1. Corporate Vehicles
Over the years, Malta has developed a strong reputation as a financial services centre offering an attractive and competitive environment for operators looking to set-up a business or invest in a European Union compliant jurisdiction. The benefits of selecting Malta are numerous, including a quick and efficient incorporation process, comparatively low running costs, a skilled and diverse workforce, and an extensive treaty network.
The Maltese jurisdiction recognises a variety of legal vehicles taken from both the Civil and the Common law tradition thus allowing individuals a choice of structures to fit their specific needs, whether in relation to business structuring, estate planning or other purposes. The various forms include commercial partnerships, public and private limited liability companies, trusts, foundations and associations.
2. Limited Liability Companies
The defining feature of a Limited Liability Company is the fact that the liability of the shareholders is limited to the part unpaid (if any) on their shares.
A limited liability company is the preferred means of doing business in Malta, due to its separate legal personality and limited liability. Limited liability companies can be classified as either of a private nature (Limited or Ltd) or of a public nature (Plc). With the exception of single member companies (discussed below), private and public companies must have a minimum of two shareholders.
Private limited companies are formed by means of capital divided into shares and shareholder liability is limited to the amount of unpaid share capital. In a private company, the right to transfer shares must be restricted, for example through pre-emption rights, the number of members cannot exceed fifty and invitations to the public to subscribe to its shares or debentures are prohibited.
It is possible to set-up a single member private company, however, such a company may only carry out one principal activity. In addition, it must satisfy the conditions of a private exempt company, being, that it cannot have more than fifty debenture holders and that no body corporate can act as a director.
There are no restrictions regarding the nationality or the place of residence of the directors, shareholders or other officers of a Malta company. Furthermore, a Malta company may be set-up for any lawful purpose. There are, therefore, no restrictions regarding the type of activity of a company, provided that certain activities may render the company subject to license requirements such as, for example, gaming companies, telecommunications companies and financial services companies.
Shareholders in Malta companies can be either individuals or bodies corporate. It is also possible for shares in a Maltese company to be held on a fiduciary basis by an entity authorised/ licensed for such purposes allowing the beneficial owners to retain confidentiality.
The Memorandum and Articles of Association of both private and public companies must contain:-
- the name of the company; which is to include Plc, Limited or Ltd, subject to the public or private nature of the company respectively,
- the name and residence of the subscribers (in the case that a fiduciary is appointed, the name and details of the fiduciary are specified),
- the registered office of the company, which must be located in Malta,
- objects of the company,
- the authorised and issued share capital of the company divided into shares of fixed nominal value,
- number of directors,
- name and residence of first directors, and name and registered or principal office, if the director is a body corporate,
- the manner in which the company is to be represented, and the chosen representative, and
- name and residence of first company secretary.
Share Capital Requirements
The minimum share capital in private limited companies is €1,165 and the minimum percentage paid up is 20%, whereas in public companies the minimum share capital is €46,588 and minimum percentage paid up is 25%.
Following satisfactory completion of the KYC/due diligence process, a company can be registered by submitting the necessary documentation to the Registrar of Companies, including therefore the Memorandum of Association as well as an identification document of the subscribers and proof that the initial share capital was deposited in favour of the company-in-formation. The Memorandum and Articles of Association must be signed by the subscribers or their attorneys. Generally, registration is completed within 24 hours of receipt of all documentation required.
A registration fee is to be paid to the Registrar of Companies, the value of which depends on the amount of authorised share capital of the company being set-up but ranges between a minimum of €245 (for a share capital that does not exceed €1,500) and a maximum of €2,250 (for a share capital exceeding €2,500,000).
3. Directors (power, appointment, duties and liability)
The business of limited liability companies is conducted by its directors. The directors are appointed by the shareholders. A private company must have at least one director, two in the case of a public company. Directors may be individuals or corporate entities. The shareholder/s may be appointed as director/s. A person shall not be qualified for appointment or hold office as director of a company if:
- he is interdicted or incapacitated or is an undischarged bankrupt;
- he has been convicted of any of the crimes affecting public trust or of theft or of fraud or of knowingly receiving property obtained by theft or fraud;
- he is a minor who has not been emancipated; or
- he is the subject to a disqualification order.
Company directors are generally vested with the legal and judicial representation of the company. This authority is however limited by the Companies Act, in that, directors may not:
- act or enter into transactions which go beyond the company’s objects and powers;
- disregard other limitations imposed by the company’s Memorandum or Articles of Association; or
- disregard instructions properly issued by the company in relation to the exercise of their powers.
The Directors have the power to appoint and remove the company secretary.
Duties and Liabilities
The directors must perform their duties with a degree of care, diligence and skill which is to be exercised by a reasonably diligent individual. They must not have a conflict of interest between the benefit of the company and their personal benefit and they must not compete with the company.
Furthermore, the Director qua fiduciaries owe fiduciary obligations towards the company which include the duty of loyalty and care of a bonus pater familias. They must keep property acquired under fiduciary obligations separate from their own personal property, they must render an account and keep records in relation to the management of the property held under fiduciary obligation, and are duty bound to return property held under a fiduciary obligation when their mandate terminates.
