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Why It Might Make More Sense to Start a New Company in Malta Rather Than Relocate an Existing One

Why relocate an existing company to Malta when starting a new one might be easier and more advantageous? Learn more in our latest post! Relocating an existing company to Malta can attract unwanted attention and potential tax implications. Instead, we generally recommend starting a new company (Malta Ltd) to fully benefit from Malta’s business-friendly environment.

Scenarios Where Starting a New Company in Malta Makes Sense:

  1. Outsourcing the international operations of your current company.
  2. Entering new markets and business areas that have so far remained untapped.
  3. Acting as a supplier or subcontractor for your existing company.
  4. Starting a completely new business activity on the island.

Advantages of Starting a New Company in Malta:

  • Simplified bureaucracy thanks to a hands-on business mentality.
  • Access to international talent at relatively low labor costs.
  • Competitive corporate tax rate of effectively only 5%.

Why Malta?

Malta offers a unique blend of Mediterranean charm and British business culture, reflected in efficient and business-friendly administration. The government and the population highly value good service and support entrepreneurs, investors, and employees alike. An example of the business-friendly culture: If you want to rent business premises in Malta as an expatriate, no elaborate credit checks or numerous documents are required. Agree on a price with the landlord, sign the contract, and pay the first month’s rent and deposit – and your company has an office.

Tax Benefits in Malta

Malta offers a unique tax structure that is particularly attractive to international companies. Here are some of the main tax benefits Malta offers:

  1. Effective corporate tax rate of 5%: Initially, the corporate tax in Malta appears quite high at 35%. However, as a foreign shareholder, you get 80% of this tax refunded. This results in an effective tax rate of just 5%.
  2. Holding Companies: To fully utilize the benefits of the low effective tax rate, it is advisable to establish a Maltese holding company. This allows you to offset the corporate tax paid against the refund, so your Malta Limited ultimately pays only the effective 5%.
  3. No Double Taxation: Malta has numerous double taxation agreements with other countries. This means that income taxed in Malta is not taxed again in the shareholder’s home country.

Solutions with Other Countries

For individuals emigrating to Italy, Portugal, or Spain, combining with the Maltese corporate structure offers additional benefits. If you have any questions, book a non-binding consultation appointment: https://www.drwerner.com/de/kontakt/

Attention: Functional Relocation & Tax De-Establishment

Functional Relocation: What Does It Mean?

Functional relocation occurs when a company relocates essential operational functions abroad. These functions are organic parts of the company that are crucial to value creation. Examples include research and development departments, marketing, or the call center.

Tax De-Establishment: Why Is It Important?

In the case of functional relocation, the concept of tax de-establishment applies. This involves capturing the value of the relocated functions for tax purposes to ensure that Germany receives its share of tax revenue, even when the functions are relocated abroad.

The Challenge of Valuation

A major issue with functional relocation is the valuation of the functions. Reliable benchmarks are often lacking, leading to valuations that exceed the actual value of the company. The simplified income value method is often used but frequently results in unrealistically high valuations.

Functional Duplication: A Tax-Safe Alternative

Unlike functional relocation, functional duplication does not restrict Germany’s tax sovereignty. In this case, an identical function is established abroad while the domestic function continues to exist. For tax safety, this parallelism must last for at least five years.

Practical Implications for Companies

Companies planning a functional relocation should be aware of the tax implications and undertake careful valuation and planning. Consultation with specialized tax advisors can help overcome tax challenges and develop the best strategy for international expansion.

Recent Developments in German Exit Tax: Important Information for Your Tax Planning 2024

The tightening of the German exit taxation according to § 6 AStG has posed new challenges for many taxpayers. Emigrants to Malta, a popular destination for German citizens, in particular, must deal with the complex regulations and their financial implications. This post provides an overview of the new regulations and offers valuable tips for adjusting to the changed provisions to ensure a smooth emigration.

Overview of the New Exit Tax Rules

The exit tax, in its version effective from January 1, 2022, taxes the value increase of corporate shares when Germany’s taxation rights end. This particularly affects taxpayers who were subject to unlimited tax liability for at least seven years in the twelve years before their departure. A new retroactive regulation from August 17, 2023, significantly expands the tax authorities’ options to revoke tax deferral for old cases.

Impact on Emigrants to Malta

Malta is part of the European Union and thus subject to the exit tax regulations for EU/EEA states. The new rules have significantly tightened the tax conditions for emigrants by replacing the previous interest-free deferral of the tax with the option of installment payments. Additionally, profit distributions or capital refunds can lead to a revocation of the deferral, increasing the financial burden.

Strategies for Adapting to Exit Tax

To minimize the negative financial impact of the tightened exit tax, the following strategies can be helpful:

a. Early Planning and Consultation for Exit Tax

Early tax consultation is essential. Expert tax advisors can help analyze the individual impact of the new regulations and develop tailored strategies. The consultation should ideally begin one to two years before the planned move.

b. Optimization of Corporate Structure

Structuring holdings in corporations can help reduce the tax burden. Skillful restructuring can avoid exit cases or minimize the tax impact. For example, transferring shares within the family or changing the form of participation can play a role.

c. Use of Double Taxation Agreements

Malta and Germany have a double taxation agreement (DTA) to avoid tax double burdens. It is advisable to carefully examine and use the provisions of the DTA to optimize the exit tax. In some cases, the agreement can provide tax relief or credits.

d. Carefully Prepare Deferral Applications

For affected taxpayers, it may be worthwhile to apply for a deferral of the exit tax. Thorough preparation and documentation are crucial to successfully enforce the application. The tax authorities may require securities to grant the deferral, so appropriate preparations should be made.

e. Continuous Monitoring and Adjustment

After moving, it is important to continuously monitor tax developments in Germany and Malta. Legislative changes or new administrative instructions can affect the tax situation. Ongoing adjustment of the tax strategy helps avoid unexpected financial burdens.

Fast and Uncomplicated Start

For most of our clients, a timely installation and functionality of the tax-optimized setup in Malta are particularly important. Therefore, we place great emphasis on a quick start and take care of the complete setup of your company in Malta. Disclaimer: The above article is based solely on independent research by Dr. Werner and Partners and does not constitute legal advice. If you would like to meet with one of our representatives for more information, please schedule an appointment with us.

Do you have any questions?

Request a free initial consultation now.​

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