Doing business in Malta. Restricted use. Moscow 27 June 2013

Transcription

1 Doing business in Malta Restricted use Moscow 27

2 Introducing Malta Slide 2

3 Malta strategically located Flight time Malta - Rome Malta - Tripoli - 1 hour - 50 mins Malta - Frankfurt - 2 hours Malta - Paris Malta - London - 2 hours - 3 hours Malta - Moscow - 4 hours (Direct flights up to 7 times a week in summer) Slide 3

4 Malta A country with a rich cultural heritage Slide 4

5 Malta - A Mediterranean Country Slide 5

6 Malta - A Modern Country Slide 6

7 Malta An Overview An independent democratic republic within the British Commonwealth A Member of the European Union A developed economic and industrial structure High educational standards Maltese and English official languages Excellent telecommunication services - air, sea and telephony Malta forms part of the Schengen Area Slide 7

8 Malta Key Statistics Land size 316 square kms Population (2011 est) 416,110 Unemployment (2011) 6.5% Inflation rate (2011) 2.5% GDP (2011) 6,499.2 million GDP (PPS ) per capita 21,000 Slide 8

9 Critical Success Factors Slide 9

10 Malta Critical Success Factors Member of the European Union with effect from May 2004 Slide 10

11 Malta Critical Success Factors Lower costs compared to other EU Member States Quality of life convenient European time zone (CET) Accessibility/ flexibility of regulator High quality workforce fluent in English Attitudes and work ethic Professional services Can do attitude A stable and well developed banking system. Domestic banks are well placed particularly due to their conservative approach to business generally and are in the main only exposed to domestic debt. Slide 11

12 Malta Critical Success Factors Relative ease of incorporation for non-regulated entities Audited accounts must be prepared in accordance with IFRSs (but possibility of small companies GAAP) and filed for public inspection Low minimum capital requirements ( 1,165) No local shareholders or directors required Low registration and maintenance costs Share capital, accounting, and tax in a foreign currency Possibility of flighting companies to and from Malta Possibility for licensed trustees as registered shareholders Choice of accounting year-end Slide 12

13 Malta Critical Success Factors Tax efficiency standard corporate tax rate of 35% but typically tax refunds reduce the effective Maltese tax burden to around 5% No thin capitalisation rules or CFC legislation Transfer pricing: no sophisticated rules providing flexibility Tax losses may be carried forward indefinitely No withholding taxes on dividends, interest and royalties paid to nonresidents subject to the satisfaction of straightforward conditions Capital gains on transfers of shares in Maltese companies by nonresidents are normally exempt Generous participation exemption regime and exemption on overseas permanent establishment profits Slide 13

14 Malta Critical Success Factors Advance revenue rulings on international tax issues Extensive double tax treaty network spanning over 60 countries: aggressive policy of expansion Tax only payable at earlier of 18 months after year-end, or when a dividend is paid in the case of companies having more than 90% of their business interests situated outside Malta No exchange controls Stamp duty on share transfers but exemptions for companies which have more than 90% of their business interests outside Malta Provisions of the EU Parent Subsidiary Directive and Interest & Royalties Directive are also applicable Slide 14

15 Malta Critical Success Factors Malta s regulatory framework (banking, insurance, funds and other financial services) necessarily adheres to the EU regulatory framework Accordingly, Maltese regulated entities are not required to obtain separate licenses in other EU Member States in order to offer their services in those states Such Maltese regulated entities are able to offer their services throughout the European Union due to exercise of rights under European law Slide 15

16 Some major companies using Malta Slide 16

17 An overview of Maltese tax Slide 17

18 Company tax system Slide 18

19 The company tax system an overview Malta subjects all persons to income tax: - Persons resident and domiciled in Malta taxed on a worldwide basis - Persons either resident or domiciled in Malta taxed on foreign source income (excluding capital gains) on a remittance basis and on Malta source income - Persons not resident in Malta and satisfying certain parameters taxed on income arising in Malta but with several exemptions (e.g. dividends, interest, royalties) Maltese companies are considered to be resident and domiciled in Malta (i.e. taxed on their worldwide profits). Other bodies of persons (e.g. general/ limited partnerships) are considered resident where management and control is located Companies which are incorporated outside Malta but managed and controlled in Malta are considered resident but not domiciled in Malta (i.e. taxed on a remittance basis) Slide 19

20 The company tax system an overview The standard rate of tax for companies is 35% Recipients of dividends paid out of profits taxed in Malta may be entitled to a full or partial refund of the tax paid by the distributing company Dividends do not actually need to be paid i.e. profits can be capitalised by way of a bonus share issue and/or merely credited to shareholders Refunds normally reduce the Maltese effective tax burden to between 0% and 6.25% - with respect to profits from trading activities to around 5% Size of refund depends upon nature of the profits being distributed and whether double tax relief was claimed in Malta thereon Such tax refunds (together with the participation exemption) are the fundamental basis of international tax structuring using Malta Slide 20

21 Re-domiciliation Maltese company law provides the possibility for inbound and outbound re-domiciliation of companies to/ from Malta even to and from tax haven countries In an EU context it is possible to convert a company into a SE and to transfer the registered office and/ or effect cross-border mergers into a surviving Maltese Co No entry taxes, no exit taxes, no deemed disposals of assets in an outward re-domiciliation A company that moves its residence, re-domiciles to Malta or makes a cross-border merger into a Maltese company may elect to step-up the tax base of its foreign assets to market value (with no Maltese tax arising on the step-up) Slide 21

