Malta Holding Company Advisory. Taxation And Business Structuring

Published on November 3, 2019

Malta As A Holding Company Jurisdiction:

Relationship Between Requirements For Maltese Holding And Its Level Of Tax Efficiency.

In an international tax-planning scenario a holding company is established in a tax jurisdiction with the idea of serving as a recipient of the profits of the other trading counterparts in the particular tax structure. The holding company is usually the final step prior to the final profit distributions to the ultimate shareholders.

Hence, the selection of the tax jurisdiction where to interpose such holding company is of paramount importance in order to maintain the tax efficacy of the particular tax structure.

A holding company has basically five requirements that assess its level of tax efficiency, viz.

  • The taxation of outbound dividends by the distributing.
  • The taxation of the dividends received in the tax jurisdiction of the Holding Company.
  • The taxation of outbound dividends from the tax jurisdiction of the Holding Company.
  • Capital Gains considerations on the disposal of the holdings by the Holding Company.
  • The potential gains or profits on the transfer of shares in the Holding Company.

The elimination/mitigation of taxation in all of the aforementioned instances assesses whether a particular tax jurisdiction is advantageous with respect to holding activities. The following is an in-depth view of the Maltese Holding Company taxation, with the tax implications of the latter with respect to each of the 5 criteria.


Overview of Malta Holding Company Taxation:

1.  The Taxation Of Inbound Dividends By The Distributing Entity/ Jurisdiction And Double Tax Treaties

The main source of income of a holding company is the receipt of dividends from the countries where the profits are arising. It is customary for such countries to operate a classical tax system whereby the profits are first taxed at a corporate rate, and a withholding tax is additionally levied upon a dividend distribution. This withholding tax rate, although set by the legislation of the particular tax jurisdiction, is usually reduced or eliminated by virtue of Double Taxation Treaties. Malta has concluded 80 tax treaties both with European and non-European countries.

From such treaties the major concessions with respect to a reduction or elimination of withholding tax results when a specific level of beneficial shareholding is present in the particular scenario. A case in point is on dividends distributed by a Swedish company in which a Maltese company having a shareholding of more that 10%, is not charged any withholding tax upon distribution.

Having mentioned the existence of Double Tax Treaties and their impact on the taxation of inbound dividends, Malta’s accession within the European Union on 1st May 2004 allows the latter country to benefit from the EU Parent – Subsidiary Directive.

Hence, a Maltese company holding more than a 10% beneficial holding in a company in another EU country will generally not result in any withholding taxes being levied upon inbound dividends from that EU country.

This directive, coupled with the fact that the EU comprises of 27 countries, makes the Malta Holding Company taxation very efficient when it comes to the such charges on inbound dividends.

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