Stephen Balzan. Malta where does the Russian money goes. The Future of Offshore Jurisdiction Malta 07.06.2013
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Malta is presented as an attractive location for holding companies and tax planning due to its low tax rates, robust tax system, and participation exemption regime which allows for dividends and capital gains to be exempt from Maltese tax. Key benefits include no withholding taxes on outbound payments, extensive double tax treaty network, and a refundable tax credit system which can result in an effective tax rate of 5% for shareholders. Malta is positioned as providing opportunities for EU market entry and exit in a tax efficient manner.
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Stephen Balzan. Malta where does the Russian money goes. The Future of Offshore Jurisdiction Malta 07.06.2013
- 1. WHERE DOES RUSSIAN MONEY GO NOW? THE FUTURE OF OFFSHORE JURISDICTION MALTA Stephen Balzan Tax Partner EMD LEGAL TAX ADVISORY CORPORATE 16/26/2013
- 2. MALTA ■ A fully independent republic ■ EU Member State since 2004 and introduced Euro in 2008 ■ Stable economy ■ Strong financial system ■ Economy dominated by manufacturing, tourism, financial services and ICT sectors ■ Banking and finance regulations based on EU rules ■ Centre of the Mediterranean ■ No exchange controls ■ Free market economy ■ Safe environment 26/26/2013
- 3. MALTA ■ Democratic country ■ Flexible but well regulated environment ■ Efficient tax system ■ State of the art telecommunication systems ■ Excellent education sector ■ State of the art health sector ■ Safe environment to live and work ■ No uncertain tax positions ■ Reasonable cost of living 36/26/2013
- 4. MALTA ■ A reliable international business centre ■ Low running costs, rents and labour costs ■ Low registration fees and share capital ■ Extensive double taxation treaty network ■ Convenient time zone ■ Support services by pro-active professionals ■ A place where to combine work and pleasure ■ A very mild winter ……. and a very hot summer 46/26/2013
- 5. THE ECONOMY ■ Currency – Euro since 2008 ■ GDP in 2012 – 8.6 billion Euros ■ Economic growth in 2012 – 1.2 % ■ EU forecasts that Malta will register the second highest growth among the 17 members of the Eurozone ■ Unemployment in April 2013 – 5.5% ■ Lowest effective tax rate in the European Union 56/26/2013
- 6. THE ECONOMY Main contributors to GDP: ■ Tourism (35%) - over 1.3million visitors annually ■ Industry (27%) ■ Financial services (15%) - over 7,000 employed. In the next few years, this is expected to increase to 25% of GDP 66/26/2013
- 7. Standard corporate income tax rates Malta 35% UK 24% Germany 15% Italy 27.5% Belgium 34% Estonia 21% Luxembourg 21% Cyprus 10% 76/26/2013
- 8. Corporate income tax rate is 35%. However, the combined overall Malta effective tax (COMET) rate is reduced by the application of: 86/26/2013 Full Imputation System Cross border Relief for Double taxation Tax payment And refund System
- 9. Other features of the Maltese tax system ■ No Thin Cap and CFC rules ■ No withholding tax on dividends, interest and royalties ■ No specific transfer pricing rules ■ Unlimited carry forward of losses ■ Limited tax on capital gains ■ No capital or wealth taxes ■ No entry and exit taxes ■ Procedure for formal tax rulings and informal system of Revenue guidance ■ Re domiciliation procedure 96/26/2013
- 10. Taxation of Maltese companies ■ Maltese companies are subject to a flat tax rate of 35% ■ Malta’s taxation of dividends is based on the full imputation system, i.e. a full credit of the normal tax rate of 35% ■ Effective system for relief of double taxation to companies ■ Tax refunds available to shareholders 106/26/2013
- 11. Full imputation system of taxation ■ A mechanism to grant relief from economic double taxation ■ Same profits should not be taxed twice in the hands of different persons ■ Corporate tax is a prepayment of shareholders’ tax 116/26/2013
- 12. The full imputation system of taxation ■ Company profits are subject to tax ■ On distribution, these profits are in the hands of a different person – the shareholder ■ Dividends are essentially the same profits ■ In principle there should not be any further tax on these profits 126/26/2013
- 13. The full imputation system of taxation Company € Shareholder € Profit before tax 100 Gross dividend 100 Tax at 35% (35) ____ ____ Net profit after tax 65 Tax at 35% 35 available for distribution ____ Tax at source (35) ____ - ____ 136/26/2013
- 14. Cross-border relief from double taxation 1. Treaty Relief 2. Commonwealth Relief 3. Unilateral Relief - including a credit system for relief of underlying tax and 4. Flat-Rate Foreign Tax Credit of 25%. Overseas income is never subject to double taxation 146/26/2013
- 15. 63 Double Taxation Treaties in Force as at May 2013 Albania Australia Austria Bahrain Barbados Belgium Bulgaria Canada China Croatia Cyprus Czech Rep. Denmark Egypt Estonia Finland France Georgia Germany Greece Guernsey Hong Kong Hungary Iceland India Ireland Isle of Man Italy Jersey Jordan Korea Kuwait Latvia Lebanon Libya Lithuania Luxembourg Malaysia Montenegro Morocco Netherlands Norway Pakistan Poland Portugal Qatar Romania San Marino Saudi Arabia Serbia Singapore Slovakia 156/26/2013
- 16. 4 Treaties signed but not yet in force Israel Mexico Russia Turkey 166/26/2013
- 17. No outbound tax is withheld on payments of ■ Interest; and ■ Royalties when paid to non-Maltese residents. Such income is exempt from Maltese income tax. No withholding tax on dividends in view of the imputation system 176/26/2013
- 18. Refundable tax credit system ■ Shareholders of a company registered in Malta are entitled to claim certain refunds of tax paid by the company upon the receipt of a dividend distributed by the company ■ No distinction between local and foreign sourced income (exceptions) ■ There are 4 types of refunds (6/7, 5/7, 2/3 or 100% of tax paid by the company) 186/26/2013
