Disclaimer: 

This General overview has been obtained from Government Sources so: Is not our responsibility if any part of Local Legislation or Rules has been changed by Authorities without advice us.-

This overview is only for information and if wish to obtain more, please, consult directly to each Local Authority and/or Experts.-

Maltese company law derives chiefly from civil or 'Roman' law, rather than common law. A new Companies Act 1995 replaces the old Commercial Partnerships Ordinance, and sets up a new regime for commercial entities under the Registrar of Companies. 

Companies set up under the old regime had until 1st January 1998 to convert themselves into the new formats, except that 'Offshore Companies', which can now no longer be formed, have 10 years to adapt. Shipping companies, and, while they survive, offshore companies, continue to be subject to the old Commercial Partnerships Ordinance.

The private limited company, (or 'partnership anonyme' in civil code terms), has the suffix 'Limited' or 'Ltd'. 

The company is formed by submission of the Memorandum and Articles to the Registrar (in English), together with the appropriate fee. Incorporation takes about 7 to 10 days and shelf companies are not available.

The following are the chief characteristics of a private limited company:

only one member is necessary;

only one director is necessary, and must be a natural person, but can be of any nationality and resident anywhere;

there must be a company secretary, which must be a licensed Maltese Nominee Company;

there must be a registered office in Malta;

the minimum authorised and paid-up capital is Lm500, but it is usual to have capital between Lm2,000 and Lm5,000 (the highest amount within the lowest duty band); a minimum 20% of the authorised value must be paid up; if there are non-resident members then the minimum capital is Lm10,000 of which 50% must be paid up, and they must obtain exchange control permission (a formality);

shares can be registered but not bearer; preference or redeemable shares are permitted; and shares do not have to carry voting rights;

accounts must be kept but do not have to be filed.

Registration and annual return fees are as follows:

The International Holding Company (IHC) is similar to the International Trading Company except that as its name implies it holds participations in foreign companies. Its effective tax rate is 11.67% or less; if dividends emanate from a 'participating holding', ie one of more than 10% in the paying company, then the effective rate of tax is nil. 

Like the ITC, the IHC can make use of Malta's Double Taxation Treaties.

Offshore Companies were brought into being by the Malta Financial Services Centre Act 1988. 

The details of their formation are no longer interesting, because in 1994 the Government legislated them away. 

The final date for forming an Offshore Company was 1996, and existing Offshore Companies must convert into other forms (most likely International Trading or Holding Companies or Trusts) by the end of 2003.

Offshore Companies, which must be owned by non-residents and which must deal or trade only with non-residents, come in two flavours: the Trading Offshore Company, and the Non-Trading Offshore Company.

Trading Offshore Companies can be General Trading Offshore Companies (for any purpose other than banking or insurance), Banking Offshore Companies or Insurance Offshore Companies. 

The two latter are dealt with in Offshore Business Sector, the General type is used for many purposes including barter and counter-trade operations, reinvoicing centres, employment centres, leasing, construction management, administration etc. 

Trading Offshore Companies pay 5% tax (or more if they wish).

Non-Trading Offshore Companies are property-holding vehicles, property being defined very widely to include shares, other holding companies, investments, ships, etc. Non-Trading Offshore Companies are exempt from tax, including withholding tax.

Offshore Companies do not benefit from Malta's network of Double Taxation treaties. Offshore General Trading Companies pay an annual fee to the Government of $3,000; Non-Trading Offshore Companies pay an annual fee of $1,500.

General Partnerships are formed under the Companies Act 1995 as a partnership 'en nom collectif' which has a partnership name. 

There is a Deed of Partnership giving the names of the partners, the address of the registered office, the objects of the partnership, its duration, and the amount of capital contributed by each partner. The Deed is registered by the Registrar of Companies.

The partners are liable jointly and severally for the full debts of the partnership.

Limited partnerships in Malta have general partners, who are responsible for management, and have unlimited liability, and limited partners, who are liable only to the extent of their capital contributions to the partnership. 

A limited partnership is formed under the Companies Act 1995 as a Societe en Commandite Simple and is subject to the same rules as a general partnership. 

The SICAV (Societe 'd'Investissement a Capital Variable) is also formed under the Act, but as a partnership limited by shares (Societe en Commandite Limitee par Actions), and is used by mutual funds.

Trusts in Malta are based on the Offshore Trusts Act 1988, which was largely based on Jermal trust law, itself a common law implant stemming from English trust law. 

Trusts under this Act must have non-resident settlor and beneficiaries, and trust assets must not include Maltese real estate.

