Malta –Economic Substance considerations

As a result of the OECD Base Erosion and Profit Shifting (“BEPS”) project, combined with pressure from the EU certain no-tax or low tax jurisdictions have started to adopt, in a very short timeframe, economic substance requirements for businesses based there. This requires taxpayers to have an adequate number of employees with necessary qualifications and to incur an adequate amount of operating expenditures to undertake the core income-generating activities associated with the income that may benefit from a regime.

In Malta it is possible to consider both the re-domiciliation of foreign entities to Malta as well as the change of tax residence of a foreign entity to Malta.

Re-domiciliation is the easiest solution for a client, but may not be so in terms of costs.

Moving the tax residency from one jurisdiction to another is also an option, but needs to take into account the changes being implemented as a result of the OECD BEPs project. Consideration will need to be given to any relevant Double-Taxation Agreements.

Under the Maltese Companies Act [CAP. 386] an overseas company is a body corporate which is constituted or incorporated outside Malta. When the foreign company establishes a branch or place of business in Malta, that company has to register that branch or place of business with the Registry of Companies within one month. There is no minimum share capital requirement for opening a branch in Malta.

Branches of overseas companies are included in the definition of a ‘company registered in Malta’ for taxation purposes.

Branches also enjoy Malta’s full imputation system, whereby the tax suffered by the branch is imputed to the shareholders who suffer no taxes on any dividends they receive.

Please get in touch with your local Rosemont contact to explore the different options available in Malta.

For more background information on the global move towards requirements for businesses to have Economic Substance where they are based please read our new article here.