The Spain-Malta Solution: Low Tax in the EU

Many entrepreneurs dream of relocating to a country that offers not just sun and sea, but also substantial tax advantages. If you are currently based in a high-tax jurisdiction like the UK, Germany, or Austria and are thinking about moving abroad, the lesser-known Spain-Malta solution might be exactly what you need.

What is the Spain-Malta Solution?

This strategy combines Spain's personal tax incentives with Malta's corporate tax benefits to create a highly optimised fiscal environment. In Spain, the so-called Beckham Law allows foreign nationals moving to the country to receive foreign income tax-free for up to six years. Under this regime, employment income earned within Spain is taxed at a flat rate of just 24% on the first €600,000.

Meanwhile, Malta offers a corporate structure—typically a holding company—that allows profits to be taxed at an effective rate of just 5%. This is due to Malta's specific tax refund system, which offers massive advantages for companies operating internationally.

Living and Working in a Tax Haven

Picture this: you are living in Mallorca, Marbella, or on the Costa Brava—places famous for their pleasant climate, stunning landscapes, and high quality of life. At the same time, you run your business via a Maltese holding structure, reducing the tax burden on your corporate profits to an effective 5%.

This combination of Spanish residence and a Malta-based business offers more than just tax savings; it provides the security and stability of living and working within the European Union. It also avoids the legal uncertainties and grey areas often associated with traditional offshore tax havens.

Prerequisites

For entrepreneurs considering this route, there are several key points to keep in mind:

Legal Structure: Proper structuring and compliance with the legal frameworks in both countries are essential.
Duration of Benefits: In Spain, the special tax regime is limited to six years; after that, standard tax rates apply.
Lifestyle: The decision to live in Spain should not be based solely on tax benefits but also on personal preferences regarding culture, language, and lifestyle.

The Spain-Malta Solution: An Overview of Tax Benefits and Relocation in the EU

Deciding to move abroad is rarely motivated by tax savings alone. For many business owners, such a move represents a major life change that requires careful thought. However, if you are considering relocating your life and work, Spain combined with a corporate structure in Malta offers one of the most attractive legal methods for tax optimisation within the EU.

Basics of the Spain-Malta Structure

This solution leverages specific tax legislation in both countries to enable significant savings:

Beckham Law in Spain: This law allows foreign nationals who become tax residents in Spain to receive their foreign-sourced income tax-free for up to six years. Income earned within Spain is taxed at 24% up to €600,000. This regime also extends to the taxpayer's family members.
Maltese Tax Refund System: Companies in Malta are subject to a standard corporate tax rate of 35%. However, non-Maltese shareholders can claim a refund of 6/7ths of this tax (80% to 100% depending on the exact structure), reducing the effective tax rate on corporate profits to just 5%.

Requirements for Using the Spain-Malta Solution

To benefit from the low 5% total tax on corporate profits and distributions, certain conditions must be met:

Genuine Substance in Malta: You must establish a company in Malta with actual substance (a real permanent establishment). A simple "letterbox" or shell company is not sufficient.
Genuine Residence in Spain: You must physically move to Spain and establish your main residence there. A mere postal address is not enough to qualify for the tax benefits.

Advisory and Implementation

Our firm has extensive expertise in the tax systems of both Malta and the wider EU, along with years of experience dealing with the relevant tax authorities. We can provide comprehensive advice on the Spain-Malta model and support you with the necessary company formation and relocation process.

Changes to the Beckham Law in Spain: A Comprehensive Overview

Spain remains a top destination for expats considering a move, especially when tax benefits are on the table. The famous Beckham Law—named after footballer David Beckham, who was among the first to use it in the early 2000s—continues to offer substantial advantages for qualified expats. Below is a detailed analysis of recent changes to this law and how they impact foreign entrepreneurs, freelancers, and investors.

What is the Beckham Law?

The Beckham Law, or Régimen especial para trabajadores desplazados, offers foreign nationals moving to Spain significant tax relief. These individuals are treated as non-residents for tax purposes for up to six years. This means they can receive foreign income tax-free in Spain, while Spanish-sourced income is taxed at reduced rates.

Recent Changes to the Beckham Law

The Spanish government introduced key changes in 2022 aimed at making the regime easier to access and broader in scope. Here are the main updates:

Reduced Non-Residence Period: Previously, you must not have been a resident in Spain for the past ten years to qualify. This requirement has been reduced to five years.
Reasons for Moving to Spain:
- The move can now be justified by various reasons, including employment with a Spanish employer, secondment by a foreign employer, remote work (digital nomads) without a specific secondment, or acting as a director or self-employed individual with specific regulatory approval.
Extension to Family Members: The new rules allow the applicant's family members to benefit from the regime, provided they meet certain conditions.
Flexibility in Employment: It is no longer strictly necessary to be employed by an external employer. It is now possible to set up your own company or work as a freelancer.