22 Tax refunds based on dividends Malta s tax system of dividends is based on the full imputation system i.e. a full credit of the normal corporate rate of tax of 35% In order to operate the full imputation system, five tax accounts are maintained - Foreign income account (FIA), Maltese taxed account (MTA), Final tax account (FTA), Immovable property account (IPA), and Untaxed account (UA) Therefore income / profit is allocated to one of the said tax accounts depending on its source and nature dividend distributions of profits allocated to the FIA and MTA will entitle the recipient to refunds of tax paid by the company paying the dividend Hence it is important to ensure that the profits are allocated to either the FIA or MTA Slide 22

23 The company tax system different tax refunds The tax refund mechanism under Maltese tax law has been in place since 1994 Different types of tax refunds: - 6/7 tax refund - 5/7 tax refund - 2/3 tax refund - 100% tax refund or participation exemption Tax refunds available on both FIA and MTA distributions Slide 23

24 The company tax system 6/7 tax refund Standard refund is the 6/7 tax refund. The 6/7 refund is calculated on the tax suffered gross of treaty relief and unilateral relief In other words, foreign tax can be taken into account for purposes of 6/7 refund calculation, subject to maximum refund not exceeding Malta tax paid i.e. if there is no foreign tax, Maltese effective tax burden is 5% but may be reduced (even to 0%) where there is relief of foreign tax 6/7 refund is not available when DTR is claimed and income is allocated to FIA but e.g. income from a trading activity should be allocated to MTA (if not derived by a bank or a financial institution) and hence still can apply the 6/7 refund even if there is double taxation relief in that case 6/7 refund is calculated on gross Malta tax Slide 24

25 The company tax system 6/7 tax refund example Company tax computation Without foreign tax With foreign tax Trading profits Grossing up with foreign tax - 42 Chargeable income Tax at 35% Credit double tax relief under DTA - (42) Malta tax payable Shareholder tax computation Refund on distribution (6/7 of gross tax) Effective Maltese tax burden 40 0 Effective rate of tax on trading profits 5% 0% Slide 25

26 The company tax system 5/7 tax refund Tax refund re passive interest and royalties amounts to 5/7 Passive interest or royalties : interest or royalties which are not derived, directly or indirectly from a trade or business and where any foreign tax suffered thereon is less than 5% Therefore extremely restricted provision; does not cover all types of passive income, but merely interest or royalties Interest or royalties derived from a trade or business, e.g. an active treasury operation, qualifies for 6/7 refund If at least 5% foreign tax is suffered, automatically interest or royalties are not considered passive Same as for 6/7 refund - 5/7 refund is also not available when DTR is claimed and income is allocated to FIA Slide 26

27 The company tax system 5/7 tax refund example Company tax computation Net foreign passive interest/royalties 800 Grossing up with foreign tax - Chargeable income 800 Tax at 35% 280 Credit double tax relief under DTA - Malta tax payable 280 Shareholder tax computation Refund on distribution (5/7 of gross tax) 200 Effective Maltese tax burden 80 Effective rate of tax on net income 10% Slide 27

28 The company tax system 2/3 tax refund In the case where the 6/7 refund and the 5/7 refund are not available e.g. the income is allocated to the FIA and there is a claim for relief of double taxation on such income, then the 2/3 refund should in that case apply However the 2/3 refund is only available on distributions from the FIA i.e. cannot apply on distributions from the MTA Similarly to the 6/7 refund and the 5/7 refund, the 2/3 refund is calculated on the tax suffered gross of treaty relief and unilateral relief hence depending on the level of the foreign tax the 2/3 refund can also result to be advantageous Coupled with the 2/3 refund one could apply the Flat Rate Foreign Tax Credit (FRFTC) which provides a credit for deemed foreign tax of 25% in this case the 2/3 refund is calculated on the net tax after such a credit (in the example below the 8.4% effective tax burden may be reduced to approx. 6.25% with the use of the FRFTC rather than another type of relief) Slide 28

29 The company tax system 2/3 tax refund example Company tax computation Foreign tax of 3.6% 11.7% Net foreign income Grossing up with foreign tax Chargeable income Tax at 35% Credit double tax relief under DTA (30) (106) Malta tax payable Shareholder tax computation Refund on distribution (2/3 of gross tax) Effective Maltese tax burden 67 0 Effective rate of tax on net income 8.4% 0% Slide 29

30 Availability, distributions and timing of tax refunds Tax refunds are available when the distribution is made to any shareholder, whether corporate or not, including an intermediate Maltese holding company (can have more than one intermediate company) A Maltese holding company may be useful (a) to alter the nature of a tax refund into a normal dividend for foreign tax considerations and (b) also allows for the non-repatriation of funds i.e. flexibility In multiple layer structures, refund to be claimed by immediate shareholder Timing of tax refunds: within 14 days from when the tax payment is effected (with appropriate planning) Tax refunds are not subject to Maltese tax Slide 30

31 Malta s tax refund system Illustrated The following slide illustrates the Maltese tax refund system for what we understand would be a typical structure for investing into Russia The structure includes a foreign holding company which invests into a Maltese holding company which in turn invests into a Maltese operating company However any shareholder of a Maltese company is entitled to a tax refund upon a distribution of taxed profits by such Maltese company. Indeed there is no Maltese requirement to have a Maltese holding company or a foreign holding company in the structure Shares in Maltese operating company may be held by individuals or a foreign holding company directly, which would in any case be entitled to tax refunds upon a distribution of profits by the Maltese company Slide 31

