Malta

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• Malta -
• Europes
• Finance Centre
• by
• Walter Cutajar

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Topics

• Introduction and update
• Tax principles full imputation system, tax
  reliefs, tax credits and tax refunds
• Tax Accounting Maltese Taxed A/C, Foreign
  Income A/C and Untaxed A/C
• Holding company characteristics no regime !
• Some tax efficient structures
• Finance and leasing companies
• Banks and financial institutions
• Professional Investor Funds (PIFs)
• International Trading Companies (ITCs)
• On-line gaming and betting companies

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Update - Malta

• EU directives on mergers, parent subsidiary,
  interest and royalties implemented wef 1 May
  2004
• OECD Harmful Tax Competition and FATF
• Trust legislation enacted to replace Nominee
• EU Code of Conduct - Harmful tax competition
• No changes to 1994 income tax provisions.
• PIFs and CIS Unit trusts / SICAVS - (single
  passport)
• Captive insurance companies - PCCs
• Online betting / gaming companies ITCs.

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Basic Taxation Principles

• Full imputation system
• Tax credits and refunds
• Double taxation relief

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Full Imputation System

• Company distributes profits in the form of
  dividends
• Company issues dividend warrant to shareholder
• Company pays income tax to Inland Revenue
• Shareholder declares dividend gross of income
  tax
• Self assessment
• Full credit for tax at source tax paid by
  company
• Excess tax is refunded to shareholder.

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Full Imputation - an example
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Tax Accounting
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Tax Accounting

• Tax Computation
• Profit as per FS 1,000
• Depreciation 300
• 1,300
• Capital Allowances 500
• Chargeable Income 800
• Tax thereon 280

Profit Allocation PL 720 UA PL MTA
FIA UA 720 - 520 200 MTA / FIA 520
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Chargeable income

• Chargeable income is the accounting profits
  adjusted for income tax purposes.
• Expenses incurred in the production of the income
  are allowable for income tax purposes.
• Wear and tear allowance and amortisation of
  intellectual property rights are allowable.
• Expenses which are not allowable include domestic
  or private expenses, donations, improvements,
  provisions (e.g. provision for bad debts and
  provision for diminution in value) and unrealised
  losses (such as exchange differences).

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Foreign Income Account - FIA

• Income derived from investments situated outside
  Malta which are liable to tax in Malta including
• dividends
• capital gains
• interest
• royalties
• rent.

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(No Transcript)
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Distributions from the FIA
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Participating Holding

• A holding of 10 or more of the equity of an
  overseas company.
• Holding is of less than 10 but Maltese company
  
• is entitled to purchase at its option or has
  first right of refusal on a disposal of the
  balance of equity
• is entitled to be represented on Board
• has a shareholding value of at least Lm 500,000 /
  Euro 1.2 million
• holds shares for the furtherance of its business.

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Advance Revenue Ruling

• An advance revenue ruling may be obtained from
  the tax
• authorities on the following matters
• participating holding
• tax treatment of a transaction which concerns any
  financial instrument or other security
• tax treatment of any transaction which involves
  international business
• whether a company qualifies as an international
  trading company.

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Advance Revenue Ruling

• An advance revenue ruling is
• given within thirty days
• valid for a period of five years
• renewable for a further period of five years
• binding for two years from any change in the
  legislation.

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Distributions from the FIA
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Dividend distributions to non residents
Full imputation system Excess TAS
refunded Full imputation system Excess TAS
refunded Tax refunds (full or two
thirds) Exempt no income tax and no
withholding tax

• Maltese
• Taxed
• Account
• Foreign
• Income
• Account
• Untaxed
• Account

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Treatment of distributions by a Maltese company
to non residents of income from a participating
holding
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Treatment of distributions by a Maltese company
to non residents of other income (NPH)
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Basic Principles

• Full imputation system
• Tax refunds
• Double taxation relief

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Double Taxation Relief

• Treaty relief
• Commonwealth relief
• Unilateral relief
• Flat rate foreign tax credit

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Tax Treaties in Force

• Albania Finland Norway
• Australia France Pakistan
• Austria Germany Poland
• Barbados Hungary Portugal
• Belgium India Romania
• Bulgaria Italy Slovakia
• Canada Korea South Africa
• China Latvia Sweden
• Croatia Lebanon Switzerland
• Cyprus Libya Syria
• Czech Republic Lithuania Tunisia
• Denmark Luxembourg United Kingdom
• Egypt Malaysia United States
• Estonia Netherlands of America

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Tax Treaties in the Pipeline

• Iceland Singapore
• Ireland Slovenia
• Jordan Thailand
• Kuwait Turkey
• Morocco Ukraine
• Russia

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Unilateral Relief

• Where no treaty relief is available
• Credit for overseas tax suffered
• Credit cannot exceed Malta tax on the foreign
  income
• Credit for underlying tax.

