Many entrepreneurs dream of relocating to a country that not only offers sun and sea but also significant tax advantages. If you are considering “flagging out”, the little-known Spain-Malta solution could be just the thing for you.
What is the Spain-Malta solution?
The Spain-Malta solution combines the tax advantages of Spain with those of Malta to create an optimized tax environment. In Spain, the so-called Beckham Law enables foreign nationals relocating to Spain to receive their foreign income tax-free for up to six years. The law stipulates that income up to €600,000 is subject to only a 24% tax.
In contrast, Malta’s corporate structure—typically a holding company—allows profits to be taxed at just 5%. This arises from Malta’s specialized tax regulations, which provide significant benefits for companies operating outside of Malta.
Living and working in a tax haven
Imagine living in Mallorca, Marbella, or on the Costa Brava—renowned not only for their pleasant climate and beautiful scenery but also for a high quality of life. Simultaneously, you run a company through a Maltese holding structure, effectively reducing the tax burden on company profits to 5%.
This combination of residence in Spain and company headquarters in Malta not only offers tax advantages, but also the security and stability that comes with living and working within the European Union. Moreover, the legal uncertainties and gray areas often associated with offshore tax strategies are eliminated.
Prerequisites
For entrepreneurs considering this solution, there are several key factors to consider:
- Legal structuring: Proper structuring and adherence to the legal frameworks of both countries are crucial.
- Duration of tax benefits: In Spain, tax-free income is limited to six years, after which standard tax rates apply.
- Lifestyle considerations: Choosing to live in Spain should be based not only on tax benefits but also on personal preferences for its culture, language, and lifestyle.
The Spain-Malta Solution: An Overview of Tax Benefits and Residency Relocation within the EU
The decision to relocate abroad is seldom driven solely by potential tax savings. For many entrepreneurs, this move represents a significant life change that requires careful consideration. However, if you’re contemplating relocating your workplace and home, the combination of Spain and a Maltese company structure represents one of the most appealing legal options for tax optimization within the EU.
Basics of the Spain-Malta structure
The Spain-Malta solution leverages specific tax legislation from both countries to enable significant tax benefits:
- Beckham Law in Spain: This legislation permits foreign nationals who relocate their tax residency to Spain to enjoy tax-free foreign income for up to six years. For income earned in Spain, a tax rate of 24% applies up to an income of €600,000. This also applies to family members of the taxpayer.
- Maltese tax refund regulation: Companies in Malta are subject to a corporation tax of 35%. However, non-Maltese shareholders can get 80% of this tax refunded through the Tax Refund Act, which reduces the effective tax rate on company profits to just 5%.
Requirements for using the Spain-Malta solution
To benefit from the low total tax rate of 5% on corporate profits and distributions, several critical conditions must be satisfied:
- Authentic business establishment in Malta: Establishing a company with a genuine operational base in Malta is necessary. Simple mailbox companies do not meet this requirement.
- Genuine residency in Spain: The relocation to Spain must be completed, and the primary residence established there. Merely having a postal address is insufficient to benefit from the tax advantages.
Consulting and implementation
Our firm boasts extensive expertise in the Maltese and EU tax systems, complemented by many years of experience interacting with the relevant tax authorities. We offer comprehensive advice on the Spain-Malta model and assist with the essential company formation and execution of the residency relocation.
Changes to Beckham Law in Spain: A comprehensive overview
Spain continues to be an appealing destination for foreigners contemplating a change of residence, particularly for its tax benefits. The well-known Beckham Law, named after the celebrated footballer David Beckham, who first utilized this arrangement in the 2000s, still offers significant tax benefits for qualified expatriates. Here, you can access a detailed analysis of the recent amendments to this law and their potential impacts on foreign entrepreneurs, freelancers, and investors.
What is the Beckham Law?
