Malta's Participation Exemption

Dr. Jean-Philippe Chetcuti | 08 Jul 2015

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Participation Exemption & Malta Holding Companies

A Malta Holding Company is a company incorporated in Malta with the object of holding shares in other subsidiary companies or also of holding any other assets including movable and immovable property, cash and intellectual property both in and outside Malta.  Malta companies benefit from a participating exemption based on the participating holding rules both on dividends from such holdings and gains arising on the disposal of such holdings.  Recent amendments have extended Malta's participation exemption also to domestic holdings of shares and capital gains arising from the transfer of a participating holding in a Malta company  are also eligible for the participation exemption.

Malta has fast become the holding company jurisdiction of choice for a growing number of multinational groups who opt to set up their holding company in Malta. Malta’s full participation exemption applies to both profits (namely dividends) derived
 

Malta Participating Holdings

Malta holding companies can be structured to hold shares in other companies. Such participations in other companies held by Malta holding companies qualify as participating holdings if they meet either of the following conditions:

  1. The holding is at least 10% of the equity shares of a company whose capital is wholly or partially divided into shares and such holding gives right to at least 10% of 2 of the following:
    1. Rights to vote
    2. Right to profits upon distribution
    3. Rights to assets available for distribution on winding up
  2. ​The holding is an equity holding and the equity shareholder has the right to buy the remaining share capital of the company.
  3. The holding is an equity shareholding, giving the equity shareholder the right of first refusal in the event of disposal, cancellation or redemption of the remaining shares of the company.
  4. The holding is an equity shareholding and the equity shareholder is entitled to either sit on the board of the company or appoint a director on the board of the company.
  5. The holding is an equity shareholder with and investment value of at least €1,164,000 for a period of not less than 183 days.
  6. The holding is an equity shareholding and the holding of such shares is for the furtherance of the business of the holding company but not held for trading purposes.

Holdings by a Malta holding company in certain partnerships and certain collective investment schemes may also qualify as participating holdings if they meet either of the conditions above.

Participation Exemption Rules

Any dividends received by a Malta holding company from a participating holding are exempt from Malta tax if they satisfy one of the following:

  1. The holding is in a body of persons resident or incorporated in a country within the EU
  2. The dividend has been subject to at least 15% foreign tax
  3. The holding is not in a body of persons which derives more than 50% of its income from passive interest of royalties
  4. The holding in a body or persons not resident in Malta is not a portfolio investment and the body of persons not resident in Malta has been subject to tax of at least 5%
  5. The profit or gain from the disposal of a participating holding in company resident or not resident in Malta is also exempt from Malta Tax.
  6. The equity holding by the company registered in Malta in the body of persons not resident in Malta is not a portfolio investment, and for this purpose the holding of shares by a company registered in Malta in a body of persons not resident in Malta which derives more than 50% of its income from  portfolio investments shall be deemed to be a portfolio investment; and
  7. The body of persons not resident in Malta or its passive interest or royalties has been subject to any foreign tax at a rate of not less than 5%.

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