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Flat Rate Foreign Tax Credit - FRFTC

• FRFTC is equal to 25 of the income or capital
  gains before any expenses
• income or gains must be attributable to the
  foreign income account
• certificate issued by a certified public
  accountant and auditor that income or gain falls
  to be allocated to the FIA is sufficient
• FRFTC is added to income or gain and given as a
  credit against the Malta tax
• Credit is limited to 85 of Malta tax payable.

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FRFTC - an example
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FRFTC - an example

1000 1000
INCOME / GAINS
250 250
FLAT RATE FOREIGN TAX CREDIT
- (600)
EXPENSES
1250 650
TAXABLE PROFIT
437 228
TAX THEREON AT 35
(250) (194)
FLAT RATE FOREIGN TAX CREDIT
187 34
TAX PAYABLE
1000 1000
GROSS DIVIDEND
350 350
TAX _at_ 35
(350) (350)
CREDIT FOR TAX AT SOURCE
TAX REFUNDABLE
0 0
(125) ( 23)
TWO THIRDS REFUND OF COMPANY TAX
(125) (23)
TOTAL REFUND
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A Maltese Holding Company
1. NO W/H TAX 2. FULL IMPUTATION 3. TAX REFUNDS
REDUCED TREATY RATES IF ANY
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Dividend Feeder Company

• Maltese company which holds shares in another
  Maltese holding company (operating the foreign
  income account) and is wholly owned by non
  residents
• Tax is refunded to DFC if holding company pays a
  dividend to DFC - no repatriation of funds.

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Other Considerations

• Limited liability company with a minimum capital
  requirement of Lm500 (Euro 1,200)
• Capital may be denominated in any currency
• Low registration and annual costs
• No duty on documents (stamp duty)
• One stop shop ensures a quick registration
  process
• No exchange control restrictions
• No Maltese directors required
• Registered office in Malta.

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Other Considerations .. contd

• No thin capitalization rules
• No debt to equity ratios
• No CFC rules
• No withholding taxes
• Wide treaty network
• No exit costs - upon liquidation of company
• No capital gains tax on disposal of shares held
  by non residents in a Maltese company
• Inward and outward migration / redomiciliation is
  possible.

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Filing Requirements

• Accounts kept and audited financial statements
  prepared in same currency in which share capital
  is denominated
• Audited financial statements to be submitted to
  Registrar of Companies and tax authorities
• Companies with a December year end must submit
  the tax return by September (or October if
  submitted electronically) of the following year
• Tax payment and refund effected in same currency
• Refunds effected within 14 days from end of month
  in which it becomes due.

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The Maltese Holding Company
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Malta - Holding Company Location

• Considerations
• No WHT on dividends, interest and royalties
• No Capital duty or duty on documents
• Wide Treaty Network 42 treaties in force and
  over 10 in the pipeline - based on OECD
• Foreign Tax Credits treaty relief, unilateral
  relief (multi-tier) or FRFTC
• FRFTC of 25 may be claimed on foreign source
  income or capital gains auditors certificate
• Nil or very low effective tax upon distribution
  of profits because of tax credits and tax refunds

Parent
Malta HC
Local Opcos
Dividends/ Interest/ Royalties
Foreign Opcos
Loans/ Licensing
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Malta Holding Company Location

• Considerations continued
• Capital gains treated as chargeable income (0 -
  6.25)
• No thin capitalisation or debt to equity rules
• No CFC rules
• Participating holding regime
• No holding period requirements
• Subs may be in low tax jurisdiction
• Advance Revenue Rulings
• Tax refund in 14 days in same currency
• No exit costs on liquidation or redomiciliation

Parent
Malta HC
Local Opcos
Dividends/ Interest/ Royalties
Foreign Opcos
Loans/ Licensing
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Using Malta as an exit route out of EU

• Considerations
• Dividends from EU company to Malta company is
  exempt from withholding tax under the parent
  subsidiary directive
• No WHT imposed in Malta irrespective of
  recipients tax residence and status
• No participation exemption in Malta but full
  credit system
• Credit for TAS (underlying tax) under full
  imputation system and tax refunds
• A distribution from a participating holding
  entitles the shareholder to a full refund of the
  Malta tax paid by the company
• No tax leakage
• Few substance requirements

Parent
0
Malta
0
EU Coy
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Malta - Conduit company
Upon a distribution 1. No W/H tax 2. Full
Imputation 3. Tax refunds
No effective tax upon a distribution if there is
a participating holding
Parent
Malta
May be situated In low tax jurisdictions No
holding period requirements etc
Foreign Opcos
Reduced treaty rates may apply
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Malta Luxembourg structure

