The Maltese Trading Structure Malta lies in the centre of the Mediterranean Sea making it a central hub for Trade passing through Europe. The Malta Freeport allows container handling, industrial storage and oil products handling and is generally regarded as the Mediterranean’s best transhipment port. Advantages of a Maltese Trading Structure Offers the possibility for trading profits to be taxed at only 5% which is the lowest in Europe; Levies no withholding taxes on outbound payments of dividends, royalties and interest; Dividends received from EU subsidiaries are generally exempt due to the participation exemption; Grants the possibility of an EU VAT number and henceforth its VAT simplification procedures; Offers the possibility of obtaining local banking credit and opening of local bank accounts.
The Structure Let’s assume a typical trading structure involving the acquisition of goods from a “Trader”, and their reselling to a “Customer”. Tax leakage is kept at a minimum by interposing a Maltese company (“MaltOp”) between the Trader and the Customer without the goods required to be transported to or from Malta (although this is still an option). MaltOp will do no more than the handling of the invoices, processing of the payments and bookkeeping. The difference between the price payable to the Trader and the price received from the Customer, is in principle, a profit for MaltOp. This profit, less the operational expenses of such company, is subject to Malta’s effective corporate income tax at a rate of 5%, following the refund system. VAT Consequences VAT Law essentially considers the physical flow of the goods. Should the Trader be established in an EU member state and the Customer in another member state, the so called VAT Simplification procedures could trigger in. This means that no Maltese VAT leakage will occur and as such no Maltese VAT will be due on the sale of the goods by MaltOp.
© 2014 KSi Malta, a member firm of the KS International an association of independent member firms. All rights reserved. No one should act or rely on information prior to seeking appropriate professional advice on his/her specific situation.
Should MaltOp import goods physically into Malta from a non-EU Trader and subsequently dispatches or transports them within 30 days to the EU-Customer, no VAT should be paid in Malta in terms of the Onward Supply Relief (OSR) Procedure.
Effective Tax of only 5% Receives €65 as dividends and claims €30 as tax refund for a total income of €95
MaltHold Profit of €100 is taxed at 35% and the remaining €65 are passed as dividends
Dividends
MaltOp Trader
Invoice €100
Invoice €200
Customer
Goods
The Two-Tier Structure The above scenario incorporates a Two-tier structure whereby MaltHold (essentially a passive Holding company) holds shares in MaltOp (a trading company). By having a twotier structure in Malta, the 6/7ths tax refund is not received by the foreign shareholder but rather by MaltHold. This ensures that both the profits originally gained by MaltOp and distributed to MaltHold and the tax refund received by MaltHold will be parked in Malta and not taxable at the shareholders’ personal level. In other words, a double-tier structure converts the tax refund which would be taxable as other income in all countries into Dividends. Although highly convenient for trading situations, such a structure can also be applied to investment, rental, intellectual property and captive insurance operations.
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Bernard C. Gauci Senior Advisor bgauci@ksimalta.com
Villa Gauci Mdina Road Balzan BZN 9031 Malta Tel: (+356) 21226176 Fax: (+356) 21226019
Benjamin Griscti Senior Advisor bgriscti@ksimalta.com
www.ksimalta.com
A member of KS International
© 2014 KSi Malta, a member firm of the KS International an association of independent member firms. All rights reserved. No one should act or rely on information prior to seeking appropriate professional advice on his/her specific situation.