Malta has an open market economy, an excellent economic track record and enjoys a high standard of living at relatively moderate cost. Malta became a member state of the European Union on 1 May 2004. Corporate law in Malta fully conforms with European requirements and includes a comprehensive framework for financial services. There are also strong professional secrecy and confidentiality laws. As a general rule, no tax is levied in Malta on income arising outside Malta to persons who are not ordinarily resident and domiciled in Malta. In certain instances, even when income arises in favour of or is received in Malta by non-residents, there is no tax impact under Maltese fiscal laws. Evidently, Malta offers an ideal scenario to non-residents who wish to conduct business activities from the island.
International trading companies
An international trading company is an ideal set up for the purpose of conducting international trading transactions. An international trading company is constituted in terms of the Maltese company law and is regarded like any other company constituted in Malta. However, when an international trading company is owned by non-residents of Malta and has, as its objects, the carrying of trading activities from Malta but not in Malta, the non-resident shareholders become entitled to a special tax treatment. Although the company is chargeable to Maltese income tax at the rate of 35% on its profits, when distributions are made from the company to the non-resident shareholders, the non-resident shareholders become entitled to claim a refund of the tax paid by the company. Taking into account such a refund, the effective rate of tax paid in Malta is at the rate of 4.17%.
International holding companies
A company may be set up in Malta by non-residents for the purpose of holding assets situated outside Malta. Such assets may include immovable property, equity holdings, investments, royalties and other income generating assets. The company is similarly constituted under Maltese law and is subject to income tax at the rate of 35% on its chargeable income. In those instances where the assets situated outside Malta fall into the "participating holdings" category, the non-resident shareholders are entitled to claim a full refund of the Maltese tax paid by the company when distributions are made to them. In all other cases, when distributions are made to the non-resident shareholders, the shareholders become entitled to claim refund of two-thirds of the Malta tax paid by the company, resulting in an effective rate of tax payable in Malta of 6.5%.
Re-domiciliation of companies
Companies incorporated outside Malta may change their domicile to Malta thus benefiting from the tax advantages available to both international trading and holding companies. The law of the foreign jurisdiction must allow for the company to migrate to Malta. Foreign companies that wish to take this route need not wind-up their foreign business since the former company remains in existence. The company's charter, memorandum or statute must allow the company to migrate and evidence is required from the foreign jurisdiction that it has received notification that the company wishes to migrate to Malta. The formalities for re-domiciliation are somewhat lengthier than those required on a new incorporation but there are also advantages in adopting this route.
Relief from double taxation
Malta has entered into a considerable number of double-taxation treaties. Generally speaking, the treaty benefits are available to all Maltese companies. Most treaties are based on the OECD model convention. Malta also grants unilateral relief in respect of tax suffered outside Malta in those jurisdictions in those instances where there is no double taxation treaty. The flat rate foreign tax credit is another type of relief that is available to Maltese companies in respect of income, or capital gains, arising outside Malta. The interaction of reliefs ensure that income arising outside Malta that has suffered tax overseas is not taxed twice when it is declared in Malta for tax purposes.