• Considerations
• Target co can be in a low tax jurisdiction - no
  CFC
• Light holding company regime
• Malta 2 is subject to tax at 35
• Malta 1 is also subject to tax at 35 but credit
  of 35 under full imputation system and tax
  refund of tax paid by Malta 1 (either 2/3 or
  full)
• Effective tax in Malta is 0 or 6.25
• Malta 1 receives refund and pays dividend to Lux
• Dividend exemption in Luxembourg

Luxembourg
0
Malta 1
Malta 1
0
Malta 2
Target Co
Target Co
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Interposing Malta between an NV BV structure

• Considerations
• Antilles Netherlands treaty provides for an
  8.3 WHT on dividends
• Repurchase of shares deemed as dividends under
  treaty and therefore subject to 8.3 WHT
• Interposing Malta to benefit from PSD 0 WHT
• Malta does not impose any WHT
• No tax leakage whatsoever provided investment by
  Malta 2 is a PH
• Malta 1 may reduce capital so as not to pay
  dividend to NV

NV
0
Malta 1
Malta 1
0
8.3
Malta 2
0
BV
Target Co
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Malta The gateway to Libya

• Advantages
• Malta is one of the few countries having a treaty
  with Libya
• Article 9 provides that Libyan source income is
  subject to tax in Libya at a rate not exceeding
  15 and the dividend income totally exempt in
  Malta
• Malta company may distribute dividend income in
  toto without any WHT
• Application of rules favourably concluded
• Law No 5 in Libya offers attractive benefits such
  as exemption from income tax for 5 years

Investor
0
Exemption
Malta
Malta 1
15 or less
Libya
Target Co
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Malta Financing and leasing

• Considerations
• Company subject to income tax at 35
• Full imputation system and use of FRFTC ensures
  that maximum effective tax rate in Malta is 6.25
• Dividend and / or refund may be exempt at parent
  company level under participation exemption rules
• No withholding tax in Malta
• No capital duty
• No thin cap / debt to equity rules
• No CFC rules
• Expanding treaty network
• Treaties with a number of countries have a 0 W/H
  on interest
• Intangible may be amortised over its useful life

Equity
Parent
OPCOs
Malta
Debt / Licence
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Malta Intellectual Property
Using Malta for Intellectual Property

• No special regime but taxed at 35
• Claiming FRFTC and distributing profits will
  reduce effective tax to 6.25 (maximum)
• IP amortised over 3 years
• Patents and rights amortised over economic life
• Scientific research amortised over 6 years
• If research is carried out in Malta allowed at
  150
• Interesting treaties (0 WHT on royalties) such
  as Korea and other EU countries
• No WHT

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Use of FRFTC by banks, financial institutions,
finance and leasing companies etc

1000 1000
INCOME / GAINS
250 250
FLAT RATE FOREIGN TAX CREDIT
- (600)
EXPENSES
1250 650
TAXABLE PROFIT
437 228
TAX THEREON AT 35
(250) (194)
FLAT RATE FOREIGN TAX CREDIT
187 34
TAX PAYABLE
1000 1000
GROSS DIVIDEND
350 350
TAX _at_ 35
(350) (350)
CREDIT FOR TAX AT SOURCE
TAX REFUNDABLE
0 0
(125) ( 23)
TWO THIRDS REFUND OF COMPANY TAX
(125) (23)
TOTAL REFUND
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Professional Investor Funds (PIFs)

• A PIF is a type of Collective Investment Scheme
  (CIS)
• Promoted to Qualifying Investors (QI) or
  Experienced Investors (EI)
• QI a body corporate which has net assets in
  excess of USD 1.0 million
• EI persons with expertise, experience and
  knowledge to be in a position to make their own
  investment decisions
• Min. investment thresholds of USD20,000 for EI
  USD100,000 for QI
• No restrictions on investment and borrowing
  powers
• No prospectus but offering document is required
• Income is exempt from income tax except for WHT
  on local investment income.

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International Trading Company
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Use of International Trading Companies

• ITCs have been commonly used as
• Consultancy and Service Companies
• Commission Agencies / brokers
• Companies dealing in securities and financial
  instruments
• Ship management
• Management of Captives and CISs
• International trade and triangulation
• I-Gaming and betting companies.

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Where to find us and how to contact us

• Avanzia
• Cobalt House
• Second Floor
• Notabile Road
• Mriehel QRM 09
• Malta
• Telephone [phone]
• Facsimile 356 2149 3318
• E-mail info_at_avanzia.com.mt
• Website http//www.avanzia.com.mt

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Malta .an ideal location
Mdina The Silent City
Potomaso St Julians
Mosta Dome
Fort St Angelo
Ramla l-Hamra - Gozo
Mgarr Harbour - Gozo
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• Thank You