Tax Implications

Income Tax: Foreign income remains tax-free. Spanish-sourced income is taxed at a flat 24% up to €600,000 per year. Income above this threshold is taxed at the regular rate of up to 47%.
Inheritance & Gift Tax: There are no specific reliefs under the Beckham Law; standard rates apply.
Wealth Tax: This applies only to assets located in Spain and generally affects assets exceeding €3 million.

The Spain-Malta Model: A Door Opener for Entrepreneurs and Digital Nomads

In a globalised world, more entrepreneurs and individuals are looking for ways to optimise their tax burden while improving their quality of life. The Spain-Malta model is a compelling option, particularly for those willing to cross borders—quite literally. But who is this model really for, and who should steer clear?

Ideal Candidates for the Spain-Malta Model

1. Global Entrepreneurs and Digital Nomads

The model is perfect for business owners whose operations already have an international dimension. Virtual businesses in marketing, SEO, or PR benefit particularly well, as their work is not tied to a specific location. This flexibility allows them to effectively use the tax advantages while enjoying the cultural and climatic perks of Spain and Malta.

2. Flexibility and Mobility

Individuals and families who have the flexibility and openness to move abroad will find the Spain-Malta model attractive. This includes a willingness to adapt to new living conditions and cultures—a skill that is invaluable in both private and business contexts.

3. High-Profit Companies

Implementing such a tax-optimised structure involves initial setup costs. Therefore, it is particularly worthwhile for companies that are already highly profitable. The higher the profit, the more significant the impact of the reduced tax rate.

4. Cultural Affinity

An emotional connection or preference for the culture and lifestyle in Spain and Malta not only improves quality of life but also facilitates integration and daily living in these countries.

Less Suitable for the Spain-Malta Model

1. Strong Local Ties

People with strong family or professional ties to their home country—such as regular medical treatments or school-aged children in the middle of exams—may not find the Spain-Malta structure a suitable solution. Relocation can lead to significant personal and emotional strain.

2. Locally Rooted Businesses

Entrepreneurs whose businesses are heavily anchored locally, such as location-dependent service providers or brick-and-mortar retail, will see little benefit from moving to Spain or Malta. These businesses often rely on local networks and physical presence that cannot easily be internationalised.

3. Early-Stage Startups

Companies not yet generating profits face additional financial burdens from the initial costs of relocating operations. This could further jeopardise the success of the business.

Summary

The Spain-Malta model offers significant advantages in terms of tax optimisation and quality of life for the right target group. However, it requires careful consideration of personal and professional circumstances. For those who meet the necessary requirements, it can be an excellent way to redesign their life and business. Those with deep roots in their home country or strictly local businesses should likely look for other solutions.

Relocating an Existing Business vs. Forming a New Company in Malta

The decision between moving an existing operation to Malta and founding a new company on the island depends heavily on specific business conditions, tax considerations, and strategic goals. Here are the key factors for both options:

Relocating an Existing Business to Malta

Moving an entire existing operation to Malta can be complex and brings various challenges:

Tax Consequences: Relocation can trigger Exit Tax (Capital Gains Tax on deemed disposal), which involves taxing unrealised gains (hidden reserves). This can lead to a significant financial burden.
Transfer of Functions: Issues may arise if essential business functions are moved abroad, as this is strictly regulated in countries like the UK or Germany.
Unwanted Attention: A relocation can attract increased scrutiny from tax authorities and lead to detailed audits.

Forming a New Company in Malta

Founding a new company in Malta offers an alternative solution that is often more flexible and tax-efficient:

New Business Area: A new company in Malta can be used to expand international activities without directly affecting the existing operation.
Risk Minimisation: Starting a fresh company reduces the risk of tax disadvantages associated with relocating an entire operation.
Flexibility: The new entity can function as an independent unit to open up new markets or serve as a supplier or subcontractor to the main business.

Recommendations

In most cases, establishing a new company in Malta is the preferred strategy:

Avoidance of Tax Disadvantages: This minimises the potential negative tax impacts of a business relocation (Exit Tax).
Preserving the Home Business: The main operation can continue in the home country, while the new Maltese company covers specific international or new business areas.

Malta: A Brief Overview of Life and Business Climate

Malta is a fascinating EU island nation, often described as a cross between the Mediterranean lifestyle of Sicily and the urban dynamism of London. The island offers a unique blend of cultural influences reflected in both daily life and the business environment.