32 Malta s tax refund system Illustrated (2) Malta OpCo derives profits/income/ gains from its activities/ investments. Malta OpCo suffers Malta tax at 35% Malta OpCo distributes a dividend to Malta Holdco. Malta Holdco pays no further Malta tax on dividend Malta Holdco is entitled to a tax refund of Malta tax suffered by Malta OpCo on distributed profits Russian shareholders (5) Dividend 0% (3) Dividend 0% ForeignCo Malta Holdco (4) Refund 6/7 or 5/7 or 2/3 Maltese Revenue Effective post-refund tax burden is between 5% % (to the extent all taxed profits are distributed) Tax payment and refund can be planned to occur approx 2-4 weeks of each other No tax on dividend to ForeignCo Malta OpCo (1) Profits/income/ gains (2) Tax - 35% Slide 32

33 Using Malta for trading / financing operations Slide 33

34 Using Malta for trading activities The Maltese tax refund system applies on any distribution of trading profits A Maltese company deriving profits of a trading nature, whatever the trade is, may effectively be subject to a Maltese income tax burden of around 5% (to the extent that all taxed profits are distributed) The Maltese company would generally allocate such trading profits to its MTA (FIA in the case of a bank or financial institution) and such profits would be subject to tax at 35% (with possibility of claiming DTR) Upon a distribution of such profits to its shareholder/s, the shareholder/s is/are entitled to a 6/7 refund of the Maltese tax suffered on such profits. This is illustrated in the following slide. Slide 34

35 Using Malta for trading activities Foreign Co owns 100% of Malta Holdco which in turn owns 100% of Malta OpCo Russian shareholders Malta OpCo receives profits from its trading activities of 100. Malta OpCo suffers Malta tax of 35 Malta OpCo distributes a dividend of 65 to Malta Holdco. Malta Holdco pays no further Malta tax on dividend Malta Holdco is entitled to a 6/7 refund of Malta tax suffered by Malta OpCo on distributed profits Effective post-refund tax burden is around 5% (to the extent all taxed profits are distributed) Tax payment and refund can be planned to occur approx 2-4 weeks of each other (5) Dividend 0% (3) Dividend 0% (1) Trading profits ForeignCo Malta Holdco Malta OpCo Trading profits (4) Refund - 30 (2) Tax - 35 Maltese Revenue Slide 35

36 Using Malta for intra-group financing In the same manner Malta may be used for intra-group financing. Malta is a popular jurisdiction for such activities Malta FinanceCo may be financed either via debt or via equity (including capital contributions) Possibility of back-to-back loans at Malta Holdco level with just a justifiable margin being chargeable to Maltese income tax, due to absence of sophisticated transfer pricing rules This structure should achieve an effective Maltese tax burden of 5% in respect of the profits resulting from the margin derived by Malta FinanceCo post-distribution of such profits and post-tax refund Russian shareholders Equity/ capital contribution Equity/ capital contribution ForeignCo Malta Holdco Malta FinanceCo Interest from intragroup loans Debt Low margin Debt 5% effective tax burden Slide 36

37 Using Malta for intra-group financing (2) Furthermore, if a withholding tax of at least 5% is levied outside Malta on the interest income derived by MaltaFinanceCo (e.g. if interest is paid by a Russian company) this will reduce the Maltese effective tax burden to nil post-distribution and post-tax refund to the extent Malta FinanceCo claims DTR for such withholding tax paid Russian shareholders Equity/ capital contribution Equity/ capital contribution ForeignCo Malta Holdco Malta FinanceCo Nil effective Maltese tax burden Interest from intragroup loans 5% WHT outside Malta Slide 37

38 Malta as a holding company location Slide 38

39 Malta as a holding company location Participation Exemption Malta has one of the widest participation exemptions available in the EU Non res S/H Interest in a company, limited partnership (e.g. SCS or CV) or CIV must qualify as a participating holding ( PH ) Malta HoldCo Firstly, interest must be of equity shares Equity shares are broadly shares or p ship interests which entitle holder to two of (1) votes, (2) dividends or (3) assets on winding-up Company Ltd P ship CIV Entity in which interest is held must not be a property company or property partnership Slide 39

40 Participation Exemption Conditions Equity shares must satisfy ONE of the following conditions : Malta HoldCo is entitled to at least 10% of two of the following 3 rights: votes, profits available for distribution and assets on a winding up of the entity in which interest is held; OR The holding had a value of at least 1.164M as at the date of acquisition and is held for a continuous period of at least 183 days; OR Malta HoldCo holds a call option to acquire the entire balance of the equity shares not held by itself to the extent permitted by the law of the country in which the equity shares are held; OR Slide 40

41 Participation Exemption Conditions (2) Malta HoldCo is entitled to appoint a person to sit on the Board of Directors of the entity; OR Malta HoldCo is entitled to first refusal in the event of the proposed disposal, redemption or cancellation of all of the equity shares that it does not hold; OR Malta HoldCo holds the shares for the furtherance of its own business and the holding is not held as trading stock for the purpose of a trade. Slide 41

42 Participation Exemption Anti-abuse provisions Apart from satisfying the conditions of the PH, in the case of dividend income only, holdings should satisfy also any one of the following further conditions: The non-resident entity is resident or incorporated in the EU OR is subject to any foreign tax of at least 15% does not have OR >50% of income from passive interest / royalties Slide 42