Directors, as officers of the company, are entrusted with keeping statutory registers and minute books such as a register of members, a register of debentures, minutes of board and general meetings’ and minute books as well as completing the annual returns and filing any changes in the company’s corporate structure with the Registry of Companies.
Directors are personally liable in damages for any breach of duty committed as well as liable to make a payment towards the company’s assets, as deemed fit by the court, upon dissolution, if the company continues to trade while said director knew, or ought to have known that there was no reasonable prospect that the company would avoid being dissolved due to its insolvency. The court may release the director from liability if it is satisfied that the director took every step he ought to have taken with a view of minimising the potential loss to the company’s creditors.
4. Filing Obligations
All companies registered in Malta must prepare financial statements which must be audited by a Certified Public Accountant who must also be a registered auditor. Audited financial statements must be presented to the tax authorities and to the Registry of Companies on an annual basis. A company is also required to prepare and submit its annual tax return and make payment of the annual tax due. If the company’s activities are subject to VAT, the company will also need to submit VAT returns every quarter and pay the relative VAT thereon. The company may also need to submit recapitulative statements depending on its activities.
5. Taxation of Malta Companies
Companies registered in Malta are very tax efficient vehicles which one can use to carry out trading activities and / or hold overseas investments. A company is considered resident in Malta if it is incorporated in Malta or, in the case of a foreign body of persons, if its management and control are exercised in Malta. Companies that are resident and domiciled in Malta are subject to income tax in Malta on their worldwide income and capital gains at the rate of 35% which is the maximum rate of tax in Malta. However, in view of Malta’s full imputation system of taxation, any income tax paid by the company is credited in full to the shareholder upon a distribution of dividends, so as to avoid economic double taxation and, in addition, entitles shareholders to a refund of any tax paid by the company which is in excess of the shareholders’ income tax liability.
Shareholders of Maltese resident companies are also entitled to a refund with respect to the corporate tax paid by the company on the profits distributed to the shareholders. The amount of refund varies depending on the type of income being distributed.
The participation exemption regime ensures that dividends and capital gains derived by companies registered in Malta from their qualifying participating holdings in any jurisdiction will not be subject to any tax in Malta, provided that the anti-avoidance measures are satisfied in case of dividend income.
Alternatively at the option of the Malta Company, income or gains derived from a participating holding may be taxed at a flat rate of 35% less any available double taxation relief. In such circumstances, however, upon a subsequent distribution of dividends by the company out of the said taxed income or gains, the shareholders of the Malta company would be entitled to a full refund (100%) of the Malta tax paid.
Double Taxation Relief in Malta
Malta does not impose any withholding tax on outgoing dividends, interest and royalties irrespective of the recipient’s tax residence and status. However, income received from foreign sources may be subject to foreign withholding tax or other foreign taxes. Consequently Malta’s fiscal legislation offers different forms of double taxation relief to ensure that double taxation is avoided. Malta has concluded more than 70 double taxation agreements, mostly based on the OECD Model Convention, which provide for the relief of double taxation.
Maltese legislation provides for companies incorporated or constituted outside Malta to conduct business in or through Malta by using a branch or a place of business in Malta. This creates a viable alternative when companies opt not to register a separate legal entity, yet carry out business in Malta by an extension of their foreign corporate vehicle. As a result, a branch qualifies to be considered as a company registered in Malta and is taxed in Malta on any income and gains arising in Malta which are attributable to the branch at a rate of 35%. Tax refunds may still be claimed in relation to dividends distributed from such branch profits.
6. Other Vehicles
Other commercial partnerships
Maltese law provides for partnerships en nom collectif where the liability of the partnership is guaranteed by the unlimited, joint and several liability of all the partners, and partnerships en commandite where the liability of the partnership is guaranteed by the unlimited, joint and several liability of the general partners, and by the liability, limited to the amount, if any, unpaid on the contribution, of one or more partners, called limited partners. The advantage with partnerships is that they can elect to be taxed as companies or can be tax transparent in which case the income of the partnership is taxed at the level of the partners.
The Trusts and Trustees Act regulates the creation and administration of trusts. A Maltese trust may be created verbally, in writing (including by will), by operation of law or by a judicial decision. Trusts are an ideal instrument for estate planning as they allow flexibility and a degree of privacy.
Maltese law also provides for the creation and administration of foundations (whether set-up for private or charitable purposes). A foundation, as opposed to a trust is a separate legal entity subject to registration with the Registrar of Legal Persons. Unlike the trust deed, which is kept by the trustee under confidentiality, the deed of foundation is registered with the Registrar of Legal Persons and is available for inspection by the public. However, the identity of the beneficiaries may be specified in a separate document which is not published. Foundations are the ideal structure for non-profit organisations because they enjoy the benefit of separate legal personality while having non-commercial aims.
The presence of such a wide variety of vehicles, together with an advantageous tax regime makes Malta and ideal jurisdiction to set-up a business or within which to invest.