Creating substance in Malta by means of company relocation

Many coun­tries in the EU and else­where apply reg­u­la­tions based on CFC rules ( 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 ( “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.

About Philipp Sauerborn

In 2005, Philipp Sauer­born joined the firm of St. Matthew in Lon­don, one of the lead­ing Ger­man account­ing firms in Eng­land renowned for its exper­tise in cor­po­rate, com­mer­cial and tax law, as a depart­ment head. After three years, he was a part­ner and man­ag­ing direc­tor.
Towards the end of 2011, he decid­ed to move to Mal­ta, where he first worked at inter­na­tion­al law firms and con­sul­tan­cies in an employed and con­sult­ing capac­i­ty. Since the begin­ning of 2013, he has been a senior employ­ee at Dr. Wern­er & Part­ner. Mr. Sauer­born is cur­rent­ly com­plet­ing his ADIT ‑Advanced Diplo­ma in Inter­na­tion­al Tax.

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