43 Participation Exemption Qualification as PH Dividends distributed to ForeignCo (Exempt) Dividends derived by HoldCo (Exempt) Exemption on Dividend Foreign Co Maltese HoldCo Russia OpCo The holding in OpCo should qualify as a PH on the basis of the following considerations: (i) OpCo is a company incorporated in Russia whose nature, we assume, is similar to that of a company incorporated in terms of Maltese law (i.e. separate legal personality/limited liability and capital divided into shares); (ii) OpCo does not own immovable property in Malta; and (iii)holdco s shareholding in OpCo will entitle Holdco to at least 10% of any two of the following rights in OpCo: (a) a right to votes, (b) a right to profits available for distribution, (c) a right to assets on a winding up of OpCo. Slide 43

44 Participation Exemption Qualification as PH (2) Exemption on Dividend Dividends distributed to ForeignCo (Exempt) Dividends derived by HoldCo (Exempt) Foreign Co Maltese HoldCo Russia OpCo On the basis that the PH is incorporated in Russia and is subject to tax of at least 15%, the relevant anti-abuse provisions for claiming participation exemption on dividend income are deemed to be satisfied. Participation Exemption can therefore be claimed on the dividend income that HoldCo received from OpCo. There should be no Maltese tax (whether by way of withholding or otherwise). The exemption applies also on distributions of such income made all the way up to the ultimate shareholders. Slide 44

45 Participation Exemption Qualification as PH (3) Exemption on Gains Capital gains upon sale of HoldCo (Exempt subject to certain conditions) Gains / profits derived by HoldCo (subject to participation exemption) Foreign Co Maltese HoldCo Russia OpCo No Maltese tax on capital gains arising from the transfer of HoldCo s shares in Russian OpCo. No anti-abuse provisions in the case of the exemption applicable to gains/profits derived upon the transfer of shares in Russia OpCo. Capital gains derived by ForeignCo or any other non-resident shareholder on the transfer of shares in HoldCo should also be exempt from Maltese income tax subject to certain conditions (Article 12(1)(c)(ii), ITA). Slide 45

46 Income from overseas permanent establishments An exemption may apply to income or gains derived by a Maltese resident company that are attributable to a permanent establishment (e.g. a branch) situated outside Malta or to the transfer of such permanent establishment The exemption still applies if the permanent establishment belongs only in part to the Maltese resident company, including a permanent establishment operated through any entity or relationship other than a company, in which the Maltese resident company has an interest Slide 46

47 Income from overseas permanent establishments Dividends distributed to ForeignCo (Exempt) Foreign Co MaltaCo No Maltese tax on profits derived by MaltaCo from overseas PE Exemption applies also on distributions of such income made all the way up to the ultimate shareholders Profits derived by MaltaCo from PE (Exempt) Overseas PE Slide 47

48 Using Malta as an IP location Slide 48

49 Key Maltese Tax Features 35% Standard rate of tax for companies (before any tax refunds) Income tax exemptions or tax refunds may reduce Maltese tax burden to between 0% and 6.25%: Exemption requires qualifying royalties i.e. from patents, copyrights or trade marks 0%-6.25% Effective tax burden range for recipients of IP profits Size of refund depends upon nature of profits being distributed and whether double tax relief was claimed in Malta; Malta has no withholding taxes on interest and royalties to non-residents, as well as on dividends subject to the satisfaction of conditions Slide 49

50 Key Maltese Tax Features Certain types of royalties derived from qualifying inventions/ copyright/ trade marks are outright exempt from tax in Malta If the royalty or income is not exempt, with some planning the applicable tax refund system should reduce the effective tax burden in Malta down to a maximum of 6.25% (or possibly lower) of the royalty amount Access to EU Direct Tax Directives, EU law Indefinite carry-forward of tax losses No sophisticated TP rules, and no CFC rules Slide 50

51 Qualifying royalty Exempt from tax in Malta 0% Assuming the IP is qualifying i.e. patent, copyright, trade mark Slide 51

52 Qualifying royalty Owns patent /copyright/ trademark Malta Co (holder of IP) Royalties User of IP User of patent/ copyright/ trademark A qualifying patent is defined as a patent, whether registered in Malta or elsewhere, in relation to which the research, planning, processing, experimenting, testing, devising, designing, developing or similar activity leading to the relevant invention was carried out in Malta or elsewhere. A number of conditions and considerations are applicable in respect of qualification for this exemption. Income tax exemption available for royalties (or similar income) derived from registered patents on qualifying inventions A similar exemption is available for royalties paid for the use of copyright and trademark. A Legal Notice is expected on the copyright/ trademark exemption that will provide further details/ conditions on its application. Slide 52

53 Non-qualifying royalty Effective tax burden in Malta of around 5% % of the royalty amount Slide 53

54 Royalties non qualifying In the case where royalty income is non-qualifying the tax exemption contemplated in the Maltese Income Tax Act cannot be availed of and will be charged at the corporate tax rate of 35% (minus any allowable capital allowances). This is applicable in the case of royalty income derived from Non-qualifying patent income; Non-qualifying copyright income; Non-qualifying trade mark income; Designs; Secrets; and Other forms of IP Slide 54