- 19. Practical example of the refundable tax credit system Malta company € Profit before tax 1,000 Tax at 35% (350) _____ 650 Distribution of profits (650) _____ - _____ Shareholder € Gross dividend 1,000 _____ Maximum tax 350 Tax at source (350) _____ - _____ Refund of tax (6/7) 300 _____ 196/26/2013
- 20. ■ Step 1: Malta Operating Company receives trading profits of €100. ■ Step 2: Malta Operating Company suffers tax at the corporate rate of 35%. ■ Step 3: Malta Operating Company effects a distribution of the net dividend amounting to €65 to the Malta Holding Company. The latter pays no further tax. Practical example of the refundable tax credit system 206/26/2013
- 21. ■ Step 4: A refund of 6/7ths of the tax paid by the Malta Operating Company may be claimed at the level of the Malta Holding Company. ■ Result: Effective post- refund tax burden of 5%. ■ Holding company does not pay any tax on dividends and refunds received Practical example of the refundable tax credit system 216/26/2013
- 22. Why is Malta a prime EU holding company location? ■ Access to wide treaty network and EU directives for reduced withholding tax on interest, dividends and royalties ■ Effective means to structure the ownership of EU and non EU subsidiaries ■ Full participation exemption on dividends and capital gains ■ No CFC and thin cap rules ■ No withholding tax on outbound payments of interest, dividends and royalties ■ Tax neutral liquidation of the holding company 226/26/2013
- 23. Why is Malta a prime EU holding company location? ■ Exemptions from the requirement to prepare consolidated financial statements at the level of the Malta parent company ■ No exit taxes ■ Possible to migrate the legal seat of the Malta company to a foreign jurisdiction ■ Low share capital requirements and incorporation is swift ■ Single member companies are possible ■ Low statutory fees 236/26/2013
- 24. Why is Malta a prime EU holding company location? ■ No tax on capital gains derived from the disposal of shares in a Maltese company (exceptions property companies) ■ No worth tax or similar tax on capital ■ Exemption from stamp duty ■ Expense deductibility 246/26/2013
- 25. Malta holding companies – participating holding An investment constitutes a participating holding when, amongst other conditions: ■ The Malta Company holds at least 10% of the equity shares of an overseas company; OR ■ The value of the shareholding exceeds €1,165,000 and said holding is held for an uninterrupted period of not less than 183 days. 256/26/2013
- 26. ■ Where a company elects to pay tax on its income from a Participating Holding, the tax paid by the company will be refunded in full to the shareholder. ■ Refund of tax is calculated on the total tax paid, that is, inclusive of foreign tax. 266/26/2013
- 27. Participation Exemption If the holding is in a company which: ■ is resident or incorporated in the EU; or ■ is subject to any foreign tax of at least 15%; or ■ does not have more than 50% of its income derived from passive interest or royalties such a holding will qualify for a participation exemption. ■ Exemption may also be extended if a number of further conditions are satisfied 276/26/2013
- 28. Participation Exemption This means that: ■ Dividends received by the Malta company will be exempt from Maltese income tax ■ Capital gains derived from the disposal of the holding will be exempt from Maltese income tax ■ Malta company may opt to be taxed at 35% with full refund given to the shareholder on distribution of a dividend 286/26/2013
- 29. Out of Malta In Malta Into Malta Summary of Taxation of Income Flows 296/26/2013
- 30. MALTA TAX PLANNING IDEAS ■ Malta Holding Company Structures ■ Participation exemption in Malta on qualifying dividends and capital gains ■ No withholding tax on dividends distributed by Malta company ■ FP can be resident in a treaty or non-treaty country and can also be situated in a low tax jurisdiction ■ Effective 0% Malta tax cost 306/26/2013
- 31. MALTA TAX PLANNING IDEAS ■ An ENTRY ROUTE into the EU 316/26/2013
- 32. MALTA TAX PLANNING IDEAS ■ An EXIT ROUTE from the EU ■ NO WHT on dividends paid to Malta from the EU ■ Dividends received in Malta should be exempt from tax in Malta under the participation exemption regime ■ No WHT on outbound interest, royalty and dividend payments from Malta 326/26/2013
- 33. MALTA TAX PLANNING IDEAS ■ Malta combined Holding/ Trading Structures ■ Malta 2 subject to Malta tax at 35% ■ Malta 1 receives 6/7ths tax refund from tax authorities and dividends from Malta 2. These will not be subject to further tax in Malta in the hands of Malta 1. ■ Malta 1 distributes dividends to FP. No withholding tax on payment of dividends. 336/26/2013
- 34. CONCLUSION - MALTA ■ Robust tax efficient system ■ Stable and safe economy ■ Incentives to do business or hold investments ■ High corporate tax rate but refunds reduce net effective tax ■ Number of tax planning ideas 346/26/2013
- 35. For further information kindly contact us: info@emd.com.mt +356 2203 0000 MALTA Stephen Balzan Tax Partner EMD LEGAL TAX ADVISORY CORPORATE 356/26/2013
- 36. DISCLAIMER This presentation has been prepared for general guidance and for matter of interest only and does not constitute professional advice. You should not act upon the information contained in this presentation without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy and completeness of the information contained in this presentation, and the firm does not accept any liability and disclaims all responsibility for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this presentation or for any decision based on it. 366/26/2013