Malta has become an ideal jurisdiction to establish an EU holding company which would have the purposes of holding shares in one or more entities, both within the EU and beyond.

Participation exemption

Any income or gains derived by a company registered in Malta from a participating holding or from the transfer of such holding are exempt from Tax.

With respect to a dividend derived from a participating holding, which was acquired on or after 1 January 2001, the exemption shall only apply when the conditions set out below are satisfied:

Where the body of persons in which the participating holding is held satisfies any one of the following conditions:

  1. It is resident or incorporated in a country or territory which forms part of the European Union; or
  2. It is subject to any foreign tax of at least 15%; or
  3. It does not have more than 50% of its income derived from passive interest of royalties.

If none of the above conditions are satisfied a further test is applied to check whether such dividends are exempt.

Where the income or the gain relates to a holding which does not qualify as a participating holding, the application of the refund system would result in a net tax leakage of 5% for the company and its shareholder.

Disposal of shares

Gains realised by a person not resident Malta on a transfer of shares in a Malta company, the assets of which do not consist primarily of immovable property in Malta, are exempt from tax.

Full imputation system

Malta operates a full imputation system of taxation, whereby the entire tax paid on the profits distributed as dividends by the Malta Company is available as a credit to the shareholders against the tax due on the said dividend income.

The holding company will also be able to claim a refund (which is not subject to further tax) of the tax paid by the trading company. The amount of the refund is usually 6/7ths of the Malta tax paid by the trading company, but this would differ depending on the type of income.

Double Taxation Relief

Dividends received in Malta from foreign sources may be subject to foreign taxes. Malta has an extensive treaty network to mitigate the incidence of double taxation and also other forms of relief where a double tax treaty is not in force.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.