55 Royalty non qualifying Malta IPCo derives royalties from licensing its IP of 100. Malta IPCo suffers Malta tax of 35 Malta IPCo distributes a dividend of 65 to Malta Holdco. Malta Holdco pays no further Malta tax on dividend Malta Holdco is entitled to either a 6/7 (or 2/3 refund if passive royalty and DTR claimed) of Malta tax suffered by Malta IPCo on distributed profits Russian shareholders ForeignCo (5) Dividend 0% (3) Dividend 0% Malta Holdco (4) Refund 6/7 or 2/3 Maltese Revenue Effective post-refund tax burden is between 5% and 6.25% (to the extent all taxed profits are distributed). In the case of 6/7 refund and DTR for Russian tax of 5%, Maltese effective tax burden is reduced to NIL. Tax payment and refund can be planned to occur approx 2-4 weeks of each other (1) Royalty income Malta IPCo Royalty income (2) Tax - 35% Slide 55

56 Other considerations Existing IP moved to Malta consider obtaining step up in Malta, and need to manage exit taxes (if applicable) Malta s tax treaties, particularly with North African States Possibility to access EU interest and royalty directive by setting up a Maltese IP company For non-qualifying IP within a passive set-up consider setting up a company outside Malta that is managed and controlled in Malta - see next section. Slide 56

57 Tax planning using non-domiciled companies Slide 57

58 Tax planning using Malta Non-dom companies Non-Maltese resident shareholder Equity Foreign companies which are managed and controlled (i.e. resident) in Malta are not taxable on foreign source income unless it is received in Malta No taxation on foreign source capital gains, even if remitted to Malta Dividends/ Interest/ Other nontrading income Foreign Co/ Malta resident co. Foreign group company Equity or debt Importance of determining country of source of income Can achieve zero (or minimal) tax base if foreign income not received in Malta Similar result to participation exemption, even where such exemption is not applicable (e.g. financing income, royalties etc.) Requires incorporation in country where tax is not charged on companies which are not managed and controlled there Slide 58

59 Non-qualifying royalty IP Co effectively managed and controlled in Malta - incorporated outside Malta Relevant if IP is within a passive set-up i.e. not actively licensed. Royalty not remitted to Malta. (e.g. paid to and retained in a bank account outside Malta) Royalties Payor Owns IP Uses IP Royalty income not charged to tax in Malta Withholding tax may need to be mitigated in Payor State - tax treaty issues and subject to tax requirements No WHT in Malta, No CFC rules in Malta No sophisticated TP rules Dividend can be paid by IP Co without ever remitting income to Malta Slide 59

60 Double tax treaties and exchange of information Slide 60

61 Malta double taxation treaties currently in force Albania France Latvia Saudi Arabia Australia Georgia Lebanon Serbia Austria Germany Libya Singapore Bahrain Greece Lithuania Slovakia Barbados Guernsey Luxembourg Slovenia Belgium Hong Kong Malaysia South Africa Bulgaria Hungary Montenegro Spain Canada Iceland Morocco Sweden China India Netherlands Switzerland Croatia Ireland Norway Syria Cyprus Isle of Man Pakistan Tunisia Czech Republic Italy Poland United Arab Emirates Denmark Jersey Portugal United Kingdom Egypt Jordan Qatar USA Estonia Korea Romania Uruguay Finland Kuwait San Marino Slide 61

62 Malta double taxation treaties signed not in force Country Signed on Israel 28 July 2011 Mexico 17 Russia 24 April 2013 Turkey 14 July 2011 Slide 62

63 Exchange of information agreements Country Signed on Bahamas 18 January 2012 Bermuda 24 November 2011 Gibraltar 24 January 2012 Slide 63

64 Exchange of information In the event of suspicion of tax evasion, the Commissioner is granted authority to request a designated person (including any person who is acting as a nominee) to supply all the information and documentation available to him Furthermore, in terms of the ITMA, the Commissioner may request any person to furnish him such information as may be necessary in order to provide information, including documents, to foreign tax authorities where arrangements between Malta and the respective State or its tax authorities exist for the reciprocal exchange of information for tax purposes Maltese authorities may be requested, in terms of EU law, to provide information to other Member States. Certain instances exist whereby authorities of EU Member States are required to automatically or spontaneously exchange information with other EU Member States Slide 64

65 Tonnage tax system Slide 65

66 Malta: A leading maritime jurisdiction Malta s geographical position and natural resources coupled with the Maltese Merchant Shipping Act, 1973 enabled Malta to become a major player in the maritime industry To date around 45.6 million gross tonnage is registered under the Malta flag - placing Malta as the largest register in Europe and the seventh largest register in the world in terms of gross tonnage The Merchant Shipping (Taxation and Other Matters relating to Shipping Organisations) Regulations exempt from income tax in Malta any income derived by a licensed shipping organisation that owns, charters or operates a tonnage tax ship and derived from qualifying shipping activities. Slide 66

67 Exemption from income tax on shipping activities The Maltese tonnage tax regime exempts from income tax in Malta any income derived from by a licensed shipping organisation that owns, charters or operates a tonnage tax ship. Income derived by a ship manager from ship management activities is also exempt from income tax in terms of the tonnage tax regime A number of conditions must be satisfied for the said exemption to apply including that: (i) the income must be derived from shipping activities i.e. the international carriage of goods or passengers by sea (ii) the ship must be a tonnage tax ship i.e. is registered in an EU/EEA state and Maltese tonnage tax is paid. Qualification possible for third country ship subject to conditions (e.g. entity operates at least 60% of total tonnage under EU/EEA flag) Slide 67

