Malta couldn’t be better located on the world map. It is comfortably situated between Europe, North Africa and Middle East. It has close ties to all of these areas and the Maltese government has used this opportunity to build a great infrastructure, including one of Europe’s most important ports. It is also part of the European Union and uses the Euro as its national currency. What makes it even easier to own a business here is that English is the second official language and the government has instituted a very easy incorporation process. Malta also benefits from its UK-like corporate law system and from having signed over 70 double tax treaties.
In recent years, Malta has also become the perfect jurisdiction to incorporate holding companies, which benefit from a participation exemption on local taxes.
What is a holding company?
A holding company can be explained simply, as its purpose is very straightforward. In summary, this is an entity that holds the shares of other companies over which it will exercise some level of control (as opposed to making portfolio investments). It is set up to own some or all of the voting stock in its subsidiaries, thereby controlling the policies and management of the companies in which it has ownership stakes.
What is a Maltese holding company?
A Maltese holding company is based on the same principles. The advantage of using this structure in Malta is a 100% participation exemption from Maltese corporate tax on the dividends and capital gains earned from the qualifying subsidiaries. Thanks to Malta’s 70 double taxation avoidance treaties, this type of company is also a great alternative to the usual tax haven jurisdictions for owning shares in operating businesses.
Participation exemption criteria
For a holding company incorporated in Malta to benefit from the participation exemption, it must meet the following qualifying criteria:
- To hold at least 10% shares in the company held, with those shares having at least two of the following three rights:
- Profits available for distribution (i.e. dividends); or
- Assets available for distribution on a winding up.
- Having equity shareholding with the option to acquire the rest of the company’s outstanding shares;
- An equity shareholding with the right of first refusal on the company’s other outstanding shares;
- The shareholding comes with the right to appoint a director;
- The shareholding has a value of at least €1,164,000 and is held for at least half a year (183 days);
- The shareholding is a strategic investment made for the furtherance of the holding company’s business, rather than as a mere financial investment for trading gains.
Alternative criteria are:
Dividends income tax exemption
There are further advantages to setting up a holding company in Malta, including there being no levy on wealth, no capital taxes and no tax withheld on dividends distributed by a Maltese company. However, specifically the holding companies that satisfy the above criteria can be fully tax exempt if they also qualify for one of the below rules:
- The qualifying shares are held in a business incorporated in the European Union
- The dividend from the shares are already subject to minimum 15% foreign tax (in corporate and/or withholding taxes)
- The subsidiary does not receive more than 50% of its income from passive interests in royalties
- The shareholding is in a non-Maltese company and it has already been taxed at a minimum 5% rate
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