23 Jul 2014 Company Formation in Malta
Maltese company law is principally governed by the provisions of the Companies Act of 1995, which is heavily based on the provisions of the UK Companies Act. Maltese shipping companies (i.e. companies used to own or operate Maltese-flagged vessels), on the other hand, are regulated by specific legislation, namely the Merchant Shipping Act. The limited company can be of either a private nature (ltd.) or of a public nature (plc). The minimum number of subscribers or shareholders for public and private companies is two, but a private limited liability company may also be formed as a single member company as long as the sole shareholder and sole director are not themselves corporate entities and the objects clause is restricted to one main trading activity. The limited liability company is the preferred vehicle due to the separate legal personality and limited liability it offers while being very simple and cheap to incorporate.
The Memorandum and Articles of Association
The Memorandum and Articles of Association (the “M&AA”) are the basic documents of the company and the foremost requirement for incorporation. The M&AA must be registered with the Registrar of Companies (hereinafter, the “Registrar”) at the Malta Financial Services Authority (hereinafter, the “MFSA”).The incorporation process takes around two (2) to three (3) business days.
With the exception of private exempt companies which may have a single member, all companies must have a minimum of two (2) shareholders, with one (1) shareholder holding at least one (1) share. Therefore, in order to satisfy this requirement, the practice is for a third party to hold a single share while all the other shares are held by the intended beneficiary. For both companies, the shareholders may be corporate or individual.
The minimum issued share capital under Maltese law is one thousand, one hundred and sixty-five euro (EUR 1,165), with at least twenty percent (20%) thereof paid up upon incorporation in the case of private companies and forty-six thousand and six hundred euro (EUR 46,600), with at least twenty-five percent (25%) thereof paid upon incorporation in the case of public companies.
Every public company must have at least two (2) directors whereas every private company must have at least one (1) director. The directors may be a natural or corporate person. Although there is no specific legal requirement as to the director being resident in Malta it is advisable to have at least one (1) member on the board of directors to be resident in Malta.
Every company must have a company secretary who must not be its sole director or a sole director of a body corporate, whose sole director is the company secretary. The law does not require that the company secretary be resident in Malta, but since it is the company secretary who is responsible for filing all statutory returns as well as keeping and maintaining all required registers and records it is advisable to have a resident company secretary who is familiar with all requirements imposed by Maltese company law.
Every company registered in Malta must have a registered office in Malta where all statutory and fiscal documents are served. This may be at the office of a firm of lawyers, accountants or other providers of corporate services. Changes to the company’s registered office must be notified to the Registrar.
Types of Companies
The Private Company
A private company is a company that must, by its memorandum and articles:
- restrict the right to transfer its shares;
- limits the number of shareholders to fifty; and
- prohibits any invitation to the public to subscribe for any shares or debentures of the
The Private Exempt Company
A private company may have the status of an exempt company, and qualify for certain advantages, including having a single shareholder, provided that:
- the number of persons holding debentures of the company is not more than fifty; and
- no body corporate is the holder of, or has any interest in, any shares or bonds of the company or is a director of the company, and neither the company nor any of the directors is party to an arrangement whereby the policy of the company is capable of being determined by persons other than the directors, members or debenture holders
The Public Company
A public company is a company which does not qualify as a private company in that there are no restrictions as to the transfer of shares and the number of members. Furthermore, a public company may offer shares or bonds to the public but it may not issue any form of application for its shares or bonds unless the company is registered and the issue is accompanied by a prospectus.
Documents Required for Registration
In order to incorporate a limited company in Malta, the following documents are required:-
- The final version of the memorandum and articles of association;
- Evidence of the paid up share The registrar will not register the company unless he is provided with evidence that the paid up share Capital as specified in the M&AA has indeed been paid up. This is usually evidenced by means of a deposit slip, which must specify the full name of the company, issued by the bank in which the issued share capital has been deposited. In the case of subscriptions for a non-cash consideration (e.g. shares in another company), the Registrar requires that a report on such non-cash consideration be drawn up by an independent expert who must be approved by the Registrar;
- Certified true copies of the passports of the shareholders and directors of the company, when these are natural persons;
- A certified true copy of the memorandum and articles of association or the certificate of incorporation or the share register or any document which provides clear evidence of the beneficial owners of the shareholders and directors of the company, when these are corporate Such document(s) needs to be supplied until the ultimate beneficial owners can be ascertained;
- A bank reference letter addressed to the Registrar in the case of non-EEA shareholder or directors;
A power of attorney granting lecocqassociate the powerto sign the memorandum and articles of association on behalf of the shareholders (draft provided by
- In the case of a public company, a letter of consent, an estimate of costs and a declaration that no special advantage has been granted (or otherwise) signed by a director or the company secretary
Upon incorporation of the company, a registration fee of between two hundred and forty-five euro (EUR 245) and two thousand and two hundred and fifty euro (EUR 2,250), depending upon the amount of authorised share capital, is payable to the Registrar. In addition, an annual fee of between one hundred euro (EUR 100) and one thousand and four hundred euro (EUR 1,400) is payable upon the registration of the annual return of the company.