68 Conditions for the application of the Maltese tonnage tax system Other general conditions apply such as the payment of all applicable registration fees and tonnage taxes and the maintenance of separate accounts distinguishing receipts and payments relating to shipping activities from those relating to any other business When a tonnage tax ship is not registered in Malta, registration fees/tonnage taxes are calculated by reference to the registration fees/tonnage tax that would have been paid in respect of the ship had it been registered in Malta However, in the case of a non-maltese flagged ship, if registration fees/tonnage tax was paid in respect of that ship in another jurisdiction, relief may be provided against the Maltese registration fees/tonnage taxes, subject to a minimum charge equivalent to 25% of Maltese registration fees/tonnage tax Slide 68

69 Some major shipping companies using Malta Slide 69

70 VAT and Stamp duty some salient features Slide 70

71 The characteristics of VAT What are the characteristics of VAT? A tax on consumption (not on income or profits), paid in instalments A tax that is borne by the final consumer, but is levied in successive stages A tax that is administered under a self assessment system A tax that is (in principle) neutral on business due to the input tax deduction mechanism A tax that is collected by business on behalf of the VAT Authorities A tax that is common throughout EU Member States A tax that is transaction based Slide 71

72 Three types of VAT The VAT Act provides for a distinct VAT charge for - Imports - Acquisitions - Supplies of goods and services The distinction is reflected also in other parts of the VAT Act e.g. - Exemptions - Method of payment of VAT - Registration requirements Each different VAT charges have their own particular rules Standard rate of VAT in Malta is 18% Reduced rates of VAT - 7% (hotel accommodation) and 5% (e.g. electricity, printed matter) also apply Slide 72

73 So what do all these rules imply? At the very basic level, these rules imply that all business transactions fall within the scope of the VAT Act as being Supplies of goods or services, or Intra-Community acquisition of goods, or Importation of goods Consequently, all transactions carried out by businesses are in principle subject to VAT (at 18%) and the non-charging of VAT (or charging a reduced rate) must therefore be considered only as an exception to the rule, e.g. Supplies deemed to be provided outside Malta (depend on place of supply rules) Transactions falling within the scope of an exemption Transactions falling within the scope of a reduced or zero VAT rate Transactions considered to be outside the scope of VAT (e.g. dividends and transactions not carried out as part of an economic activity) Slide 73

74 VAT status of certain companies Pure holding companies Companies that only hold investments in other companies and have dividends as their sole income source Not considered to be undertaking an economic activity and therefore not considered to be taxable persons (i.e. businesses) for VAT purposes In principle fall outside the scope of VAT (other than for certain intra EU transactions in goods) Financial services companies (e.g. banks, financial institutions, insurance, funds) Typically provide exempt without credit supplies i.e. no VAT is charged on such supplies but no right to recover any input VAT incurred (unless company makes supplies outside EU) No requirement to register for VAT unless in receipt of services from outside Malta in respect of which VAT is chargeable Slide 74

75 Yacht leasing guidelines In the scenario where: - the yacht shall be acquired primarily for pleasure/ private purposes; and/ or; - the ship owner is considering the possibility of disposing/ replacing the yacht within a few years after its acquisition; the VAT yacht leasing structure may represent an advantageous setup The Maltese VAT Department has issued guidelines in this regard The yacht leasing structure contemplates a Maltese company acquiring a yacht which is then leased to a non-taxable person (generally the beneficial owner) for a period not exceeding 36 months Yacht must come to Malta at start of leasing arrangement Income tax & VAT implications on Aviation Slide 75

76 Yacht leasing guidelines (2) Based on the fact that Malta is on the periphery of the EU and on the VAT principle of use and enjoyment that should apply to a pleasure yacht, the place of supply of the lease instalments should partly be deemed to take place in the EU and partly outside the EU Accordingly, VAT should only be due on the part of the lease instalments that is deemed to take place in the EU The percentage deemed use in the EU is determined on the basis of the length of the craft and its method of propulsion e.g. 30% for sailing/ motor boats which exceeds 24 metres in length 18% VAT is chargeable only on 30% of the lease value - thereby decreasing the effective rate of VAT on the lease payments to 5.4% (i.e. 30% x 18%) Income tax & VAT implications on Aviation Slide 76

77 Aircraft Leasing Guideline The concepts applicable in the yacht scheme apply in the aviation context but using components applicable to aviation in order to establish the applicable formula Maximum Take-off Mass (MTON) and Range are the applicable components, with each given a particular weighting. These have been fixed on the basis of a technical study which took into account statistical data on different types of aircraft Maximum deemed use outside the EU is 70%, minimum is 0% Certain procedural requirements are laid down in the VAT Guideline Income tax & VAT implications on Aviation Slide 77

78 Overview of aircraft leasing guidelines Without simplification measure: Acquisition of aircraft for private use 18% on purchase price With simplification measure: Acquisition of aircraft MaltaCo 18% input VAT upon acquisition of aircraft with possibility of recovery Lease of aircraft VAT = lease x established % lease enjoyment in EU x 18% Income tax & VAT implications on Aviation Slide 78

