cayman Islands – small country with big companies must equal tax evasion.
Panama – small country with big companies must equal tax evasion.
Barbados – small country with big companies must equal tax evasion.
Malta – small country with big companies …
Well, tax evasion? Really?
That is not the case, however. In Malta, the situation is different.
Malta’s Tax Advantages are Desired
One element that all small tax havens have in common is the great degree of secrecy regarding who actually owns a company. There is a massive amount of hiding.
Many companies like that. Corporate structures are constructed, tax loopholes are exploited and at the end of the day they achieve a minimum tax burden. In particular, tricking financial revenue authorities by exploiting tax loopholes has been a dark gray area of the law.
And herein resides the major difference to Malta:
There are no tax loopholes, no secrets and everything complies with applicable law.
Why? As discussed, the Maltese state has already foreseen tax benefits and has reflected them in its legal statutory regimen. And as is well known, every state in the world has the sovereignty to define its own tax laws.
Of course, the question then remains as to what separates Malta from other states with the sovereign authority to pursue their own tax policies. The decisive point in this regard is as follows:
A Company in Malta with a Free Common Market and Freedom of Establishment – Malta Rocks the EU
As discussed at the outset, Malta has been an EU-member country since 2005. This has certain advantages, the two most important of which in the context of company formation in Malta are:
- Freedom of Establishment &
- A Free Common Market
Freedom of Establishment in the EU allows businesspeople to establish companies and pursue business anywhere in the EU in a relatively non-bureaucratic manner. Here is the wording:
Self-employed persons and professionals or legal persons within the meaning of Article 54 TFEU who are legally operating in one Member State may: (i) carry on an economic activity in a stable and continuous way in another Member State (freedom of establishment: Article 49 TFEU); or (ii) offer and provide their services in other Member States on a temporary basis while remaining in their country of origin (freedom to provide services: Article 56 TFEU).
Moreover, the EU has established a free common market. Member states are thereby able to access the free common market to engage in direct trade with other EU-member states without tedious bureaucracy. Again, here is the wording:
The Single European Act of 1986 included the objective of the internal market in the EEC Treaty, defining it as ‘an area without internal frontiers in which the free movement of goods, persons, services and capital is ensured’.
The combination of both makes forming a Malta Limited possible, as:
Free Common Market + Freedom of Establishment = Opportunity to Form a Company in Malta.
Financial Treaties like the CRS Confirm Malta’s Course
Yet, whereas many were shocked and concerned, I remained completely calm and relaxed because one thing remains clear: transparency in tax issues only harms those who are on an illicit path.
Despite the fact that Malta is participating in both BEPS as well as CRS, in the end effect this has no negative consequences for my clients because if there is one thing that we have always paid attention to at the law offices of Dr. Werner & Partner (the firm to which I belong) then it is that all company formations in Malta were always performed in a clean and legal way.
And that is now paying off.
- Anyone taking advantage of tax benefits in Malta is not doing something that needs to be hidden.
- Freedom of establishment and the free common market allow for cross-border business.
- Financial treaties do not disadvantage Malta. In fact, they are positive to the extent they drive out rotten apples.
CHAPTER 3Requirements for Forming a Malta Limited
Want to form a company in Malta?
That is not always sensible.
Only where all requirements have been met does it make sense to form a company in Malta.
Here they are: the three most important requirements.
After discussing the legal framework for forming a company in Malta, here is the next point:
What are the requirements for sensibly forming a company in Malta?
Let’s begin with Point 1.
First Requirement: Creating Value in Malta is of Fundamental Importance
For a tax-advantaged Malta Limited, creation of value must take place in Malta. That means:
- The services leading to income must be supplied in Malta,
- In case of any trade with physical goods, these must be shipped from Malta.
Of course, this directly excludes certain groups:
- Owners of stores outside of Malta cannot create value in Malta.
- Services providers with permanent establishments in Germany or other EU-countries can also not prove that they are creating value in Malta.
At the same time, this particularly advantages certain groups:
- Providers of digital services and goods can also offer these from Malta.
- Companies that do not need to be physically close to their customers can also create value in Malta.
Second Requirement: Your Permanent Business Establishment must be Located in Malta.
Closely tied to the first requirement is the requirement of maintaining a permanent business establishment. In order to profit from a Malta Limited, you must move your place of business to Malta.
That means that your office and your employees must all be located in Malta.
And please pay attention to the following:
Pay special care to dissolve any foreign branch offices. Ultimately, any financial revenue authority will want to collect what it is legitimately owed. When part of your company is located in Germany or another country, the logical consequences is to become taxable there.
Third Requirement: As a Shareholder, You Must Prove Substance in Malta
As a shareholder, you will be required at any time to prove actual substance in Malta, which means:
Move to Malta!
