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Participation Exemption In Malta

If you have a number of different businesses, it is generally recommendable that these are set up as separate limited liability companies and then form a holding company as an overall entity.

The main reasons for this would be to keep each business’s liability separate and also to maintain a proper trail and accounting system. Whether your businesses are based in Malta or not, Malta continues to be an attractive location to site a holding company since not only does it offer a relatively stable legal, political and economic system it also has an attractive tax regime in its own right and extensive tax treaty network with the rest of the world.

Malta for holding companies:

• Through a very flexible participation exemption regime, Malta exempts dividends received from subsidiaries (in which just a 5% shareholding is enough) in most countries from corporation tax;

• Again, through the participation exemption, Malta also does not charge capital gains tax on the disposal of subsidiaries;

• does not levy withholding tax on distributions of dividends, irrespective of the double taxation agreement in force with the recipient’s jurisdiction. This is also regardless of where in the world the shareholder is resident;

• does not levy withholding tax on payment of interest, irrespective of the double taxation agreement in force with the recipient’s jurisdiction. This is also regardless of where in the world the shareholder is resident;

• In cases non-residents want to sell shares in this holding company, there will not be any capital gains tax on the profits arising from the alienation of such shares

• has the option of a remittance basis of taxation for non-Maltese domiciled individuals who come to Malta, for example as holding company directors;

• Malta’s extensive double tax treaty network. In many situations where a Maltese company owns more than 10% of the issued share capital of an overseas subsidiary, the rate of withholding tax levied on dividends paid up from the subsidiary is reduced to 5%;

• Being part of the EU, one can also benefit from the EU Parent/Subsidiary Directive, thereby reducing withholding tax to zero on dividends from many EU countries;

• Till to date, Malta has still not enacted any CFC laws, but should this happen in the nearby future, these are not expected to affect Maltese companies which are the parent of international groups whose intention is not to divert passive profits away from Malta.

If you would like any help or assistance on choosing Malta as a location for a holding company, please don’t hesitate NCMB Consulting by emailing us on massimo@ncmb.eu and/or nathan@ncmb.eu 

Jean Paul Apap Dougall

Senior Manager - Tax & Corporate Services

Petra Magro

Senior - Tax and Corporate Services

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