79 Stamp duty General overview Duty imposed mainly on transfers of: - immovable property (5% on transfers of immovable property or any real right thereon, and on transmissions of immovable property or any real right thereon) - emphyteutical grants (between 12% / 100% of ground rent) - marketable securities (5% if property company, 2% if other company) and interests in partnerships - life insurance policies (0.1% on the sum assured, subject to conditions) - an interest in a partnership (2%) - Movables in auction sales where total amount payable by one individual for the article exceeds 230 (2.6%) Therefore, not all transactions are subject to duty but only those which are dutiable under the DDTA Slide 79

80 Duty exemptions on transfers of marketable securities Various exemptions applicable on transfers of marketable securities, especially in respect of companies having their business interests outside Malta Transfers of marketable securities in or by companies owned by non-residents and having their assets situated outside Malta or having their business interests outside Malta are generally exempt So, stamp duty is typically not an issue in respect of transfers of marketable securities involving internationally operating companies owned by non-malteseresidents. In order to ensure that the exemption applies, it is important that the particular companies does not, directly or indirectly, own any immovable property situated in Malta nor any real rights thereon Slide 80

81 Malta an alternative finance centre Slide 81

82 Taxation of Collective Investment Schemes Background to types of funds and current legislation Collective Investment Schemes / Funds Retail Funds Professional Investor Funds Non-UCITS UCITS Experienced Qualifying Extraordinary Slide 82

83 Asset Management Professional Investor Funds Regulatory Requirements PIFs sold to Experienced Investors PIFs sold to Qualifying Investors PIFs sold to Extraordinary Investors Licensing requirements in terms of the ISA Yes Yes Yes Target Investors Experienced Investors Qualifying Investors Extraordinary Investors Custodian/Prime Broker Requirement Yes No** No** Self Managed Option Yes. Subject to a number of local presence requirements. Minimum Investment 10,000 75, ,000 Investment/borrowing restrictions Fit and Proper test-service providers & directors Reporting Legal form of the PIF Review of Application Documents Leverage for investment purposes up to 100%. Use of derivatives for efficient portfolio management unlimited (other restrictions apply) None None Compulsory Compulsory Compulsory Interim (if applicable) and annual - Investment company with fixed or variable share capital company - Limited Partnership - Unit Trust - Mutual Fund Within 7 working days response*** Within 7 working days response*** Within 3 working days response*** ** Provided there are appropriate safekeeping arrangements in place *** If external parties are all established in Recognised Jurisdictions Slide 83

84 Taxation of Collective Investment Schemes Background to types of funds and current legislation (cont.) A CIS grants investors the possibility to entrust their funds with a licensed entity to carry out collective investment activities A CIS may be set up under different legal forms (e.g. SICAV, INVCO, Unit Trusts, Investment Partnerships, Mutual Funds, ICC) Funds investing outside Malta are tax-exempt No tax is charged on distribution of profits to non-residents share/unit holders subject to the satisfaction of certain conditions Gains on share/unit transfers by non-residents are normally exempt No capital/stamp duty on issues/units and exemption available on transfers of shares/units in licensed funds No net asset value tax Slide 84

85 Taxation Asset Management Company Company A owns 100% of Malta Holdco which in turn owns 100% of Malta Asset Management Co Malta Asset Management Co receives investment advisory fees & performance fees of 100 Malta Asset Management Co suffers Malta tax of 35 Malta Asset Management Co distributes a dividend of 65 to Malta Holdco. Malta Holdco pays no further Malta tax on dividend Malta Holdco is entitled to a 6/7 refund of Malta tax paid by Malta Asset Management Co on distributed profits Effective post-refund tax burden is around 5% Tax payment and refund can be planned to occur approx 3-4 weeks of each other (3) Dividend - 65 (1) Profits / fees Company A Malta Holdco Malta Asset Management Co Investment Advisory fees & Performance fees (4) Refund - 30 (2) Tax - 35 Slide 85 Maltese Revenue

86 Drivers of growth in the fund industry - EU Membership / passporting - EU compliant legislation - Efficient tax environment - Swift application process (flexibility of the regulator) - Availability of quality, personalised professional services - Allows for redomiciliation of funds/companies - Relatively inexpensive compliance costs - Strategic factors culture, reputation, language, geography - Infrastructure legal system, IFRS, ICT, training, etc. Slide 86

87 Overview of Maltese company law Slide 87

88 General overview of Maltese Company law Limited Liability Separate Legal personality Share Capital Company Slide 88

89 General overview of Maltese Company law Principles of company law Separate legal personality Limited Liability A company has a legal personality distinct from that of its members. This continues until the company is struck off the register, whereupon the company ceases to exist. A company is formed by means of a capital divided into shares held by its members. The members liability is limited to the amount, if any, unpaid on the shares respectively held by each of them. Capital Maintenance Doctrine As a result of the limited liability, the law imposes minimum capital requirements and regulates distributions made to shareholders. Slide 89

90 General overview of Maltese Company law Incorporation of companies Types of companies Minimum number of shareholders Can either be private (Limited) or public (PLC) Two subscribers required for both private and public companies BUT may be a single member company if it is a private exempt company (PEC) and certain conditions are satisfied. Minimum share capital Currency of share capital Not less than 1, for private companies and 46, for public companies. Minimum 20%/25% must be paid up. May be denominated in any convertible currency. Currency of share capital determines, currency in which tax is calculated, paid and refunded. Slide 90

91 General overview of Maltese Company law Incorporation of companies Directors Company secretary Registered office Minimum of one director no requirement for directors to be Maltese nationals/resident. Director may be a corporate body Must be an individual who may also be a director of the company unless company has just one director. No nationality/residence requirements Every company registered in Malta must have a registered office in Malta. Slide 91