Please trust me in this regard:
Doubts can quickly arise as to the authenticity of a business establishment in Malta, and these are vigorously investigated. To me, therefore, this is the most important point.
Please ask yourself the following question:
If you were a financial revenue agent, would you assume that the shareholder of a Malta Limited who does not live in Malta but has formed a company there has done so because it is in the best interests of the company? Or would you assume that this is an attempt at tax avoidance?
But if by the same token a shareholder moves to Malta, this is an indisputable argument in favor of the fact that the company is being led in Malta, operates in Malta and can prove substance in Malta.
Therefore, anyone who does not want to move to Malta should expect higher costs.
Yet, even where a company operates from Malta, it must still be sufficiently substantiated. German and European tax authorities demand certain minimum requirements be met so that the company will be viewed as duly existing and therefore accepted for tax purposes.
Under current jurisprudence and in my experience, the following points are important (listed according to priority with the most important points first and whereby not all points necessarily need to be fulfilled):
Malta Limited: Moving to Malta has Further Advantages
Moving to Malta not only helps to better answer the question as to substance…
…other strong advantages can result from that decision. Key word: taxation!
Should you receive a dividend from your company in Malta, that dividend will be taxed.
In Germany, for example, the applicable tax rate currently amounts to 25% and is commonly referred to as capital gains tax.
You do not need to pay this both at your place of residence and in Malta. AND:
Capital gains tax has long been a thorn in the side of the German SPD. The demise of capital gains tax in Germany (which in the future shall be taxed as part of income tax) has already been agreed in the current coalition agreement between the CDU-CSU and the SPD.
From my perspective, it is therefore only a matter of time before the capital gains tax disappears entirely, as in the meantime tax transparency has rendered all arguments in favor of it irrelevant.
Therefore, moving to Malta is worth it, but you need to plan exactly and clarify in advance if that even makes sense for you, as emigrating can trigger tax traps in the former country.
- An important prerequisite to profiting from Malta is the fact that your company must create value in Malta.
- It is therefore imperative that the company’s seat, i.e. the place where business decisions are made, is located in Malta.
- As a shareholder, you must prove substance in Malta. The only sensible way to do so is to move to Malta.
CHAPTER 4Opening a Bank Account & Dealing with Bureaucracy for a Malta Limited
There is no formation without …
When forming a company in Malta, it will still be necessary to make a few visits to banks and public authorities.
Here, I will show you which ones those are.
You may have noticed that I am a great fan of Malta. Yet, even where I would love to claim that Malta is the most non-bureaucratic country in the world that would definitely not be true.
Even in Malta, forming a company requires certain bureaucratic efforts. I am tempted to claim that those efforts are even greater than, for example, forming a company in Germany, and certainly when one includes the private efforts required in relation to emigration.
Opening a Bank Account for a Malta Limited – More Difficult than Anticipated
One effort that many underestimate is the difficulty of opening a business bank account. When opening accounts for clients, I consistently experience that banks take matters very seriously. Primarily, that results from one factor:
In 2017, the EU developed new anti-money laundering guidelines. A corresponding law was enacted with the following awkward name:
Act for the Implementation of the Fourth EU-Anti Money Laundering Directive, for Performance of the EU Credit Transfer Regulation and the New Organisation of the Central Financial Intelligence Unit
The law affects banks to a considerable extent, as they are the ones performing the transactions that need to be better regulated. Therefore, whenever an account is opened and in particular in regard to internationally operating companies, great efforts must be made as otherwise banks might incur liability.
The literal purpose of the 4th Anti-Money Laundering Directive is stated as follows:
With the Fourth Anti-Money Laundering Directive and new Credit Transfer Regulation, the EU is tightening the reins in combating money laundering. Thorough risk analysis and additional requirements for obligated parties mean that they will be required to perform additional efforts vis-à-vis the responsible state authorities. A stricter sanctions regimen also demonstrates the resolve of European lawmakers in their efforts to intensify the combating of money laundering and the financing of terrorism.
The focus of the Fourth Anti-Money Laundering Directive was place on the following topics:
In simple terms, that means: if you open a bank account in Malta, you must first convince the banks of yourself! Financial institutions take this responsibility very seriously. As a study by LexisNexis Risk Solutions showed, in Germany alone the costs of anti-money laundering compliance amount to 46 Billion Euro.
In this case, as in other cases as well, my advice remains that full transparency and accuracy helps everyone involved!
Those with nothing to hide have thee best chances of getting a bank account opened quickly.
My recommendation based on experience is that we have always had good experiences with Banif Bank in Malta, where one can generally expect to find competent and helpful staff.
