Doing Business in Malta Presentation by Simon Ciantar Senior Partner

Doing Business in Malta Geographical Position of Malta : Geographical Position of Malta :

Doing Business in Malta Doing Business in Malta

Basic Statistics Population: 400,000 Population: 400,000 Area: 246 Square Kilometers Area: 246 Square Kilometers Capital City: Valletta Capital City: Valletta Official languages: Maltese and English Official languages: Maltese and English Other Languages: Italian and French Other Languages: Italian and French Religion: Catholic Religion: Catholic Climate : Typical Mediterranean Climate : Typical Mediterranean Culture: European with strong British Influence Culture: European with strong British Influence Currency: Euro Currency: Euro

Doing Business in Malta About our firm: About our firm: - Small sized accountancy and audit firm - Small sized accountancy and audit firm - Operating since Operating since Specialised in offering financial services to non residents - Specialised in offering financial services to non residents - Members of AGN International - Members of AGN International - List of services: - List of services: - Accounting and auditing - Tax consultancy - Fiduciary and trustee services - Corporate services - Management consultancy Web :

Advantages for foreign Investment A growing financial centre within the EU A growing financial centre within the EU A unique tax system within the EU A unique tax system within the EU Tax system approved by the EU Tax system approved by the EU In a recent tax exercise carried out by our Network (AGN International) Malta came second as regards tax advantages within the EU after the Isle of Man In a recent tax exercise carried out by our Network (AGN International) Malta came second as regards tax advantages within the EU after the Isle of Man EU member EU member Member of the Euro zone Member of the Euro zone

Salient Points Low tax jurisdiction Low tax jurisdiction However tax system works differently than in other such jurisdictions However tax system works differently than in other such jurisdictions Malta tax system uses a Full Imputation system Malta tax system uses a Full Imputation system Unique within the EU Unique within the EU

Imputation System What does it mean? What does it mean? –Basically tax suffered in the hands of a company is given as a tax credit in the hands of the recipient receiving the income (both individual and corporate)

Imputation System So unlike most low tax jurisdictions, corporate tax rate is not low (35%) So unlike most low tax jurisdictions, corporate tax rate is not low (35%) So where are the advantages? : So where are the advantages? : –In the Maltese tax system all the tax advantages occur at the level of the shareholder ( individual or corporate) –Upon a distribution of a dividend from a Maltese company to a non resident individual or company the non resident can a claim a refund of 6/7 of the Malta tax paid –This results in a net effective tax of 5% –The refund is payable within 15 days following the end of the month in which the tax was paid

Imputation System Company A Company foreign income100 Company tax at 35%(35) Net income65 Upon distribution of a dividend : Non resident individual or company, receives 65 of net income in the form of a dividend in company A

Imputation System Claims refund as follows: Grossed up dividend received100 Tax suffered on that income35 Claim 6/7 refund on the Malta tax suffered(30) Net tax paid in Malta5

Refund System Additional Advantages: Additional Advantages: If income derived from abroad is derived from a Participating Holding (PH) then a full refund can be claimed. If income derived from abroad is derived from a Participating Holding (PH) then a full refund can be claimed. Definition of PH : Definition of PH : –An investment of at least 1,200,000 in a company not resident in Malta, and such holding is held for an uninterrupted period of at least 183 days –Such investment should not be held as trading stock In such a case a full refund applies. This also applies in the case of a sale of the PH. Any tax suffered on the capital gains upon the disposal of a PH will be eligible for a full refund Note: If a company does not qualify for a PH, the 6/7 refund will apply.

Refund System Additional advantages (continued): Additional advantages (continued): Participation Exemption (PE) : Participation Exemption (PE) : –If the PH satisfies certain additional criteria than no Tax needs to be paid in the first place. Thus avoiding any possible cash flow problems.

