2 MALTA, THE ISLAND Mediterranean island country Member of EU since 2004 – use of EU directivesMember of the EurozoneCommon law systemEnglish widely spoken and writtenReputable international business centre on the white listHigh professional standards
3 MALTESE COMPANY Limited liability company Companies are registered with MFSA (Malta Financial Services Authority)Minimum shareholders’ 2 but private limited companies may be incorporated as a single member company with physical persons and one main activityMinimum 1 Director, physical person or legal entitySecretary (compulsory) – physical personMinimum Capital:private companies €1,165 with at least 20% paid i.e. in practice we incorporate companies with capital of €1200 out of which €240 is paidPublic companies €46,590 with at least 25% paidRegistered office in MaltaDuration of registration – 1 day + 1 day for issue of certificates
4 MALTESE COMPANY Tax Issues Companies and individuals are subject to income tax at the flat rate of 35% on net profit derived from trading, premiums, interest, royalties, rent, capital gainsEffective tax rate is reduced substantially either by virtue of refundable tax credit or by application of the participation exemption
5 MALTESE COMPANY Participation Exemption Dividend received by a Maltese company or capital gains derived from the disposal of shares is tax exempt in the following circumstancesIf it holds more than 10% of equity orif participation is less than 10% but it has minimum equity investment of € for an uninterrupted period of 183 daysAdditional conditions apply to the above for dividend income to be tax exempt:Maltese resident or EU country or
6 MALTESE COMPANY Participation Exemption If not EU then the foreign tax rate to be at least 15% orIf less than 50% arises from passive income or royaltiese.g even if dividend is received from BVI company, participation exemption applies if it is a trading/consultancy company and less than 50% of income arises from passive income.Capital gains tax exemption does not apply in case of trading in securities and it is taxed as trading income
7 MALTESE COMPANY Tax Refunds A non resident shareholder can claim a refund of part or all of the tax suffered by the company on said profits6/7 refund:it’s available on profits; generally trading income which does not constitute “passive interest or royalties” or upon which the company has not claimed double taxation reliefAfter refund effective tax rate is 5% i.e 6/7 of 35% = 30 % refunded5/7 refund: this refund applies to dividends distributed out of profits which constitute “passive interest or royalties” and on which company has not claimed double taxation relief. Effective tax rate is 10% i.e. 5/7 of 35% = 25% refunded
8 MALTESE COMPANY Tax Refunds 2/3 refund on Maltese tax paid on dividend received on which Maltese companies claim double taxation relief – Rarely used if WHT on dividend is high and cannot claim participation exemption or in case of financing companyEffective tax rate =6.25%If no double taxation treaty exists then if a commonwealth country can claim commonwealth relief; otherwise Unilateral relief is available at flat rate foreign tax credit of 25% is available on companies.100% refund : such refund would be available upon receipt of a dividend paid by the Maltese company out of the profits (dividend income or gains) derived from a participating holding (as an alternative to the participation exemption)
9 MALTESE COMPANY Other Tax Issues No CFC legislationNo thin capitalization rulesNo transfer pricingNo transfer taxesNo Capital dutyNo withholding tax on outbound interest or royalties from MaltaNo WHT on dividends in MaltaNo taxation on dividends received at the level of shareholdersLosses carried forward indefinitely
10 MALTESE COMPANY Tax Refunds EffectiveA. Income tax rate on individuals & companies35%If shareholders are non Maltesea. For dividend arising from trading income5%b. For dividend arising from passive income(passive royalties & interest)10%c. For active royalties i.e. if royalty is managed
