A Mediterranean hub with global connections and access to European, North African and Middle Eastern markets, Malta remains a relatively low-cost base offering the highest standards of service, security and trust. Since joining the European Union in 2004 and the Eurozone four years later, Malta has successfully placed itself on the map for investors wishing to set up their operations in Malta. Malta’s competitive positioning together with a politically stable environment, an English speaking workforce that is specialized and professional and a regulator that is firm yet flexible, practical and accessible make Malta a jurisdiction of choice for investors wishing to set up shop on the island. Malta is at the very front rank of world financial centres. In 2010 the World Economic Forum’s Global Competitiveness Index ranked Malta 11th out of 139 countries for its financial market development and 10th for the soundness of its banking system, three notches up from the previous year. Additionally, over 50,000 companies are registered in Malta, with around 3,000 incorporated in 2010.
Investing in China
On an international relations and social level, the positive relationship between Malta and China is reflected in the recent cooperation between the two countries in connection with the recent Libyan upheavals.
From a regulatory perspective, the Malta Financial Services Authority, which is Malta’s single regulator, and the China Banking Regulatory Commission and the China Securities Regulatory Commission signed bilateral memoranda of understanding with regards to banking and securities. The memorandum signed with the Securities Commission relates to the protection and promotion of the development of the securities markets by providing a framework for co-operation, increased mutual understanding and the exchange of information, to the extent permitted by the laws and regulations in force in Malta and in China. The other memorandum relates to the sharing of supervisory information and enhance cooperation in the area of banking supervision to the extent permitted by the laws and regulations in force in both countries.
In addition to the Memoranda, Malta and China have signed a revised Double Taxation Agreement in October 2010 which will replace the one ratified in 1993.
Malta as an Alternative to Chinese
Outbound Investment The Maltese fiscal regime, has been one of the main drivers in creating an attractive investment opportunity. Approved by both the European Commission and the OECD, said regime is giving Malta’s financial services its cutting edge advantage over competing locations and continues to be instrumental in the number of business and investment into the island. With no withholding taxes on dividends, interest or royalties embedded in our tax laws and the possibility of low tax rate has definitely contributed to Malta’s success in being considered as a domicile of choice for Chinese outbound investment.
Maltese companies are taxed at 35% on their chargeable income allowing for deductibility of expenses incurred in the production of the income, including interest on debt financing, and allowing unutilized losses to be carried forward unlimitedly to future years, with the possibility of an effective tax rate of 5% or less, depending whether participation exemption or the Malta tax refund system applies.
Malta's participation exemption regime exempts dividends received from participating holdings and gains derived from the disposal of such holdings, provided certain conditions apply. For a holding in a company to qualify as a participating holding, generally conditions must be satisfied, the most common being:
- Malta Company must hold at least 10% of the shares of the company; or
- Malta Company has a shareholding in the company of at least €1.164m which has been held for an uninterrupted period of not less than 183 days.
The company has an option not to declare said income or gain in the company’s tax return – through the application of a participation exemption. Alternatively, if the Maltese company opts to include its income in its tax return, it will be subject to tax in Malta on such income and gains at the normal corporate tax rate, but its shareholder will be entitled to a 100% refund on distribution of profits derived from such income gains.
A key advantage of our tax regime is the full imputation system which completely eliminates the economic double taxation of company profits. This entitles shareholders in receipt of a dividend to be subject to an effective tax rate of 5%. They are entitled a tax credit equal to the tax borne on the profits out of which the dividends are paid. Shareholders of a Maltese Company are generally entitled to a tax refund of 6/7ths of the tax paid by the distributing company out of the profits derived from its foreign income account subject to certain conditions. In the event of distributions from passive interests and royalties the refund is generally of 5/7 with an effective tax rate of 10%. This tax treatment is also available to branches of foreign companies registered in Malta for tax purposes. Maltese tax legislation offers the possibility of additional refunds and double taxation reliefs.
In addition to the above, it is worth considering the following key aspects:
- No witholding tax on payments of dividend
- No thin capitalization rules or controlled foreign company legislation
- No specific transfer pricing rules
- No witholding tax on liquidation proceeds paid to non-residents provided certain conditions are fulfilled
- No duty payable on transfers of shares in companies having the majority of their business interests situated outside Malta, provided certain conditions apply
- As an EU member state, entities have access to the European Parent- Subsidiary and the Interest-Royalties and Mergers Directives
- Re-domiciliation or continuation of foreign companies to or from Malta
With proper planning and structuring one can maximize efficiency to the highest degree, making Malta a domicile of choice for both European and non-European subsidiaries / companies.
By Rudolph Psaila
Specializing in providing corporate management services, fund administration and tax structuring.