Malta types of company:

Maltese company law derives chiefly from civil or 'Roman' law, rather than common law. A new Companies Act 1995 replaces the old Commercial Partnerships Ordinance, and sets up a new regime for commercial entities under the Registrar of Companies. Companies set up under the old regime had until 1st January 1998 to convert themselves into the new formats, except that 'Offshore Companies', which can now no longer be formed, have 10 years to adapt. Shipping companies, and, while they survive, offshore companies, continue to be subject to the old Commercial Partnerships Ordinance.

In August, 2003, after Malta had already signed its accession treaty to the EU, the European Commission attacked a number of other features of Malta's tax regime, including International Trading and Holding Companies, as part of the EU's Harmful Tax Practices campaign. It is unclear whether the Commission will be successful in its attack; the Maltese government has indicated that it does not agree with the Commission's position. It is strange that such matters were not resolved prior to completion of the accession negotiations.

In March, 2006, the European Commission formally requested Malta under EC Treaty state aid rules to abolish the tax regime for Maltese Companies with Foreign Income (CFI) and the International Trading Companies’ (ITC) regime by the end of 2010 at the latest.

Competition Commissioner Neelie Kroes observed that: “The schemes provide sizable aid to companies that are owned by non-Maltese and produce revenues outside of Malta, and are therefore highly distortive without promoting growth of the Maltese economy”.

In May, the Maltese government formally decided to gradually abolish the existing aid schemes.

Competition Commissioner Neelie Kroes announced: “I welcome the abolition of Malta’s preferential regimes as a further important step towards eliminating selective tax incentives that significantly distort the location of business activities in the Single Market”.

Malta’s acceptance of the EC recommendation means that:

• The existing ITC and CFI schemes will be effectively abolished by 1st January 2007 at the latest;

• By the same date a new refundable tax credit system may be enacted by Malta provided that it does not effectively favour foreign-owned companies over domestic-owned companies;

• The tax status of ITC is prohibited to any new company registered in Malta after 31st December 2006;

• The existing ITCs will benefit from the current system only until 31st December 2010; and

• The number of newly created ITCs between the date of acceptance of the appropriate measures and 31st December 2006 will be limited to the yearly average number of ITC companies created in the last five years.

Malta Private Limited Company:

The private limited company, (or 'partnership anonyme' in civil code terms), has the suffix 'Limited' or 'Ltd'. The company is formed by submission of the Memorandum and Articles to the Registrar (in English), together with the appropriate fee. Incorporation takes about 7 to 10 days and shelf companies are not available.

The following are the chief characteristics of a private limited company:

• only one member is necessary;

• only one director is necessary, and must be a natural person, but can be of any nationality and resident anywhere;

• there must be a company secretary, which must be a licensed Maltese Nominee Company;

• there must be a registered office in Malta;

• the minimum authorised and paid-up capital is Lm500, but it is usual to have capital between Lm2,000 and Lm5,000 (the highest amount within the lowest duty band); a minimum 20% of the authorised value must be paid up; if there are non-resident members then the minimum capital is Lm10,000 of which 50% must be paid up, and they must obtain exchange control permission (a formality);

• shares can be registered but not bearer; preference or redeemable shares are permitted; and shares do not have to carry voting rights;

• accounts must be kept but do not have to be filed.

Malta International Trading Company :

An International Trading Company (ITC) is a company registered in Malta which does business exclusively with non-residents, both in fact and according to its Articles. Certain complementary activities in Malta are permitted:

• purchases for export of Maltese goods provided that they are not made from a 15% shareholder in the buying company;

• trading with companies registered in Malta under the Financial Services Centre Act 1988 (ie offshore companies; see below);

• trading with other International Trading Companies.

The Maltese Inland Revenue will give a Ruling on request that a company is an ITC, which is valid for 5 years, extensible for a further 5 years.

An International Trading Company pays an effective rate of tax of only 4.17% (see Offshore Legal and Tax Regimes for details.) In addition it is able to make use of Malta's many double taxation treaties (unlike offshore companies).

The beneficial owners of an ITC can remain confidential if they incorporate the company through a licensed nominee company. As regards its legal basis, the ITC is formed as a private limited company (see above).

The ITC regime is being brought to an end (see above).

Malta International Holding Company:

The International Holding Company (IHC) is similar to the International Trading Company except that as its name implies it holds participations in foreign companies. Its effective tax rate is 11.67% or less; if dividends emanate from a 'participating holding', ie one of more than 10% in the paying company, then the effective rate of tax is nil.