The Beckham Law or “Régimen especial para trabajadores desplazados” offers considerable tax relief to foreign nationals who relocate to Spain. Individuals are treated as non-residents for tax purposes for up to six years, allowing them to receive their foreign income tax-free in Spain, while income from Spanish sources is subjected to reduced taxation rates.
Latest changes to Beckham Law
In 2022, the Spanish government implemented significant modifications to this law, primarily intended to simplify and broaden its application. Here are the main points of the new features:
- Reduced tax residency requirement: Previously, eligibility for the Beckham Law required not having been a resident in Spain for at least ten years. This requirement has now been reduced to five years.
- Reasons for moving to Spain:
- Relocation can now occur for various reasons, including employment under a Spanish employer, secondment by a foreign employer, remote work without secondment, or as a director or self-employed individual with special official authorization.
- Extension to family members: The new rules now extend eligibility to the applicant’s family members, provided they meet specific conditions.
- Workplace flexibility: Employment is no longer limited to being exclusively through an external employer. Additionally, you have the option to establish your own business or work as an independent contractor.
Tax implications
- Income tax: Foreign income remains tax-exempt, while income from Spanish sources, up to 600,000 euros annually, is taxed at a 24% rate. Income exceeding this amount is taxed at the standard rate of up to 47%.
- Inheritance and Gift Tax: The Beckham Law offers no specific tax reliefs; standard tax rates apply.
- Wealth Tax: This tax is applicable only to assets located in Spain, affecting those valued at 3 million euros or higher.
The Spain-Malta Model: A Gateway for Entrepreneurs and Digital Nomads
In today’s globalized world, an increasing number of entrepreneurs and individuals are seeking ways to optimize their tax liabilities while enhancing their quality of life. The Spain-Malta model is an interesting option here, especially for those who are prepared to cross borders – in the truest sense of the word. But who is this model really suitable for, and who should steer clear of it?
Ideal candidates for the Spain-Malta model
- Global entrepreneurs and digital nomads
This model is ideally suited for entrepreneurs whose businesses already operate on an international scale. Virtual businesses, especially those in marketing, SEO, or PR, benefit significantly as their operations are not confined to any specific location. This flexibility allows for effective utilization of tax benefits while also enjoying the cultural and climatic perks of Spain and Malta.
- Flexibility and mobility
Individuals and their families who possess the necessary flexibility and openness to relocate abroad will find the Spain-Malta model a compelling option. This includes the willingness to adapt to new living conditions and cultural settings, a skill invaluable in both personal and business contexts.
- Highly profitable companies
Implementing such a tax-optimized structure involves initial costs. Therefore, the effort is especially worthwhile for already highly profitable companies. The greater the profit, the more substantial the impact of a lower tax rate.
- Cultural affinity
An emotional attachment to or preference for the cultures and lifestyles of Spain and Malta not only enhances quality of life but also eases integration and daily living in these countries.
Less suitable for the Spain-Malta model
- Strong local ties
Individuals with strong familial or professional ties to their home country, such as regular medical treatments or school-age children, are unlikely to find the Spain-Malta structure suitable. The relocation can lead to considerable personal and emotional stress.
- Locally anchored companies
Entrepreneurs with businesses deeply rooted in local markets, such as crafts or local services, will find little benefit in relocating to Spain and Malta. These businesses often rely on local networks and physical presence, which cannot be easily internationalized.
- Startups still in the early stages
Unprofitable companies face additional financial strains from the initial costs involved in relocating operations. This could further endanger the success of the business.
Interim conclusion
For the right target group, the Spain-Malta model offers substantial benefits in terms of tax optimization and quality of life. However, it necessitates careful consideration of both personal and professional circumstances. For those meeting the necessary criteria, it presents an excellent opportunity to reshape both their lives and business endeavors. However, individuals with deep roots in their home country or businesses with a strong local focus might consider looking for alternative solutions.