General Atmosphere

Malta enjoys a typical Mediterranean climate with mild winters and hot, dry summers, making it an attractive destination for tourists and residents alike. The Maltese mentality is deeply rooted in Mediterranean culture, characterised by open and warm hospitality. At the same time, its long history as a British colony until 1964 means that English is an official language alongside Maltese and is widely spoken.

Business Climate

The business climate in Malta is characterised by a pragmatic "hands-on" mentality typical of Anglo-Saxon cultures. Compared to other Southern European countries, bureaucracy in Malta is relatively straightforward. This makes it significantly easier to do business and launch entrepreneurial initiatives.

Business Practices

The Maltese government and local authorities are keen to create a supportive environment for companies and investors. This is evident in a range of initiatives and regulations designed to facilitate business transactions and attract foreign investment. For example, the process of renting commercial space or offices in Malta is uncomplicated. Potential tenants can often move into business premises quickly and efficiently with a simple contract, a deposit, and the first month's rent.

Quality of Life

Malta offers a high quality of life with access to excellent healthcare and education facilities, a rich cultural heritage, and an active expat community. The infrastructure is well-developed, and there are plenty of leisure and entertainment options, making the island particularly attractive for families and individuals considering a permanent move.

Weather in Malta

The Maltese climate is typically Mediterranean with very mild winters and hot summers. High temperatures in July and August can reach 31.8°C, while lows in January and February drop to around 9°C. Air conditioning is standard in apartments and public buildings during the summer months, ensuring comfort even on the hottest days.

English as an Official Language

One of the greatest conveniences for expats and international business people in Malta is that English is one of the two official languages. This facilitates not only daily communication but also business transactions, as all official documents and many service interactions can be handled in English. The widespread use of English is a legacy of Malta's time as a British colony and offers a seamless transition for English-speaking newcomers.

Member of the European Union

Malta has been a member of the European Union since 2004, bringing significant benefits for both individuals and companies. As an EU member state, Malta benefits from the free movement of goods, services, and people within the bloc. This promotes trade and investment and makes it easier for EU citizens to settle and work in Malta. Furthermore, Malta's EU membership gives companies access to funding and networks crucial for development and expansion. Integration into the EU also strengthens Malta's political and economic stability, making it an attractive location for international investment.

How to Benefit from 5% Corporate Tax in Malta

Malta offers an attractive tax system, particularly for international companies. While the nominal corporate tax rate is 35%, the Maltese tax system offers a unique refund mechanism that effectively results in only 5% corporate tax. This is achieved by refunding 6/7ths of the paid tax to foreign shareholders. To use this tax refund effectively and tax-efficiently, establishing an additional company—a holding company in Malta—is sensible.

Establishing a Malta Holding

Setting up a holding company in Malta is a strategic move offering several advantages:

Tax Efficiency: The holding company can receive the tax refund from the operating company without it being taxed as a dividend immediately. In Spain, income tax would normally apply to dividends, which this structure helps to manage.
Consolidated Tax Return: Since 2019, the operating company and the holding company can act as a fiscal unit and file a joint tax return in Malta. This simplifies administration and optimises cash flow (you pay the 5% directly rather than paying 35% and waiting for a refund).
Dividend Distribution: The Maltese holding company can eventually distribute the retained profits (after the effective 5% tax) as dividends to shareholders residing in Spain or elsewhere.

This structure is particularly advantageous for entrepreneurs who want to utilise Malta's tax benefits while structuring their business legally and efficiently within the EU.

Setting Up Operations and Company Formation in Malta: A Practical Guide

If you are considering moving your business activities to Malta or founding a new company there, the island offers an attractive platform with efficient and fast procedures. Here is a detailed guide on how to approach this process:

Forming an Operating Company: Malta Limited First, you must incorporate your operating company in Malta. This process is relatively quick, and entrepreneurs often choose the "Malta Limited" legal form due to its flexibility and tax advantages.
Domiciliation and Setup After incorporation, the company is domiciled at the offices of a partner firm in Malta. This firm also acts as the Company Secretary, which is a legal requirement in Malta. The Company Secretary handles administrative tasks such as filing tax returns and other important documents.
Starting Operations Once the company is registered and set up, it can start doing business and generating revenue. Ideally, you should fully establish the company locally in Malta within the first 12 to 18 months.
Director in Malta It is legally required for your company in Malta to be represented by a local director. This person should undertake actual management duties and receive an appropriate, local salary. The cost for a part-time director is approximately €1,500 per month.
Business Premises In Malta, you will find a wide range of office spaces at comparatively affordable rents. For a standard office accommodating 4-5 employees, expect to pay around €800 to €1,200 per month. In more exclusive locations, such as an old palazzo in Valletta, costs start from €2,000 per month.
Staff Recruitment Despite a very low unemployment rate, Malta offers good opportunities for recruiting both local and international talent. Salaries are competitive by EU standards, making Malta an attractive location for hiring staff. Typical entry-level salaries in non-specialised areas range between €18,000 and €22,000 per year.

