Formation requirments of Maltese Holding companies Submitted By : LawsofMalta
MALTESE HOLDING COMPANIES - Formation Requirements and Taxation
The advantages of setting-up a holding company in Malta are gradually being realised by both resident and non-resident shareholders. A holding company is, as its name suggests, a company which owns a shareholding in another company or companies, either local or foreign, and distributes the income from such shareholding to its shareholders in Malta or foreign. Malta’s system of tax refunds and framework of double taxation treaties result in a tax efficient jurisdiction for holding companies, particularly those holding a participating holding in non-resident companies.
This article provides a overview of the requirements for the registration of a holding company in Malta and the taxation applicable to such companies.
FORMATION REQUIREMENTS
The Memorandum and Articles of
Association
Like all other companies registered in Malta, a
holding company has to have a memorandum
and articles of association which must be
registered with the Registrar of Companies
at the Malta
Financial Services Authority (
MFSA).
Shareholders
A holding company must have at least two
shareholders, unless the company qualifies for
private exempt status, in which case it may be
set-up as a single member company. The
shareholders of the company may be either
natural persons or bodies corporate. It is also
possible for shares to held by a nominee or
trustee on behalf of the shareholder.
Share Capital
A holding company must have an authorized
share capital of not less than EUR 1,164.69 (or
equivalent in foreign currency). At least 20% of
each share must be paid upon incorporation.
As a general rule, the currency of the share
capital must be the company’s reporting
currency for accounting and tax purposes.
Subject to specific formalities, it is possible for
the share capital to be issued for a non-cash
consideration, provided that the considerationis capable of economic assessment and does
not consist of the provision of services.
The Registered Office
The registered office of the holding company must
be in Malta.
The Objects of the Company
The memorandum of every company must contain
an objects clause outlining the specific objects of
the company. The objects clause of a holding
company differs to that of other companies, since a
holding company will be holding shares in other
local and/or foreign companies. It is also possible
for the holding company to hold other assets, such
as real estate, securities, intellectual property such
as trademarks and patents as well as other
intangible rights, irrespective of where such assets
are located.
Directors
The holding company must have at least one
director who may be either a natural person or a
body corporate. As a rule, a sole director cannot
occupy the post of company secretary, unless the
company has private exempt status, in which case
the sole director can also act as company
secretary.
Company Secretary
Every company must have a company secretary,
who must be a natural person.
Meetings
Every year a company must hold an annual general
meeting. This annual general meeting need not be
held on the anniversary of the previous annual general
meeting, provided that no more than fifteen months
elapse between one general meeting and another.
Documentation
The following documentation must also be supplied
upon registration:
a. Certified copies of relevant identification
documents of shareholders and directors;
b. Deposit slip from a local or foreign bank
following the opening of a corporate account
for such amount corresponding to the paid up
share capital; and
c. Document granting the powers of attorney in
favor of any person signing the memorandum
and articles of association on behalf of
.
The MFSA reserves the right to request the provision of
any additional information.
Fees
Registration fee
Upon registration with the Registrar, the holding
company must pay the applicable registration fee
which is calculated according to the value of its
authorised share capital. If registration is affected in
electronic format the registration fee ranges between
210 to Eur 1,900 and Eur 245 to Eur 2,250 if
registered in paper format.
Registration of Annual Return
Upon the registration of the annual return, the holding
which again varies depending upon the authorised
share capital of the company and whether registration
is affected through electronic or paper format.
Licensing Requirements
It is possible that the holding company wishes to carry
out an activity which is considered as a “licensable
activity” in Malta and would consequently necessitate
application for the appropriate license or authorisation
from the competent authority. If this is not the holding
company’s intention, it is essential that this is made
clear in its memorandum and articles of association.
TAXATION
All companies registered in Malta are subject to
corporate tax at a rate of 35% on their chargeable
income. However, Malta adopts a full imputation
system of taxation, through which tax paid by a
company in Malta is imputed to its shareholders as a
tax credit upon the distribution of dividends. Thus,
upon the distribution of dividends, the shareholders
become eligible for a refund from the Commissioner of
Inland Revenue, in whole or in part (depending upon
the circumstances as indicated below), of the tax paid
by the company in Malta. Further tax relief may also
apply via the application of the double taxation treaties
which Malta has signed with over 50 countries, as well
as the flat rate foreign tax credit for any tax that has been
paid outside Malta.
The “Participating Holding” Exemption
Any income or gains derived by a holding company
from a participating holding or from the disposal of the holding are exempt from income tax in Malta.