Relocation of an existing business to Malta vs. company formation in Malta
Choosing between relocating an existing business to Malta or establishing a new company there largely depends on specific business conditions, tax considerations, and strategic goals. Here are the most important factors and possibilities of both options:
Relocation of an existing business to Malta
Fully relocating an existing business to Malta can be complex, presenting various challenges:
- Tax implications: Relocation might trigger exit taxation, involving the disclosure and taxation of latent reserves. This can lead to a considerable financial burden.
- Relocation of functions: There may be problems if essential business functions are relocated abroad, as this is strictly regulated by tax law in Germany, France, Italy, Spain, Netherland, Swegen, Belgium, Austria etc.
- Unwanted scrutiny: Relocating may attract heightened scrutiny from tax authorities, leading to thorough audits.
Company Formation Malta
Establishing a new company in Malta presents an alternative, often more flexible and tax-advantageous solution:
- New business opportunities: A new company in Malta can facilitate the expansion of international activities without impacting the existing operations directly.
- Risk minimization: The establishment of a new company reduces the risk of tax disadvantages that could be associated with a relocation.
- Flexibility: The new entity can operate as an independent unit, exploring new markets or serving as a supplier or subcontractor to the main business.
Recommendations
Generally, establishing a new company in Malta is the preferred strategy:
- Avoiding tax disadvantages: This approach minimizes potential negative tax consequences of relocating a business.
- Maintaining the domestic operation: The main business can continue in the home country, while the new Maltese company addresses specific international or new business sectors.
Malta: A Brief Overview of Lifestyle and Business Climate
Malta, a captivating EU island state, is frequently described as a blend of Sicily’s Mediterranean lifestyle and London’s urban dynamism. The island presents a unique amalgamation of cultural influences, evident in both everyday life and the business environment.
General atmosphere
Malta enjoys the typical Mediterranean climate with mild winters and hot, dry summers, which makes the island an attractive destination for tourists and residents alike. The mentality of the Maltese is deeply rooted in Mediterranean culture, characterized by open and warm hospitality. At the same time, the long history as a British colony until 1964 has led to English being established as an official language alongside Maltese and being widely spoken.
Business climate
Malta’s business climate is characterized by a pragmatic, “hands-on” approach, typical of Anglo-Saxon cultures. Relative to other southern European countries, Malta’s bureaucracy is relatively straightforward. This significantly simplifies the process of conducting business and launching entrepreneurial initiatives.
Business practices
The Maltese government and local authorities are committed to creating a supportive environment for businesses and investors. This commitment is reflected in various initiatives and regulations designed to streamline business operations and attract foreign investment. For instance, renting commercial spaces or offices in Malta is a straightforward process. Potential tenants can often occupy business premises quickly and efficiently by merely signing a lease agreement and paying a deposit along with the first month’s rent.
Quality of life
Malta provides a high quality of life, featuring access to top-notch healthcare and educational facilities, a rich cultural heritage, and a vibrant expat community. The infrastructure is well-developed, with numerous leisure and entertainment options, making the island especially appealing for families and individuals contemplating a permanent relocation.
Weather in Malta
The Maltese climate is typically Mediterranean, characterized by very mild winters and hot summers. In July and August, temperatures can peak at up to 31.8 degrees Celsius, while in January and February, they can drop to around 9 degrees. Air conditioning is widely used in homes and public buildings during the summer months, ensuring comfort even on the hottest days.
Official language English
One of the major conveniences for expatriates and international business people in Malta is that English is one of its two official languages. This facilitates not only everyday communication but also business transactions, as all official documents and many service interactions are conducted in English. The widespread use of English, a legacy of Malta’s time as a British colony, provides a seamless transition for English-speaking newcomers.
Member of the European Union
Since 2004, Malta’s membership in the European Union has brought significant benefits for both individuals and businesses. As an EU member state, Malta enjoys the free movement of goods, services, and people within the bloc. This enhances trade and investment and simplifies the process for EU citizens to settle and work in Malta. Furthermore, Malta’s EU membership provides companies with access to funding and networks essential for their development and expansion. Malta’s integration into the EU also bolsters its political and economic stability, making it a desirable location for international investments.