11 MALTESE COMPANY Tax Refunds EffectiveB. DIVIDEND INCOME(if conditions for participation exemption apply)0%Conditions apply for exemptions (slide 5 &6)Dividends received claiming double tax treaty relief(if conditions for participation exemption do not apply)35%a. Credit issued for tax paid in other countryb. Refund: (35%-tax(35%-tax credit) /3Dividend IncomeAvailable on dividend paid by Maltese company out of profits derived from participating holding, instead of claiming participation exception. In this way you can get tax credit for taxes paid at 35%100% refundC. No withholding tax on outbound interest or royalties or dividends
12 MALTA HOLDING COMPANY HONG KONG MALTA ITALY Participation exemption Dividends0% WHT*MALTADividend and/or gains0% Malta effective taxITALYNo withholding tax in terms of domestic law irrespective of tax residence of recipient
13 MALTA TRADING COMPANIES PARENTCombined Overall Malta Effective Tax rate = 5%0% WHT dividendMALTA HOLD company*Two tier Malta structure allows for:-Tax deferral in tax residence of Parent (refund without repatriation)-Refund +dividend recharacterised as dividendTax refunddividendMALTA TRADE company*Malta source IncomeForeign source incomeNo further Malta tax at level of Malta HoldCo (full imputation system)
14 MALTA BACK TO BACK INTEREST STRUCTURE PARENTFinance Companies0% WHT dividendMALTA HOLD companyNo WHT on interest in terms of Malta law (certain exceptions)Tax refunddividendMALTA TRADE companyAssuming a 5% spread, the Combined Overall MaltaEffective tax rate = approx. 0.2% on the gross interest paymentinterestloanFOREIGNloan0% WHT interestBVI**Sometimes 2 tier BVI structure
15 MALTESE COMPANY Income from Royalties Royalties and similar income derived from qualifying patents in respect of inventions, whether in the course of a trade, business, profession or vocation or otherwise, subject to the satisfaction of certain terms and conditions, as well as any dividends distributed out of profits derived from such royalty income may likewise fall to be exemptIncome from non-qualifying patents may be charged to tax and subject to the 5/7 refund
16 MALTESE COMPANY Income from aviation Income derived from the ownership, or the leasing or operation of aircraft or of engines shall, be deemed to arise outside Malta for Malta tax purposes. This deeming provision shall also apply when the aircraft and/or aircraft engine is registered in Malta; and/ or has called at, or Is operated from, any airport in Malta. This entails that payments made to non-Maltese resident owners, lessors or operators such aircraft or aircraft engines should not be subject to tax in Malta allowing for some interesting tax planning opportunities.
17 MALTA GAIMING TAXESGaming Taxes in Malta depends on the gaming license class and type of games offered:Casino-type games: €4,600 per month during the first six months after issue of the full license and subsequently €6,900 per month for the entire duration of the license period. However, if a casino operator (under Class 1 license) operates from the host platform (under class 4 license) the following taxation apply:Gaming tax payable by the casino operator is €1,150 per month;Gaming tax payable by the host platform is as follows:No gaming tax for the first six months of operation;€2,300 per month for the subsequent six months; andSubsequently, €4,600 monthly for the entire duration of the license.
18 MALTA GAIMING TAXES Class 1 Class 2 Class 3 Class 4 License Fee Class 1Class 2Class 3Class 4License Fee€6, 900 per yearGaming TaxA. Under Class 4 sublicense: €1, 150 per monthB. Standalone: 1st six months at €4, 600 per month €6, 900 per month for the entire duration of the license0.5% On gross amount of stakes accepted5% on net incomeNo Gaming Tax (Inherits tax of its sublicenses)Tax Capping: Maximum gaming tax payable in respect of any License class is €466,000
19 DOUBLE TAX TREATY WITH UKRAINE Ukraine and Malta signed a tax treaty on 4 September 2013, but the treaty is not yet in force.When in effect, the treaty provides for a 5% withholding tax rate on dividends paid to a company (other than a partnership) that holds directly at least 20% of the capital of the payer company;otherwise, the rate will be 15%.The rate on interest and royalties will be 10%This rule is standard for new agreements and protocols, Luxembourg. Gains derived by a resident of a Contracting State from the alienation of shares or other rights deriving more than 50 % of their value directly or indirectly from immovable property situated in the other Contracting State may be taxed in that other State.