A "participating holding" exists when a Maltese
company directly holds at least 10% of the equity
shares in a non-resident company. If the Maltese
company holds less than 10% of such shares it may
still qualify as a participating holding if the Maltese
company satisfies any one of the following conditions:
1. it has the option to call for and purchase, or enjoys
the right of first refusal upon the disposal of, the
remaining equity shares in the non-resident
company;
2. it is entitled to either sit or appoint a person to sit on
the board of directors of the non-resident company;
3. it invests at least EUR 1,164,000 (or equivalent in
foreign currency) in the non-resident company and
that investment is held for an uninterrupted period
of 183 days; or
4. it holds (not as trading stock) the shares in the non-
resident company in furtherance of its own
business.
The holding in the non-resident company must also
satisfy any one of the following conditions (in addition
to falling within the definition of a participating holding)
in order for the participating holding exemption to
apply. Either the non-resident company:
1. is incorporated in an EU Member State;
2. is subject to foreign tax at not less than 15%;
3. does not have more than 50% of its income
derived from passive interest or royalties;
4. (a) the holding of shares in the non-resident
company is not a portfolio investment
and such
non-resident company does not derive more than
50% of its income from portfolio investments, and
(B) the non-resident company or its passive
interest or royalties is already subject to foreign
tax at a rate of not less than 5%.
If none of the four above conditions are satisfied, the
shareholders may, upon distribution of dividends, claim
a five-sevenths refund of the advance tax paid by the
company.
The 6/7ths Refund
Shareholders receiving dividends paid by a Maltese
company are eligible for a six-sevenths refund of the
advance tax paid by the company, provided the
company has not already claimed double taxation
relief, in which case the shareholders are no longer
eligible to claim such refund. The six-sevenths refund
results in an effective rate of Malta tax of 5%.
The 5/7ths Refund for Passive Interest on Royalties
Sha
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Professional Services in the EU Submitted By : MFSA
Where can professionals work in the European Union? Will my professional qualification allow me to work anywhere in the European Union?
These are among the most frequently asked questions by Europe’s professionally qualified people and they are asked by, among many others, bankers, accountants, doctors, dentists and lawyers. Now, inevitably, Malta’s professionals are asking the same questions.
Very broadly speaking, European single market legislation gives all EU citizens the freedom and right to work in any Union country. But there are two important caveats. The first is that the arrangements that Malta has negotiated with the EU mean that Malta’s own internal labour can be protected for some years to come; which is discussed later in this article. The second caveat concerns the mobility of professional qualifications and in this case the short answer is there is no short answer.
An understanding of the European Union rules governing mutual recognition of diplomas and other professional qualifications is central to the understanding of whether a professional from a member state will be free to practice in any member state. The
rules for lawyers, which are particularly complex, are considered important for a general understanding of the principles governing so-called “migrant professionals” in European Union member states.
Recognition of qualifications
A professional person can have qualifications from any country in the world, but the only qualifications recognised and protected under EU law are those obtained inside the EU. Once Malta joins the European Union all professional qualifications obtained in the country, whether before or after European Union membership, will be considered European Union qualifications.
Under EU Directive 89/48 law graduates have a right to see their national degrees recognised in another member state. Mutual recognition between member states of each other’s professional qualifications is automatic for craftsmen, farmers, doctors, dentists, general care nurses, midwives, veterinarians, pharmacist, and architects. It is also automatic for lawyers practising under their “home state” professional title, although unlike the others, they are not subject to prior co-ordination of training. So, a lawyer licensed to practice German law may provide German law advice in Portugal, Finland, Malta or any other member state.
Besides the first two professions listed above, mutual recognition of the others is covered by specific European Union directives which provide the minimum acceptable conditions of education and training that have been co-ordinated by member states.
However, certain professions are not guaranteed automatic recognition of their qualifications and as such come under the General System Directives. They are: engineers, physiotherapists, teachers, accountants, fiscal advisors, designers, and urban planners. In these cases member states have the right to impose a so-called “compensation” if they believe the competence of the “migrant” professional is lower compared to that of their own professionals. This compensation gives the migrant the right to choose between an aptitude test and/or a period of supervised practice.
There are two principal Directives that come under the General System referred to above. One is 89/48, which recognises higher education diplomas awarded on completion of professional education and training of at least three years duration. The second is 92/5, which relates to qualifications obtained after more than three years university or lower level education, including secondary and primary education. Essentially professionals who come under the General System Directive category need to have fulfilled these Directives to the satisfaction of the member state receiving the professional, which also accounts for an individual’s professional experience. Any significant difference gives rise to further training and examinations.
It also noteworthy that some professions are covered neither by the General System or the automatic recognition system, however, there are still varying deadlines for implementation of recognition throughout the European Union of qualifications relevant to particular professions. For instance, recognition of medical qualifications – enabling free movement of doctors came into force on January 1 2003. Most others though have already been implemented. For architects there was a staged process of implementation of the various diplomas and other qualifications between 1989 and 1999. Acceptance is subject however to such points as proof that architects are covered by professional indemnity.