Like the ITC, the IHC can make use of Malta's Double Taxation Treaties.

Malta Offshore Company:

Offshore Companies were brought into being by the Malta Financial Services Centre Act 1988. The details of their formation are no longer interesting, because in 1994 the Government legislated them away. The final date for forming an Offshore Company was 1996, and existing Offshore Companies had to convert into other forms (mostly International Trading or Holding Companies or Trusts) by the end of 2003.

Offshore Companies, which must be owned by non-residents and which must deal or trade only with non-residents, came in two flavours: the Trading Offshore Company, and the Non-Trading Offshore Company.

Trading Offshore Companies could be General Trading Offshore Companies (for any purpose other than banking or insurance), Banking Offshore Companies or Insurance Offshore Companies. The two latter are dealt with in Offshore Business Sectors; the General type was used for many purposes including barter and counter-trade operations, reinvoicing centres, employment centres, leasing, construction management, administration etc. Trading Offshore Companies paid 5% tax (or more if they wish).

Non-Trading Offshore Companies were property-holding vehicles, property being defined very widely to include shares, other holding companies, investments, ships, etc. Non-Trading Offshore Companies were exempt from tax, including withholding tax.

Offshore Companies did not benefit from Malta's network of Double Taxation treaties.

Malta General Partnership:

General Partnerships are formed under the Companies Act 1995 as a partnership 'en nom collectif' which has a partnership name. There is a Deed of Partnership giving the names of the partners, the address of the registered office, the objects of the partnership, its duration, and the amount of capital contributed by each partner. The Deed is registered by the Registrar of Companies.

The partners are liable jointly and severally for the full debts of the partnership.

Malta Limited Partnership:

Limited partnerships in Malta have general partners, who are responsible for management, and have unlimited liability, and limited partners, who are liable only to the extent of their capital contributions to the partnership. A limited partnership is formed under the Companies Act 1995 as a Societe en Commandite Simple and is subject to the same rules as a general partnership. The SICAV (Societe 'd'Investissement a Capital Variable) is also formed under the Act, but as a partnership limited by shares (Societe en Commandite Limitee par Actions), and is used by mutual funds.

Malta Branch of Overseas Company:

An overseas company can carry on business in Malta through a branch office, and is not subject to the local income tax regime (ie its profits can be freely remitted back to head office); the disadvantage is that it is not eligible for any of the incentives offered by the Maltese government for inward investment.

Malta Trusts:

The Offshore Trusts Act 1988 was amended by The Trusts and Trustees Act 2004, which became effective in January 2005, and allows Maltese residents and firms to use local trusts, while also furthering Malta’s international obligations on non-discrimination, transparency and the prevention of money laundering.

The government believes that the legislation, which creates a more streamlined and simplified trust regime, will make Malta much more attractive to both international and domestic clients, by offering greater flexibility and certainty. The new Act eliminates the nominee company regime, and introduces a licensing regime for professional trustees.

Until 2005, trusts in Malta were based on the Offshore Trusts Act 1988, which was largely based on Jermal trust law, itself a common law implant stemming from English trust law. Trusts under this Act must have non-resident settlor and beneficiaries, and trust assets must not include Maltese real estate (permitted under the new Act).

The Recognition of Trusts Act 1994 gave effect to the Hague Convention, and results in a division of trusts into:

• Maltese trusts, where the proper law of the trust is Maltese, and the governing legislation is the 1988 Act (now called the Trusts Act 1988); and

• Foreign trusts, governed by whatever law the settlor has nominated.

All trusts, including foreign ones, must register with the Maltese Financial Services Centre (MFSC), which costs Lm200 on registration and annually thereafter. Foreign trusts which do not register with the MFSC will not benefit from the tax advantages of registered foreign trusts (they are tax-exempt).

Under the 2004 Act, transfers of assets into a trust or a change of beneficiaries may give rise to a charge to tax.

Under the 2004 Act, a registered trust must have a Maltese Professional Trustee as one of its trustees, which files an annual declaration of conformity with the law.

It is likely that a Malta-registered trust will often be a more effective holding vehicle than the International Holding Company (see above, and see Offshore Legal and Tax Regimes). Trusts are able to use the extensive network. of Maltese Double Taxation Treaties.

Unit Trusts :

There are no special provision in Maltese law covering Unit Trusts, which are therefore treated in the same way as ordinary Maltese trusts, and have the same tax regime.

updated: 16.07.07.