20 Double Tax Treaty between Malta and Ukraine not yet in force DIVIDENDIf 20 % ownership in thesubsidiary Ukrainian company5*%/10%INTEREST10%ROYALTIES
21 Double Tax Treaty between Malta and Russia in effect as from 2014 DIVIDENDIf 25% ownership in the subsidiary Russian company and minimum investment of€5*%/10%INTEREST5%ROYALTIES
22 DOUBLE TAX TREATY WITH RUSSIA Russia and Malta signed a Double Tax Treaty on 24 April 2013 which will come into effect in 2014Withholding tax rates will be:for dividends – 5 % if the beneficial owner is a company which holds directly at least 25 % of the capital of the company paying the dividends and this holding amounts to at least 100,000 Euro; 10% in all other cases;for interest and royalties – 5% as long as they are at the market level.Gains derived by a resident of a Contracting State from the alienation of shares or other rights deriving more than 50 % of their value directly or indirectly from immovable property situated in the other Contracting State may be taxed in that other State. This rule is standard for new agreements and protocols, including those that Russia has recently signed, i.e. with Cyprus and Luxembourg.
23 DOUBLE TAX TREATY WITH RUSSIA The treaty contains a standard Exchange of Information provision, which is practically identical to the one recently introduced in the Russia-Cyprus DTT.The treaty also contains Limitation of Benefits provision. It stipulates that restrictions should not apply as long as a company is engaged in substantive business operations in one of the Contracting States. It’s worth noting that the equivalent provision in the Russia-Cyprus DTT does not stipulate such a requirement, stating that a company merely needs to be registered in one of the Contracting States.If the treaty comes into force in 2014, Malta could be seen as a replacement for Cyprus as a venue for creating holding companies.? But since the treaty establishes withholding tax rates for interest and royalties, it is unlikely that Malta could carve out a niche as a financial or licensing centre for Russian corporate groups. Another reason is that their banks are very conservative and refuse to accommodate the banking needs of Russian clients
24 COMPARISON MALTA / CYPRUS International Business Center, small island country in Europe√Common Law System (both ex English colonies)LanguagesEnglish widely spokenMore multilingualLimited liability companiesMinimum shareholders12Minimum directorsSecretariesPhysical or legal entityPhysical onlyMinimum capital€1€1 165 and at least 20% prepaidRegistered officeCyprusMalta
25 COMPARISON MALTA / CYPRUS Taxes are paid on worldwide incomeManagement and control in CyprusOrdinarily resident domiciled in Malta for tax purposesVAT18%Tax rate for companies12,5 % corporate tax35% income tax but tax refundsCapital Gains Tax from sale of sharesNil without conditionsParticipation exemption is granted if:1. Participation more than 10% shareholding orIf less than 10% with minimum equity € for 1 year minimum2. European company or if not European company to have tax rate at least 15% or if not less than 50% to arise from passive income. Above must apply for dividend to be exempted but it does not have to apply for exemption of capital Gains.
26 COMPARISON MALTA / CYPRUS Trading in securities taxNIL35% which upon distribution of dividend to non residents falls to 5% *Tax on dividendNilNil under conditionsTax on*But this creates the need for two level company and increases the coststrading income12,5 %6/7 refund on 35% if shareholders are foreign: effective rate 5%*Tax on passive income passive royalties interest2,5%12,5%10%Active royalties5,%WHT on outbound interest royalties / dividend0%
27 COMPARISON MALTA / CYPRUS DTT WITH RUSSIACYPRUSMALTAWithholding on Dividend5*/10%* If more than € investments* If more than € investments and over 25% shareholdingWithholding on interest0%5%Withholding on royaltiesExchange of information provisionYesLimitation of benefits provisionWill not apply if merely company is registered in one of the StatesWill not apply provided substansive business in one of the statesIn forceExpected in 2014
28 COMPARISON MALTA / CYPRUS DTT WITH UKRAINECYPRUSMALTAWithholding on Dividend5*/10%* If more than € investments* If minimum 20% shareholdingWithholding on interest2% but Cyprus issues tax credit10%Withholding on royalties5% but Cyprus issues tax creditExchange of information provisionYesCapital gains on the sale of shares of ukrainian real estateRight to tax in cyprus and it is 0%Right to tax in UkraineLimitation of benefits provisionWill not apply if merely company is registered in one of the StatesWill not apply provided substansive business in one of the statesIn forceExpected in 2014