Practising the profession in the EU
According to European Union Directive 98/5 which provides for the freedom of establishment of qualified lawyers, lawyers qualified in one member state can also establish themselves in another member state. The Council of the Bars and Law Societies of the European Union have issued guidelines on the implementation of this Directive.
There is clear distinction between obtaining recognition of a degree granted in one member state and exercising the profession in another. For instance, an Italian law graduate can obtain recognition of his Italian law degree in, say, the Netherlands but cannot practice Dutch law unless he also qualifies as a Dutch lawyer following completion of the local requirements in the Netherlands. Essentially, lawyers in the European Union can provide their services in all member states and that includes appearing in courts and at tribunals provided they satisfy the requirements of the member state in which they are working.
A lawyer qualified in Sweden can register at the Spanish Bar and practice Swedish and European Union law there under his Swedish title, but not Spanish law, unless he or she specifically qualifies in Spanish law by going through an approved conversion procedure. This is done through what is called an “equivalent procedure” which normally also includes a formal examination and after a three year familiarity period. A more or less similar procedure exists in all the member states.
The equivalent procedure in Italy for lawyers qualified in another member state to practise in Italy is established under Decreto Legislativo 96/2001 (http://www.gustizia.it/cassazione/leggi/dlgs96_01.html). Any foreign lawyer wishing to practice in Italy must first go to the application procedure to be included in the Sezione Speciale of the Albo degli Avvocati. Inclusion in the Sezione Speciale does not mean the lawyer can practice without restriction. The law specifies certain restrictions:
• the lawyer can only represent an Italian client if he acts in association stipulated in private writing with an lawyer qualified in Italy;
• representation in front of the superior courts – other member state lawyers can only assume counsel for a client if after 3 years registration in the Sezione Speciale of the Albo degli Avvocati and having practised in a regular and effective manner and a request is made to the Consigllio Nazionale Forense. Applicants must prove that they have practised for at least 12 years experience (in and beyond Italy). Applicants have to take an aptitude test - an examination to ascertain a candidate’s professional abilities and capability to exercise the profession in Italy. Candidates may be exempted from this examination if they are able to prove that they have practised Italian, European and International law for a period of three years.
In the England and Wales, lawyers qualified in other member states have to take a conversion test and meet a two year experience requirement which may be waived/reduced under certain conditions. (http://www.lawsociety.org.uk). The Qualified Lawyers Transfer Test covers four Heads:
• Head I Property
• Head II Litigation
• Head III Professional Conduct and Accounts
• Head IV Principles of Common law
Notaries an anomalous position
There is one group of European professionals, though, who do not have complete freedom of movement. These are the notaries. They are restricted by several criteria, including the so-called “nationality criteria” which means notaries in certain member states face more restrictions than others. It’s not at all clear why notaries should be different from all other professionals. It is likely that the law will be changed, either as a result of a court finding or through the normal legislative process. A person qualified as a lawyer and as a notary as in the case of Malta should be able to operate as a lawyer in any European Union country, but in some of the countries he won’t be able to act as a lawyer and as a notary but has to choose between the two, as is already the case in Malta.
It is clear that in the case of lawyers there is distinction between the type of practice they can provide in a member state outside their country of qualification. They can only provide ‘’full’’ practice if they conform to local requirements, which generally include an examination and a qualifying local practising period, as explained above in the case of Italy and England and Wales. This requirement is more or less similar in all the member states. Such examinations will almost certainly be in the local language of the country where the ‘’migrant’’ lawyer wishes to carry out the ‘’full’’ practice.
It appears that the Malta Chamber of Advocates perhaps in conjunction with the Faculty of Law of the University of Malta has still to establish what the local requirements for foreign lawyers who want to work in Malta are going to be.
Malta’s accession to the European Union should prove exciting for the Maltese legal profession. Qualifying in another country, providing that the language barrier can be overcome is not in itself a huge difficulty – after all, students qualified in Scottish law who want to work in England have been successfully converting to being English lawyers for nearly 300 years.
The minefield of local requirements in the member states means that moving to another EU jurisdiction is not something to be lightly undertaken, but for those who want to experience working in their chosen field in another country the barriers are far from insurmountable.
Professionals seeking to work in Malta
For non-Maltese professionals and non-professionals wishing to come here things, at least initially, are not so straightforward. While European Union workers will have the right to work in Malta, this right may be limited as follows:
• until 2011, Malta can refuse their work permits if there is a serious threat to local jobs;
• after 2011, Malta can still seek to restrict employment immigration, this time acting with the European Union.
EU law will give Maltese people the freedom to work anywhere in the Union. That freedom and the right to have professional qualifications recognised across the EU are protected in law.
Perhaps for the Maltese legal profession the future may be more about being part of EU and international alliances than about working in other jurisdictions. As Malta grows in importance – as a member state, as a finance centre and as part of the huge European single market – the demand for Maltese legal advice is bound to increase.
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