For the registration of a company with variable share capital, a fee of one thousand and seven hundred and fifty euro (EUR 1,750) is applicable.
Companies are also required to file a copy of their audited annual accounts which must be accompanied by a copy of the auditors’ report and directors’ report. The annual accounts must be filed within ten months from the end of the financial year for a private company and within seven months from the end of a financial year for a public company, with a grace period of forty-two days.
All companies registered in Malta are subject to corporate tax at a rate of thirty-five percent (35%) on their chargeable income. However, Malta adopts a full imputation system of taxation, through which tax paid by a company in Malta is imputed to its shareholders as a tax credit upon the distribution of dividends. Thus, upon the distribution of dividends, the shareholders become eligible for a refund from the Commissioner of Inland Revenue, in whole or in part (depending upon the circumstances as indicated below), of the tax paid by the company in Malta. Further tax relief may also apply via the application of the double taxation treaties which Malta has signed with over fifty-two countries, as well as the flat rate foreign tax credit for any tax that has been paid outside Malta.
The “Participating Holding” Exemption
Any income or gains derived by a company from a participating holding or from the disposal of such holding are exempt from income tax in Malta.
A “participating holding” exists when a Maltese company directly holds at least ten percent (10%) of the equity shares of a company which confers an entitlement to at least ten percent (10%) of any two of the following:
- the right to vote;
- profits available for distribution; and/or
- assets available for distribution on a winding up.
If the company does not satisfy the above requirement, it is still possible to benefit from the participating holding exemption. However, the company must then satisfy one of the following conditions:
- it has the option to call for and purchase, or enjoys the right of first refusal upon the disposal of, the remaining equity shares in the other company;
- it is entitled to either sit or appoint a person to sit on the board of directors of the other company;
- it invests at least one million, one hundred and sixty four thousand euro (EUR 1,164,000) (or equivalent in foreign currency) in the other company and that six-sevenths refund results in an effective rate of Malta tax of five percent (5%).
- investment is held for an uninterrupted period of one hundred and eighty three (183) days; or
- it holds (not as trading stock) the shares in the non-resident company in furtherance of its own business.
The participating holding must also satisfy one of the following criteria in order for the participating holding exemption to apply:
- the subsidiary company must be:
- incorporated in an EU Member State;
- subject to foreign tax at not less than fifteen percent (15%); and
- not have more than fifty percent (50%) of its income derived from passive interest or royalties; or
- the holding of shares in the subsidiary company is not a portfolio investment and such company does not derive more than fifty percent (50%) of and such company does not derive more than fifty percent (50%) of its income from portfolio investments, and such company or its passive interest or royalties is already subject to foreign tax at a rate of not less than five percent (5%).
The 6/7ths Refund
Shareholders receiving dividends paid by a Maltese company are eligible for a six-sevenths (6/7ths) refund of the advance tax paid by the company, provided the company has not already claimed double taxation relief, in which case the shareholders are no longer eligible to claim such refund. The six-sevenths refund results in an effective rate of Malta tax of five percent (5%).
The 5/7ths Refund for Passive Interest on Royalties
Shareholders receiving dividends which are paid out of profits derived from passive interest or royalties are eligible to a five-sevenths (5/7ths) refund of the advance tax paid by the
company. Again, eligibility for a refund is lost if the company has already claimed double taxation relief.
Exemption on Royalty Income from Patents on Inventions
Royalties and similar income derived from patents in respect of inventions are exempt from tax in Malta. Furthermore, any royalty income distributed by way of dividend will also be exempt at the level of the shareholders.
The above refunds can be claimed after the shareholder of the company has been duly registered with the Commissioner of Inland Revenue in Malta and supplying the dividend certificate issued by the company upon distribution. Registration is affected by the company on behalf of, and after being advised to do so by, the claimant shareholder.
In those cases where the participating holding exemption applies, the holding company may choose not to declare the income derived from its participating holding, resulting in no tax being paid in Malta. Alternatively, the holding company may opt to declare the income derived from its participating holding in its tax return, in which case the shareholders may then proceed to claim a full tax refund of the Malta tax paid by the holding company from the Commissioner of Inland Revenue.
All refunds are paid to registered shareholders by not later than the fourteenth (14th) day from the date on which the refund becomes due.
lecocqassociate provides a full range of financial regulatory, corporate and commercial advice in relation to the structuring and incorporation of entities.
This newsletter is for information purposes only. It does not constitute legal advice or an opinion. Please contact Dominique Lecocq on moc.e1508628036taico1508628036ssaqc1508628036ocel@1508628036lrd1508628036 for any questions.