92 General overview of Maltese Company law Incorporation of companies Filing obligations Submission of annual return to MFSA (together with annual fee) Submission of audited financial statements...company can opt to have its year end other than 31 December as long as the first period is not less than six months and not more than eighteen months...approval timeframes: ten months after the financial year end for private companies and seven months from the financial year end for public companies. Submission to the RoC must occur within statutory deadline Possibility for timeframes extension where company s business interests are 90%+ overseas Slide 92

93 General overview of Maltese Company law Incorporation of companies Re-domiciliation Registration fees Shareholders agreement Inbound and outbound re-domiciliation is possible Upon incorporation, a registration fee is payable to the MFSA and it varies according to the amount of authorized share capital and the fee varies between 245 (for authorized share capital up to 1,500) to 2,245 (for authorized share capital over 2,500,000) Possible - general provisions governing the law of contracts, are established with respect to shareholders agreements. It is advisable that provisions of such agreements are aligned with and not in conflict with M&As Slide 93

94 Company law considerations Dividend Distributions The Maltese Companies Act states that A company shall not make a distribution except out of profits available for the purpose In terms of Maltese law a company s profits available for distribution shall be its accumulated, realised profits, so far as not previously utilised by distribution or capitalisation less its accumulated, realised losses, so far as not previously written off in a reduction or reorganisation of issued share capital duly made The concept of distributable profits arising from the Maltese Companies Act is important as tax refunds due to shareholders depends on the possibility of distributing profits Slide 94

95 Company law considerations Disclosure of information Information on shareholders and share capital, directors, company secretary, legal and judicial representative and auditors are publicly available. Audited financial statements registered at the Registry of Companies are also publically available. The company must maintain minute books, registers of members (open to inspection by the members) and debentures (open to inspection by any person) - the register of members and the register of debentures must be kept at the registered office of the company or at such other place as may be specified in the Memorandum or Articles of Association. The articles of association may specify other registers/records to be kept. Where trustees hold shares on a fiduciary basis, the Maltese Registrar of Companies does not hold information on the identity of beneficial owners of a company. This information is held by the authorized trustees themselves. Slide 95

96 Company law considerations Disclosure of information (cont.) The Financial Intelligence Analysis Unit (FIAU) may, - in respect of transactions that are suspected or known to be connected with the offence of money laundering or the funding of terrorism; or - in the course of the analysis of a Suspicious Transaction Report, require further information (including access to customer due diligence information). Financial statements prepared in terms of IFRS require the disclosure of the ultimate beneficial owner/s. If the company does not exceed certain thresholds and meets certain statutory conditions it should be possible for it to apply local GAAP for smaller entities. Such local GAAP for smaller entities should not require the disclosure of the ultimate beneficial owner/s in the company s audited financial statements.

97 Practicalities of registering and winding up a Maltese company Slide 97

98 Practicalities of registering a company in Malta General Government fees payable on establishment Term for incorporation Incorporation costs Registration fees range from a minimum of EUR 245 (approximately USD 315) to a maximum of EUR 2,250 (approximately USD 2,440), depending on the amount of the authorized share capital and the form of registration. Annual fees for the filing of the annual return range from EUR 100 (approximately USD 130) to EUR 1,400 (approximately USD 1,800), again depending the authorized share capital. Incorporation of a Maltese (non-licensed) company usually takes one/two business days from when all necessary documents are prepared and all relevant registration fees are paid in full. Costs for the incorporation of a company in Malta typically range between 2.5k - 3.5k Slide 98

99 Practicalities of registering a company in Malta Documents required Memorandum of Association Articles of Association however, if the Articles are not registered, the regulations included in the 1 st Schedule to the CA shall be the regulations of the company to the same extent as if such provisions were contained in duly registered Articles of Association. Bank deposit advice confirming the payment of the paid up share capital (in certain circumstances, the Registrar may accept a practitioner s certificate confirming that the said funds have been deposited in the said practitioner s clients account) Identification documents of natural persons, and/or good standing certificate and certificate of incorporation of corporate shareholders. In certain circumstances, additional documentation (eg. a bank reference) may be requested. Slide 99

100 Exit from Malta Liquidation of a Maltese company The liquidation of a Maltese company in terms of a members voluntary winding up procedure should be straightforward. In order to make the liquidation as straightforward as possible all liabilities, if any, should be settled and any assets transferred by the company before placing the company into liquidation Following the date of liquidation a different auditor to the current one would have to be appointed to carry out an audit from the date the company is placed into liquidation until the final scheme is prepared. A liquidator must also be appointed. In the case of a straightforward liquidation, the company may be placed into liquidation within a couple of weeks, after the preparation of a statement of affairs which must be prepared to a date up to a maximum of 3 months before the date of liquidation. Slide 100

101 Exit from Malta Liquidation of a Maltese company (c0nt.) Once all information and documents are obtained (including tax clearance certificate from the Inland Revenue) and submitted to the Maltese Registrar of Companies, the Registrar of Companies should publish the notice announcing the company s strike-off from the registry of companies in Malta. We suggest budgeting around 4-6 months, from the time the company is placed into liquidation, for all the required documents (including audited financial statements) to be submitted to Registrar. A further statutory period of 3 months would then need to elapse from the date of the publication of the said notice before the company may be struck off - this is to give further time to any creditor to object to the striking off. Slide 101