Many countries in the EU and elsewhere apply regulations based on CFC rules (https://en.wikipedia.org/wiki/Controlled_foreign_corporation). Inasmuch as CFC rules are not observed or do not exist, Malta has additionally concluded double taxation agreements with many countries. These cover similar matters including: the requirements relative to substance and/or the organisation of business premises with a view to establishing a company in Malta.
Taxation of company profits at the location of business premises
The principle is extremely simple and, in my understanding, also logical and fair, as ultimately taxes should be paid at the location of the company’s business premises. Some firms have business premises on their own initiative, e.g. a manufacturing facility, an office, a shop or a restaurant. Regardless of where the company operating the above examples is domiciled, the main or core part of profits should always be taxed precisely at the location of the business premises. Should a company not be able to give evidence of any obvious business premises, it must be examined where the overall management of the business or the main area of economic interest is located.
Importance of genuine company business operations within Malta
Thus, anyone who operates an offshore company from Malta as a chief partner (dominant influence) must make sure that genuine business operations are established within Malta itself. This may be ensured by renting office space, employing a manager and staff locally, acquiring a market and using local suppliers. At this juncture it must, however, be noted that even today certain practices still prevail which are not sustainable in the long term. These include e.g. the appointment of a traditional nominee director or a call forwarding arrangement, etc., to briefly mention just a few examples. To ensure a setup such as that described above, the actual existence of the substance of a company in Malta must be verifiable to be considered permanent as far as taxation law is concerned. In the case of Germany, specifically, several other matters must be borne in mind. These include, for example, the relocation of function (https://de.wikipedia.org/wiki/Funktionsverlagerung “Taxation of profit forecast”), in the event of which even a “genuine” setup is only of slight functionality or still open to attack. This must be considered in advance and, if necessary, plans must be made. At any rate, there is no “simple” prototype comprehensively applicable to all setup cases.
Relocation of the investor to Malta is also possible
Another option is for the investor to relocate to Malta. Initially this sounds like a relatively simple operation, and this is true as long as certain important points are borne in mind. In many cases, particularly where small companies with a high turnover are concerned, a relocation of the chief partner can be an extremely effective solution. If the investor no longer maintains any other business operations outside Malta, in most cases relocation to Malta creates sufficient substance. No additional directors and no additional staff are required (sole management and control with regard to company structure and organisation of management) and even the normal registered office (e.g. with Dr Werner & Partner) is sufficient for this form of company – on the one hand, because the investor is thus unrestrictedly subject to tax in Malta and on the other hand because the place of management is clearly located in Malta. Following relocation to Malta, the investor can also claim a tax refund of 30% if the correct organisational structures are in place. As a consequence, this not only results in the above simplifications, but also in appreciable tax benefits on a personal level which we would be pleased to explain in a personal conversation.
Thus, relocation to Malta can make sense for tax reasons, although personal reasons must, of course, have priority. Life on a sunny Mediterranean island is, in our opinion, a strong personal argument. As a result, relocation to Malta may well constitute the ideal route for suitable interested parties. We support our clients in every aspect of such an undertaking.