International Companies

A member of the EU since 2004, Malta's regulatory framework and company law is based entirely on EU law and directives. Malta strives to maintain its reputation as a serious financial centre and has moved away from the previous offshore regime thanks to a series of legislative changes enacted in 1994 and more recently in 2006. The offshore trading and non-trading company was replaced in 1994 by the international holding company and the international trading company which effectively guaranteed tax refunds only to non-residents and restricted trading activities within Malta.

As from January 1st 2007, such international holding companies and international trading companies can no longer be registered in Malta. Nevertheless, Malta has already developed an attractive and competitive environment for international business investment and the endorsement of the new tax reforms by the European Commission ensures a secure future for financial services in Malta which sanctions and preserves intact its competitive imputation system.

Companies resident in Malta are all subject to income tax at a rate of 35% with no separate system of corporation tax. A full imputation system is applicable which means that dividends paid by a company resident in Malta carry a tax credit equivalent to the tax paid by the company on its profits out of which the dividends are distributed. Individual shareholders of companies are entitled to tax refunds when their marginal tax on the dividend is less than the tax paid by the distributing company.

Advance Company Income Tax (ACIT) is payable upon distributions by all companies of profits which are not derived from immovable property situated in Malta. Once ACIT has been paid by the distributing company, shareholders may claim tax refunds of up to 6/7ths of the tax paid depending on the source of the income. Since the non-resident shareholder is not taxed in Malta, such shareholders of a Malta company set up for trading purposes could effectively be taxed at the rate of 5%, one of the lowest net tax costs in the EU. It is worth noting that there is no withholding tax levied on outbound dividends, interest and royalties and combined with low operating costs and a skilled workforce, Malta is both a cost-effective as well as a tax-efficient jurisdiction within the EU.

Foundations

Malta has recently enacted new legislation on foundations which came into force in 2008. Although foundations have always existed under Maltese law they have never until now been specifically regulated. This new law provides that the foundation must be constituted in writing, via public deed inter vivos or a public or secret will and then registered with the Office of the Registrar of Legal Persons, which is an ad hoc office set up for the specific purpose of undertaking the registration of legal persons in general. The foundation deed must include detailed provisions containing the powers, form of resolutions and signing authority of the foundation, features which make the foundation more similar to a company set up than a trust. 

Once a foundation is established, a new legal person is created so it is the foundation itself which becomes the owner of the property. This is a significant variation from the trust concept as a trust does not constitute a separate legal person and it is the trustee who holds the property in ownership for the benefit of the beneficiaries. In a trust the trustee must control and administer the trust assets while the settlor plays no part in the day-to-day administration of the trust assets whatsoever. In fact a trust deed should be drafted in such a way as to exclude the settlor from any control whatsoever over the trust assets. The settlor can convey his wishes through a separate letter of wishes which does not form part of the trust deed. The foundation is therefore preferable when the founder would like to retain a degree of control over the assets.  

The foundation has a board of administrators which would have broadly similar powers of administration, representation and disposition as the trustee. In both trusts as well as foundations, the law provides for the figure of the "protector", usually nominated by the settlor/founder, that can qualify, or in some cases limit, the discretions exercised by the trustee or board of administrators. However, in the case of a trust, one must be careful that any such limitation does not render the trust a sham. In the case of a foundation, the founder may also appoint a supervisory council and no such concerns would seem to apply. The board of administrators is accountable for the management of the foundation, but the founder may exert considerable control. The founder may directly supervise the administration and he may even be one of the administrators as well as beneficiary.

The foundation's main aim should be to hold assets. In fact it cannot be established to trade or carry out commercial activities although it may be endowed with commercial property or a shareholding in a profit-making enterprise, a franchise, trade mark or ship as a passive owner. It is also worth noting that a trust can be converted into a foundation or vice versa and that both private trusts and private foundations have a duration limit of 100 years.