Three Necessary Bureaucratic for Forming a Company in Malta
Additionally, the following three bureaucratic visits are required to form a company in Malta:
1. Malta Financial Services Authority (MFSA) – the Maltese Revenue Authority
Register your non-employed economic activity with the Maltese revenue authority, i.e. the Malta Financial Services Authority, where you will receive a tax ID under which you may operate with your company. Moreover, there you will also be entered into the Maltese companies’ register. The MFSA is the most important contact partner in regard to the formation process. It is also the authority that will review whether the prerequisites for forming a Malta Limited have been fulfilled.
2. Value Added Tax Department – the “VAT-Department”
At the VAT Department, all formalities can be resolved relating to VAT-relevant topics. There you can also acquire your VAT Identification Number, which is particularly important for internationally operating companies.
3. Employment and Training Corporation (ETC) –Malta’s Labour and Employment Office
The next stop is the Maltese Labour and Employment Office. A visit is particularly important if you have employees requiring social insurance.
From one official topic to the next, the authorities demand the fulfillment of a number of requirements in order to form a Malta Limited.
- Banks strictly adhere to anti-money laundering guidelines. Opening a bank account in Malta can be complicated.
- There are three necessary bureaucratic visits for forming a company in Malta: MFSA, VAT Department, ETC Malta
CHAPTER 5The Maltese Authorities Demand That These Requirements Must Be Fulfilled in Order to Form a Company
Nicht nur Behördengänge sind zu erledigen. Auch die Erfüllung einiger Grundvoraussetzung gilt es zur Firmengründung zu meisten.
Und in Malta ist man gründlich:
Diese 7 Anforderungen gilt es zu erfüllen.
The Maltese Financial Revenue Oversight Authority, or simply put the Maltese Financial Authority, expects quite a bit of companies in order to maintain the title of Malta Limited.
There seven points on the list of requirements that a company in Malta must always and at any time be able to fulfill
read this thoroughly!
(First as an information graphic and below with a detailed explanation of individual points.)
1. Proving Physical Offices
Every company in Malta must be able to prove it has physical offices. The restrictions in this regard are however quite loose. At the outset, it is sufficient to state the offices of an attorney or tax advisor. At least one year after formation, however, you should be able to show you have your own offices.
2. Define the Purpose of the Company
You must define the purposes you will be pursuing with the company that is being formed. In this regard, the activities must be described in as detailed a manner as possible. It is highly recommendable to really say what you are planning to do – deviating statements will be recognized and the formation then denied.
3. Minimum Capital for Malta Limited Formation
Similar to a German GmbH, a Malta Limited requires a certain formation capital. In Malta, however, this is considerably lower: 1164 Euro equity capital is require for formation.
4. At Least Two Shareholders, Maximum 50
For a Malta Limited, you need to show at least two shareholders but no more than a maximum of 50 (even though I have personally never seen that). Whereas there is a possibility to install only one shareholder, this must clearly result from the Memorandum of Association and it must be clarified how this will affect the company’s commercial intent – still, it is possible.
5. Director and Company Secretary
For formation, a company must appoint at least one Director and one Company Secretary. The role of the Director is similar to that of a managing director. By the same token, the Company Secretary should not be understood as a classical secretary but rather as an additional instance of control and information with the company tasked with ensuring that everyone is informed of formal processes.
6. Annual Company Meeting
Each company must hold a meeting at least once a year to discuss fundamental issues. A written protocol of the meeting must be maintained.
7. Filing of Tax Return
Naturally, as in any other jurisdiction, a Malta Limited is subject to the duty to file an annual tax return.
Seven duties that must be carefully fulfilled..
SUMMARYMy Opinion of the Malta Limited
So much for theory…
…practice is often complicated!
During my tenure at the Law Offices of Dr. Werner & Partner, I continue to experience amazing situations.
Therefore, please allow me to conclude by providing some final remarks.
I’m happy you are interested in Malta, and now you have taken the first step, which is also the most elementary:
getting sufficient information in advance.
Everyone knows that lack of knowledge is not a defense, and certainly unknowingly committing tax evasion in a foreign country because of imprecise company formation is not an issue to be toyed with.
Forming a country in a foreign country is per se a great challenge, in particular when it’s coupled with a move (which, as you know, is something I strongly recommend). From my perspective, therefore, it is impossible to just get up and go without sound and sufficient legal advice.
Maybe you’ve noticed that one point is particularly important to me:
Don’t make any efforts to illegally avoid taxes in Malta. In 2018, that is not possible.
For anyone who is not seeking to do that, I wish you all the best and much success with your business in Malta!
CONCLUSIONNow it’s your turn!
I know. It’s a lot of information!
Much work has been devoted to this Guide, and I hope it was helpful to you.
Was anything perhaps unclear? Or would you like advice and support for forming a company in Malta?
Then please send me a message today.
I’m looking forward to helping you and send sunny greetings from Malta.