How to Benefit from 5% Corporate Tax in Malta
Malta’s tax system is particularly attractive for international companies. While the nominal corporate tax rate is 35%, Malta’s tax system provides a unique refund option that effectively reduces the rate to just 5%. This is achieved by refunding 80% of the tax paid to foreign shareholders. To effectively and tax-free utilize this tax refund, establishing an additional entity, specifically a holding company in Malta, is advisable.
Establishment of a Malta holding company
Establishing a holding company in Malta is a strategic move offering multiple benefits:
- Tax efficiency: The holding can receive the tax refund from the operational company without the funds being taxed as dividends. In Spain, dividends would typically incur income tax, which this structuring avoids.
- Consolidated tax filing: Starting in 2019, the operating company and the holding can function as a corporate group and submit a joint tax return in Malta. This streamlines management and reduces the tax burden.
- Dividend distribution: The Maltese holding company can ultimately distribute the net profits—after deducting the effective 5% tax—as dividends to shareholders, whether they are in Spain or another country.
This structure is especially beneficial for entrepreneurs aiming to leverage Malta’s tax advantages while legally and efficiently organizing their business activities within the EU.
Setting up a business in Malta: A practical guide
If you’re contemplating relocating your business operations to Malta or establishing a new company, Malta provides an attractive platform with efficient and swift processes. Here’s a detailed guide to navigating this process:
- Formation of an operating company: Malta Limited Company
First, you must establish your operating company in Malta. This process can be completed relatively quickly, and entrepreneurs often choose the legal form of the “Malta Limited Company” because of its flexibility and tax advantages.
- Domiciliation and establishment of the company
Following its establishment, the company will be domiciled in the offices of a partnering law firm in Malta. This firm also serves as the Company Secretary, a role mandated by Maltese law. The Company Secretary handles administrative duties, including the filing of tax returns and other critical documents.
- Start of the operating business
Once the company is registered and operational, it can begin conducting business and generating revenue. Ideally, the company should be fully established in Malta within the first 12 to 18 months.
- Managing Director in Malta
It is legally required for your company in Malta to be represented by a local managing director. This individual should undertake genuine management responsibilities and receive a salary commensurate with local standards. The cost for a part-time managing director is approximately €1,500 per month.
- Business premises
In Malta, a wide array of office spaces is available at comparatively low rental rates. For a standard office capable of accommodating 4-5 employees, expect to pay rent between €800 and €1,200 per month. In more exclusive areas, such as an old palazzo in Valletta, rental costs start at €2,000 per month.
- Personnel recruitment
Despite its very low unemployment rate, Malta provides ample opportunities for recruiting both local and international talent. Compared to EU standards, salaries in Malta are low, making it an attractive location for staff recruitment. Typical starting salaries in non-specialized fields range from €18,000 to €22,000 annually.
Alternatives to the local managing director for a company in Malta
A local director is normally required when incorporating and operating a company in Malta, especially if the company is part of a tax arrangement such as the Spain-Malta structure. This is because the local authorities want to ensure actual business activity in Malta, which is often demonstrated by the presence of a local managing director. However, here are some possible alternatives and scenarios:
- Managing director with shareholding
One possibility is to involve the managing director as a stakeholder in the company. In this scenario, the managing director can serve as a co-partner, potentially obviating the need to pay a salary. This could be a cost-effective solution as long as the managing director is actually able to manage the company’s business effectively and make the necessary decisions.
- Business partner as local managing director
Another option is to form a partnership with someone who is already established in Malta. You could establish the company in collaboration with a business partner who resides in Malta and serves as the local managing director. This approach provides the advantage of having a business partner who is familiar with the local market and can manage the day-to-day operations, allowing you to focus on other business development aspects.