Alternatives to a Local Director for a Malta Company

When founding and operating a company in Malta, a local director is usually required, especially if the company is part of a tax structure like the Spain-Malta solution. This is because local authorities want to ensure actual business activity in Malta, often proven by the presence of a local director. However, here are some potential alternatives and scenarios:

Director with Equity Participation One option is to give the director shares in the company. In this case, the director acts as a co-shareholder, which might eliminate the need to pay a salary. This could be a cost-effective solution, provided the director is genuinely capable of managing the company's affairs and making the necessary decisions.
Business Partner as Local Director Another alternative is partnering with someone already resident in Malta. You could found the company together with a business partner who lives in Malta and acts as the local director. This approach offers the advantage that the partner is familiar with the local market and can handle daily management, while you focus on other aspects of business development.

Implementing Your Move to Spain & Ongoing Income Planning

If you plan to move to Spain and benefit from the tax advantages of the Beckham Law, there are important aspects to consider. This law offers significant tax relief for foreign income, making Spain an attractive residence for international entrepreneurs and investors.

Before the Move: Planning Your Income in Spain

Non-Domiciled Regime in Spain: Unlike other non-dom regimes, Spain under the Beckham Law does not tax foreign income even if it is remitted to Spain. This means dividends, profits, and other income from a Malta Limited can remain tax-free in Spain, regardless of whether they are spent or invested there.

Before the Move: Handling Income in Your Home Country

Taxable Income in the UK/Germany: Certain income, such as rental income from property, remains taxable in the country where the property is located. Similarly, profit distributions from companies are taxable in the company's country of residence. This applies to the UK, Germany, and most other countries.

Timing of the Move

There is no specifically advantageous time for moving to Spain regarding tax considerations. The move should take place once all preparations are complete and you are ready to take the step. The timing should align with your personal and business planning.

After the Move: Life in Spain

After moving to Spain, you will primarily benefit from dividends from your Maltese company. Under the Beckham Law, this income is tax-free in Spain, allowing you to use and invest your wealth freely.

Advantages of Moving to Spain vs. Other Non-Dom States

Spain offers specific advantages compared to other non-dom states like Malta or Ireland:

Tax-Free Foreign Income: The unique provisions of the Beckham Law allow for tax-free receipt of foreign income in Spain.
Quality of Life: Spain offers a high quality of life with an excellent climate, rich culture, and a stable economic environment.
EU Membership: As an EU country, Spain offers the benefits of the EU single market and the security of an EU state.

In summary, moving to Spain using the Beckham Law is an attractive option for individuals wanting to minimise their tax burden while living in one of Europe's most beautiful countries. Careful planning of both tax aspects and personal/business circumstances is crucial to achieving the best results.

Alternatives to Residence in Spain: Other EU Countries with Tax Benefits

If you are interested in tax-optimised relocation but do not necessarily want to move to Spain, there are other attractive options within the European Union. Countries like Portugal, Italy, Bulgaria, Romania, and Ireland also offer interesting tax incentives.

Portugal and Italy: NHR and Non-Dom Status

Portugal has historically offered significant tax benefits for new residents receiving certain foreign income through its Non-Habitual Resident (NHR) programme. While the specifics of this programme evolve, it remains a key destination for tax planning.

Italy has introduced similar incentives with its specific tax regime, offering a flat tax of €100,000 per year on foreign income for individuals moving their tax residence to Italy. This rule aims to attract High-Net-Worth Individuals (HNWIs) who could benefit from substantial tax relief.

Detailed models exist for both countries, specifically tailored to work in combination with a Malta company formation to maximise tax benefits.

Other Countries with Tax Incentives

Bulgaria and Romania offer advantageous flat tax rates and are interesting for entrepreneurs and individuals looking for low-tax alternatives within the EU.
Ireland, known for its business-friendly environment and low corporate tax rates, is also an attractive option for individuals and companies looking to legally minimise their tax burden.

Important: Compliance with Local Tax Guidelines

It is crucial to note that every country has specific tax regulations that must be carefully reviewed before making a decision. Professional advice is essential to ensure all local laws are respected and to fully exploit the potential of tax benefits.

Conclusion

Choosing a place of residence and incorporating a company abroad are complex decisions requiring comprehensive planning and advice. If you are considering relocating to benefit from tax advantages, several attractive EU countries alongside Spain are worth considering. Each of these countries offers unique incentives that can be tailored to your individual needs and circumstances.