Advantages and conditions of doing business in Malta

Malta is a small island nation in the Mediterranean Sea, similar to Cyprus both politically and historically. Both are island nations, once under British rule, and still use English in official business. Both states have also become members of the European Union and the Eurozone, and both are developing as important business and financial centers.

In particular, Malta, being part of the European Union, has become a prominent international business center, attracting large and medium-sized international companies interested in operations within the EU. Its tax system provides a number of advantages for international investors and entrepreneurs:

  1. Income tax imputation: Malta has a 35% income tax. However, the great attraction of this system lies in the imputation of the tax. If a Maltese company receives less than 10% of its profits from activities on the island (that is, it conducts mainly international business), then it can receive a quick refund of 6/7 of the tax paid on the distribution of dividends. This makes it possible to reduce the effective income tax rate to 5%, which is very attractive for businesses within Europe.
  2. No withholding tax on dividends, interest, royalties: Maltese companies can pay dividends and interest abroad without paying taxes in Malta. This makes the taxation system in Malta more flexible and convenient for international transactions.
  3. Absence of foreign exchange risks: Income taxes can be paid and refunded in the currency in which the profit was received, which avoids foreign exchange risks.
  4. Participation Exemption System in Malta: Maltese holding companies that receive equity dividends or capital gains or royalties may apply for a “participation exemption”. As a result of this exemption, dividends and income are fully exempt from taxes, provided that the company is considered a qualified member, meeting certain criteria.
  5. There is no legislation in Malta that regulates transfer pricing. This is a distinctive feature of taxation in Malta, in contrast to the Russian and Ukrainian tax authorities, which are sensitive to such issues. The absence of such legislation is considered an advantage for trading companies, but the arm’s length principle applied in pricing between related companies within the countries of the European Union according to the OECD Transfer Pricing Guidelines must be taken into account.
  6. Malta does not enforce complex CFC (Controlled Foreign Corporation) laws and thin capitalization rules. This opens up wide opportunities for optimizing taxation, including the provision of loans to Maltese companies and the receipt of interest on them. In addition, interest and dividend payments outside of Malta are tax-free. Also, under certain conditions, it is possible to organize a scheme in which dividends are not taxed within Malta.
  7. Malta strictly enforces all European Union Directives such as the EU Interest and Royalty Directive and the EU Parent-Subsidiary Directive. Malta’s tax system complies with EU standards and EU officials have no complaints about its taxation, despite the low tax rates using the tax refund mechanism.
  8. Malta is actively working on signing double tax treaties and has similar arrangements with about 70 jurisdictions. Some countries, including the Russian Federation, have several unratified double tax treaties with Malta that can be used to the advantage of businesses by avoiding the exchange of tax information.
  9. A Maltese company is considered tax resident if it is registered on the island or managed from Malta (has an office in Malta). This provides flexibility in choosing tax residence and may be attractive to those who wish to set up an offshore company that is also tax resident in an EU country.
  10. Malta does not impose taxes on capital and property, which may be attractive to those who are considering obtaining a residence permit on the island through the purchase of real estate. The absence of these taxes makes Malta a peaceful and reasonably managed place for a second home on the Mediterranean coast.

So, Malta is not only a wonderful tourist paradise with a rich history and culture, but also a favorable place for business development and investment. Its rapid development as an important business and financial center in the Mediterranean testifies to the island’s commitment to progress and economic diversification.

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