Tax Refunds Conditions for a PE: Conditions for a PE: –The foreign entity in which the PH is held must be a resident of or incorporated in a country or territory which forms part of the EU –OR: It is subject to any foreign tax at a rate of at least 15% –OR: less than 50% of its income must be derived from passive interest or royalties. If NONE of the above conditions are satisfied than ALL of the following have to be met: -The PH must not constitute a portfolio investment AND -Either the body of persons not resident in Malta OR -Its (the body of persons) passive interest or royalties have been subject to any foreign tax not less than 5%

Tax refunds Participation Exemption( Summary): Participation Exemption( Summary): –If a Maltese company has dividend income from outside Malta and the investment qualifies as a PH, a full refund of the Malta tax paid will be possible (i.e.: 0% Net tax ) –If the dividend income also qualifies as a PE no tax is paid outright and obviously no refund need be applied for. This income need not even be declared in the Income Tax Return. –Moreover the possibility exists for companies which even though their foreign investment qualifies for a PE, still have the option to choose the income to be treated as a PH, and therefore have their income declared in the tax return, pay 35% tax and claim a full refund. –This option may be beneficial for companies which would want to show a tax paid on their dividend received in their home country.

Tax Refunds Passive income: Passive income: –5/7 refund applies (i.e.: 10%) Definition of passive income: -Interest or royalties which are not derived, directly or indirectly from a trade or business and where any foreign tax suffered thereon is less than 5% -Therefore extremely restricted provision; does not cover all types of passive income, but merely interest or royalties. -Interest or royalties derived from a trade or business qualify for a 6/7 refund -If at least 5% foreign tax is suffered automatically interest or royalties are not considered passive

Tax Refunds. Source of incomeCorporate Tax Paid Refund of tax to shareholder Effective tax Dividend income from holding activities with participating holding in subsidiary Nilnilzero Capital gains accruing from the disposal of a participating holding Nilnilzero Dividend income from holding activities without participating holding in subsidiary or other company income not falling within any other category 35%6/7ths of corporate tax paid 5% Trading income35%6/7ths of corporate tax paid 5% Passive income (interest, royalties etc)35%5/7ths of corporate tax paid 10%

Tax Refunds Further Benefits: Further Benefits: –The possibility exists to claim relief from tax suffered abroad. Three types of relief : –Unilateral relief (UR) –Treaty relief (TR) –Flat rate foreign tax credit (FRFTC)

Tax Refunds Unilateral Relief / Treaty Relief Gross Foreign Dividend100 Tax suffered abroad(5) Net Foreign income received95 Maltese Company Foreign income grossed up100 35%35 UR/TR(5) Tax payable in Malta30

Tax Refunds Individual or corporate shareholder Gross Dividend Received100 TAS(35) Net Dividend65 6/7 Refund on Malta Tax (6/7 on 35)30 Total Dividend Received95 Therefore Tax paid in Malta is NIL

Tax Refunds FRFTC: FRFTC: What if foreign income has not suffered tax abroad? What if foreign income has not suffered tax abroad? –Then we can still apply FRFTC –This is a relief from Malta tax on a notional foreign tax suffered on the income

Tax Refunds Company - Foreign Income1000 FRFTC250 Grossed up income1250 Company Relief - FRFTC(250) Tax Paid in Malta187.50

Tax Refunds Non Resident Shareholder Gross Dividend Received % TAS credited to shareholder(437.50) Tax Payable 0 6/7 refund of Malta Tax paid160.71

Tax refunds Summary Company Tax187.5 Refund Net Tax paid in Malta26.79 Net tax paid in Malta as a percentage of income2.70%

Additional Advantages No tax on dividend income received No tax on dividend income received No withholding taxes on payment of dividends and interest to non resident individuals or corporate entities No withholding taxes on payment of dividends and interest to non resident individuals or corporate entities No capital gains tax on the disposal of securities between non residents or between Maltese companies owned by non residents No capital gains tax on the disposal of securities between non residents or between Maltese companies owned by non residents No tax on the liquidation of a company No tax on the liquidation of a company Companies can act as both trading and holding with no tax disadvantages Companies can act as both trading and holding with no tax disadvantages Branches of foreign companies are treated as separate entities with full entitlement to tax refunds Branches of foreign companies are treated as separate entities with full entitlement to tax refunds

Additional Advantages No thin capitalization rules No thin capitalization rules No Stamp duty upon transfer of shares between non residents No Stamp duty upon transfer of shares between non residents Possibility of transfer of group losses Possibility of transfer of group losses A wide network of double taxation agreements with over 50 countries including the USA and all EU countries A wide network of double taxation agreements with over 50 countries including the USA and all EU countries