Implementation of your move to Spain & ongoing income planning from a tax perspective
If you are planning to relocate to Spain to take advantage of the tax benefits offered by the Beckham Law, there are several important aspects to consider. This legislation provides significant tax relief on foreign income, making Spain an appealing residence choice for international entrepreneurs and investors.
Before the move: planning your income in Spain
Non-domiciled regime in Spain: Unlike other non-dom regimes, Spain does not tax foreign income transferred to Spain under the Beckham Law. This implies that dividends, profits, and other revenues from a Maltese limited company can remain untaxed in Spain, whether they are spent or invested within the country.
Before the move: dealing with income in your home country
Taxable income in countries like Germany, France or Austria: Certain revenues, such as those from property rentals, remain taxable in the country where the property is located. Similarly, profit distributions from corporations are taxable in the corporation’s country of residence. This is the case for the majority of other countries.
Time of the move
There is no specific time that is particularly advantageous for relocating to Spain from a tax perspective. Relocation should occur once all preparations are complete and you are ready to proceed. The relocation should be planned in such a way that it aligns with your personal and business strategies.
After the move: life in Spain
After relocating to Spain, your primary benefit will stem from the dividends of your Maltese company. This revenue is tax-exempt under the Beckham Law in Spain, allowing you the freedom to utilize and invest your assets as you see fit.
Advantages of moving to Spain compared to other non-dom states
Compared to other non-dom jurisdictions like Malta or Ireland, Spain offers several specific advantages:
- Tax-free foreign income: The unique provisions of the Beckham Law enable the tax-free receipt of foreign income in Spain.
- Quality of life: Spain provides a high quality of life, featuring an excellent climate, rich cultural heritage, and a stable economic environment.
- EU membership: As a member of the European Union, Spain benefits from the advantages of the EU single market and the security associated with EU membership.
In summary, relocating to Spain under the Beckham Law offers an attractive option for those looking to minimize their tax burden while residing in one of Europe’s most scenic countries. Careful planning of both tax aspects and personal and business circumstances is crucial to achieving the best outcomes.
Alternatives to residency in Spain: Other EU countries offering tax benefits
If you are interested in a tax-optimized relocation but do not necessarily want to move to Spain, there are other attractive options within the European Union. Countries such as Portugal, Italy, Bulgaria, Romania, and Ireland also provide compelling tax incentives that could benefit those interested in relocating their residency.
Portugal and Italy: Non-Habitual Resident (NHR) and Non-Dom Status
Portugal’s Non-Habitual Resident (NHR) program offers substantial tax benefits to new residents deriving specific types of income from abroad. They may benefit from reduced or even exempt income tax for a period of ten years.
Italy has introduced similar incentives through its non-dom program, offering a flat tax of 100,000 euros per year on foreign income for individuals relocating their tax residency to Italy. This scheme is designed to attract affluent individuals who could benefit from substantial tax relief.
Both countries have detailed models specifically tailored to be combined with establishing a company in Malta to maximize tax benefits.
Other countries with tax incentives
- Bulgaria and Romania also offer favorable tax rates, appealing to entrepreneurs and private individuals seeking tax-efficient alternatives within the EU.
- Ireland, renowned for its business-friendly environment and low corporate tax rates, is also an attractive option for individuals and businesses aiming to legally reduce their tax liabilities.
Important: Compliance with local tax regulations
It is important to note that each country has specific tax regulations that need to be carefully examined before a decision is made. Professional advice is therefore essential to ensure that all local laws are complied with and to realize the full potential of tax benefits.
Conclusion
Choosing a place of residence and setting up a company in another country are complex decisions that require comprehensive planning and advice. If you are considering relocating your residence to benefit from tax advantages, there are several attractive EU countries to consider in addition to Spain. Each of these countries offers unique incentives that can be tailored to your individual needs and circumstances.