Malta Holding Companies and Russian Tax Planning

Joanna Spiteri | 31 Jan 2014

Chetcuti Cauchi

 

Malta as a holding company jurisdiction for Russian investments

With Malta’s accession in the EU, we have gained access to the European Union’s internal market, which promotes free movement of goods, capital, services and people. In addition, Malta offers a strategic location to international investors.

Benefits for structuring Inbound & Outbound Russian Investments

There are a number of benefits when setting up a Holding Company in Malta. These include the following:

1.   The setup costs of establishing a company in Malta can be minimised because the minimum share capital required is that of Eur1,200 only.

2.   The cost of maintenance of a Maltese company is relatively low when compared to other developed countries.

3.   We have an extensive tax treaty network comprising of 68 double taxation treaties with a significant number of jurisdictions, including Russia.

4.   The participation exemption, which exempts from tax income and/or capital gains derived by a company registered in Malta from a participating holding or from disposal of such holding.

A participating holding is defined as a holding which arises where:

(a) a company holds directly at least five percent of the equity shares of a company whose capital is wholly or partly divided into shares, which holding confers an entitlement to at least five percent of any two of the following:

i. right to vote;

ii. profits available for distribution; and

iii. assets available for distribution on a winding up:

Provided that the Commissioner shall be entitled to determine that the provisions of this paragraph are satisfied even where the said minimum level of entitlement exists in the circumstances referred to in the proviso to the definition of "equity holding";

(b) a company is an equity shareholder in a company and the equity shareholder company is entitled at its option to call for and acquire the entire balance of the equity shares not held by that equity shareholder company to the extent permitted by the law of the country in which the equity shares are held; or

(c) a company is an equity shareholder in a company and the equity shareholder company is entitled to first refusal in the event of the proposed disposal, redemption or cancellation of all of the equity shares of that company not held by that equity shareholder company; or

(d) a company is an equity shareholder in a company and is entitled to either sit on the Board or appoint a person to sit on the Board of that company as a director; or

(e) a company is an equity shareholder which holds an investment representing a total value, as on the date or dates on which it was acquired, of a minimum of one million, one hundred and sixty-four thousand euro (€1,164,000) (or the equivalent sum in a foreign currency) in a company and that holding in the company is held for an uninterrupted period of not less than 183 days; or

(f) a company is an equity shareholder in a company and where the holding of such shares is for the furtherance of its own business and the holding is not held as trading stock for the purpose of a trade:” Equity holding shall mean a holding of the share capital in a company which is not a property company, when the shareholding entitles the shareholder to at least any two of the following rights (hereinafter referred to as “equity holding rights”):

i. a right to vote;

ii. a right to profits available for distribution to shareholders; and

iii. a right to assets available for distribution on a winding up of that company. With respect to dividends, the application of the participation exemption is linked to an anti-abuse provision. The participation exemption applies provided that the body of persons in which the participating holding is held satisfies any one of the following three conditions:

i. It is resident or incorporated in a country or territory which forms part of the European Union;

ii. It is subject to any foreign tax of at least fifteen per cent (15%); or

iii. It does not have more than fifty per cent (50%) of its income derived from passive interest or royalties

 

Where none of the three conditions listed above are satisfied then both of the following two conditions must be fulfilled:

i. 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 company in a body of persons not resident in Malta which derived more than fifty per cent (50%) of its income from portfolio investments shall be deemed to be a portfolio investment; and

ii. The body of persons not resident in Malta or its passive interest or royalties have been subject to any foreign tax at a rate which is not less than five per cent (5%).

Shareholders in receipt of dividends paid out of profits derived from a participating holding which does not satisfy the anti-abuse provisions may claim a refund of five-sevenths of the advance company income tax.

5.   Malta does not withhold tax on dividends, interest & royalties.

6.     Malta offers significant fiscal opportunities via the refundable tax credit system.

7.     In addition, Malta retains the full imputation system whereby the tax paid by the company will essentially remain a prepaid tax on behalf the shareholders’ tax liability.

8.     A company is considered to be a company registered in Malta if it is either incorporated in Malta or if not incorporated in Malta, it is managed and controlled in Malta.

9.     Our income tax law provides for a re-domiciliation procedure and an optional step-up provision upon migration / cross-border merger to Malta.

10.  Malta applies the remittance basis of taxation for companies which are resident in Malta but incorporated outside Malta

11.  The sale of shares / units by non-resident investors is exempt from income tax.

12.  Special favourable deductions apply for insurance companies.

13.  Maltese tax law does not contemplate specific Transfer Pricing rules.

14.  We have no thin-capitalisation rules.

15.  The Inland Revenue Department offers a procedure for formal tax rulings and an informal system of revenue guidance.

16.  In Malta there are no capital or wealth taxes and no entry tax.

17.  Licensed Collective Investment Schemes benefit from a tax exemption on all income other than income from immovable property situated in Malta and certain Maltese investment income. CIS's are also not subject to tax on outbound dividend flows.

 

1.  Malta, unlike Slovakia and Latvia, has no TP rules

2.  Malta, unlike Latvia and Hungary, imposes no WHT on outbound dividends, royalties and interest irrespective of whether this is paid to individuals or bodies of persons.

3. Malta, unlike Singapore, does not include the remittance base income limitation into the Malta-Russia treaty

 


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Key Contacts

Dr Priscilla Mifsud Parker

Senior Partner - Corporate, Tax & Immigration

+356 22056122
pmifsudparker@ccmalta.com

Dr Jean-Philippe Chetcuti

Senior Partner, Tax & Immigration

+356 22056111
jpc@ccmalta.com

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