Additional Advantages Minimum share capital requirements (only 1200 which can be utilized by the company) Minimum share capital requirements (only 1200 which can be utilized by the company) Low registration fees and low cost base to operate from Low registration fees and low cost base to operate from A professional English speaking work force with a European mentality A professional English speaking work force with a European mentality A stable economic and political environment A stable economic and political environment A sound banking system with a number of large international banks A sound banking system with a number of large international banks

Additional Advantages One of the best IT infrastructures in the EU One of the best IT infrastructures in the EU Various foreign investment especially in research and development, pharmaceutical industry, IT and semi conductor industry. Various foreign investment especially in research and development, pharmaceutical industry, IT and semi conductor industry. Recent investment by Dubai with the first Smart City outside of Dubai Recent investment by Dubai with the first Smart City outside of Dubai One of the largest Shipping registers in the World One of the largest Shipping registers in the World

Permanent Resident Scheme This is a Government Scheme offering Maltese residency to Foreigners for tax reasons. This is a Government Scheme offering Maltese residency to Foreigners for tax reasons. How does it work: How does it work: –Upon application a tax residency certificate is issued, showing that the individual is now resident in Malta and is paying tax in Malta. –Individual can present this to the tax authorities in his home country as proof that he/ she is no longer tax resident in his/her country of origin.

Permanent Resident Scheme Requirements : Requirements : – Applicant must bring into Malta a minimum of 14,000 plus 2,300 for every dependent p.a –Pays tax of 15% on this amount subject to a minimum of 4,200 p.a. –Produce a certificate from his foreign bankers showing that he/she has an annual income of at least 23,300 or a capital equivalent to 349,500

Permanent Resident Scheme Must buy or rent property in Malta Must buy or rent property in Malta Need not live in Malta, and indeed need never come into Malta at all ! Need not live in Malta, and indeed need never come into Malta at all ! Cannot be employed in Malta, however can own a company and derive dividends Cannot be employed in Malta, however can own a company and derive dividends Note: The move of tax residency is not necessarily straight forward and some countries may still consider you tax resident in their country despite having the Maltese residency certificate. It is always important to discuss this with your tax consultant. Note: The move of tax residency is not necessarily straight forward and some countries may still consider you tax resident in their country despite having the Maltese residency certificate. It is always important to discuss this with your tax consultant.

Listing on the Malta Stock Exchange Potential to list a foreign company on the Malta Stock Exchange (MSE) - Primary or Second Tier Market for secondary listing on the Frankfurt Stock Exchange (FSE) Potential to list a foreign company on the Malta Stock Exchange (MSE) - Primary or Second Tier Market for secondary listing on the Frankfurt Stock Exchange (FSE) 3 methods to explore 3 methods to explore Option 1: Option 1: - Open a Maltese registered holding company. - Open a Maltese registered holding company. - Maltese company acquires 100% of the foreign company to be listed. - Maltese company acquires 100% of the foreign company to be listed.

Listing on the Malta Stock Exchange Alternative – option 2: Alternative – option 2: –Open Maltese Company –Merge existing foreign company with Malta company Alternative – option 3: Alternative – option 3: –Overseas company re-domiciles to Malta having been in existence for more than 3 years Shares are then listed on the Maltese Stock Exchange. The company can then be listed on FSE by taking advantage from the UCITS Directive Pass porting Rights available to UCITS registered anywhere in the EU/EEA Shares are then listed on the Maltese Stock Exchange. The company can then be listed on FSE by taking advantage from the UCITS Directive Pass porting Rights available to UCITS registered anywhere in the EU/EEA

Listing on the Malta Stock Exchange Advantages: Advantages: –Low cost base –Full expertise available in a one stop shop –Maltese listed company will benefit from very low tax base as discussed previously –Approachable and flexible regulator

Listing on the Malta Stock Exchange Requirements: Requirements: –Existing company to buy or merge in as subsidiary or re-domiciles. –Minimum of three years trading record (a lesser period will be considered if the company chooses to list on the Second Tier Market) –Business plan –Prospectus –Minimum share capital of 250K

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