At Dr Werner & Partner, we look after clients from all over the world who are seeking tax advice in Malta or are considering establishing a company here. In a growing number of cases, however, we do not advise establishing a company, or at least recommend a different set-up from what was originally envisaged. The reasons for this include the following:
Establishment in Malta is difficult for investors from countries with CFC rules
CFC rules: the investor comes from and is resident in a country in which CFC rules (Controlled Foreign Company or Corporation) apply. Generally speaking, these are rules from which it emerges how a company can and may be established and operated abroad. Once these or similar rules are applied, the outlay for the substance to be created in Malta may in some circumstances be too great.
Income is too low for establishment in Malta
Anticipated turnovers and profits are too low. There are many providers who offer to help establish a company in Malta at more or less competitive prices, completely independently of the annual profits to be expected by the company. In our opinion, it is only worth establishing a company in Malta and creating the associated structures starting from a prospective annual company profit of approx. €250,000 upwards. On the one hand, establishing and operating a company in Malta costs money and time (especially if some substance has to be created as noted under point 1). On the other hand, it should be taken into consideration that, even disregarding all the financial aspects, the mental effort of establishing and operating two corporations as a foreigner in a strange country with different laws should not be underestimated. Even if we relieve our clients of much of the work, the investing client must still invest mental effort. Thus the client should weigh up whether the effort of establishing a structure is really worthwhile to make minor savings of €10,000 to €50,000. Please note: if you are considering moving to Malta, this limit does NOT apply because you would make considerable savings when creating substance.
After establishment in Malta taxes have to be paid on dividends
A classic miscalculation: many clients who remain resident abroad forget or disregard the fact that, in addition to Maltese taxes (which can be very attractive), tax also has to be paid on dividends from Malta in the country of residence. In EU member countries this generally amounts to between 15 and 30% and must of course be included in any calculations. So beware! Thinking that you can receive dividends in an account in Malta or in cash or otherwise WITHOUT the tax authorities in your home country realising it is a) naive (see CRS (Common Reporting Standard https://en.wikipedia.org/wiki/Common_Reporting_Standard), applicable as of 01/01/2016, and b) could make you liable to prosecution or constitute an offence in almost all countries.
Establishing a company in Malta purely for tax reasons does not make sense
A favourable tax burden as the only reason for establishing a company in Malta: any interested party who does not live in Malta and does not wish to move to Malta in the foreseeable future should give sufficient thought to the question of why establishing a company in Malta appears to make sense WITHOUT THE TAXATION ASPECTS. The advantages of establishing a company in Malta solely for tax reasons will be brought down sooner or later under the scrutiny of a foreign tax office. There are, however, adequate valid reasons to establish a company in Malta. These include, for example: Malta’s strategic geographical position, the practical regulation of the finance and gambling sectors, the attractive options for ship registration, the more favourable costs of fringe benefits/social security contributions, the large number of specialised IT personnel, the modern research, business and commercial centres, the secure IT connection, etc.
Please note that in the event of relocation to Malta any further requirement for declaration of income to foreign tax authorities is in any case inapplicable, as you would then be living in the country in which you are establishing the company. Furthermore, relocation to Malta offers considerable personal benefits which we would be happy to explain in a personal conversation.
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