The Recognition of Trusts Act 1994 gave effect to the Hague Convention, and results in a division of trusts into:

Maltese trusts, where the proper law of the trust is Maltese, and the governing legislation is the 1988 Act (now called the Trusts Act 1988); and

Foreign trusts, governed by whatever law the settlor has nominated.

All trusts, including foreign ones, must register with the Maltese Financial Services Centre (MFSC), which costs Lm200 on registration and annually thereafter. Foreign trusts which do not register with the MFSC will not benefit from the tax advantages of registered trusts (they are tax-exempt). 

A registered trust must have a Maltese nominee company as one of its trustees, which files an annual declaration of conformity with the law; no accounts or tax returns need be filed. (A nominee company is a Maltese company which has been authorised by the MFSC to provide services to trusts, and carries the supervisory responsibility on behalf of the MFSC.)

It is likely that a Malta-registered trust will often be a more effective holding vehicle than the International Holding Company 

On the other hand, when the assets to be held are Maltese real estate, it may be better to use an unregistered foreign trust. 

Many international investors choose Malta as the location for financial holding and investment companies, using the International Holding Company form, due to the jurisdiction's combination of tax treatries and low-tax offshore regime.

Investment into most of the leading OECD economies benefits from low treaty withholding tax rates. Often it would be best for the investment to have a high debt component, since the interest is normally a charge against profit in the destination country, and the treaty rates of withholding tax on interest payments are normally lower than the withholding rate on dividends, except in some cases where there is a major (usually means 25%) participation.

Whatever the mix of interest and dividends, the income once in Malta will be taxed after deduction of expenses at an effective rate of 12% or less, and if there is a 10% participation by the Maltese company the rate will be zero as long as the profits are distributed onwards to non-resident persons

Maltese banking is now conducted according to the Banking Act 1994 (for credit institutions aka commercial banks) and the Financial Institutions Act 1994 (for non-lending institutions, mostly meaning foreign exchange bureaux). 

This legislation conforms to current EU banking directives.

'International Banking Institutions', seven of which were licensed as offshore companies under the Malta International Business Activities Act 1988 now have to convert to 'credit institution' status under the Banking Act. Incoming banks are now licensed only under the Banking Act. With the gradual abolition of exchange controls, there now remains little distinction between 'international' and 'local' banks, or between 'offshore' or 'onshore' banks.

Maltese and foreign banks are supervised by the Malta Financial Services Centre; minimum capital for a new bank is 5 million euros. Foreign banks may operate through branches, but are still subject to supervision by the MFSC.

The Maltese banking sector has remained largely a domestic affair, with only a small number of foreign banks establishing themselves on the island, for a combination of reasons. Given Malta's EU application, the arrival of HSBC and the growth of mutual fund listings on the Stock Exchange, it would not be surprising to see more international banking activity in Malta in the near future.

The powers of the Malta Financial Services Centre could be extended in the near future to enable it to become Malta's first single financial services regulator. Lowtax.net will keep you posted but for the moment, preliminary discussions have taken place on the Island involving the government, Malta Stock Exchange, Central Bank and the Financial Services Centre.

Offshore operations may take place within the following forms:

International Trading Company

International Holding Company

SICAV

Offshore Company

Trust

International Trading Company  

Pays tax at the regular rate, 35%, but a non-resident shareholder, or a Maltese company shareholder owned by non-residents, is subject to Maltese tax only at 27.5% on dividends received from an ITC, and can apply for a refund of the difference. In addition, the non-resident shareholder is entitled to a refund of two-thirds of tax paid on dividends (imputed tax) which equals 23.33%, giving a total return of 30.83%, and an effective rate of tax of 4.17%.

The two-thirds rule is in fact optional, and the shareholder can choose just to take the tax credit of 27.5% if he wishes.

The rules for tax payments and refund payments are such that there is a gap of only 14 days between payment of the tax due by the company and receipt of the refunds by the shareholder.

Licensed collective investment funds in Malta are exempt from income tax, but are also not eligible for tax treaty benefits. However, a SICAV can elect to be taxed at 25%, which brings it within the treaty rules and may be advantageous in some situations. Fund management companies (investment services companies) pay tax at 35% but are able to use an extensive list of deductions, including double deduction of salaries paid to Maltese personnel.

The Offshore Company is being phased out. New ones cannot be formed, but existing ones can continue until 2003. Tax is charged on the net income of trading offshore companies at 5%, but they can choose to pay a higher rate if they want (this kind of 'designer' tax situation has been targeted by the UK Treasury, and other Finance Ministries will no doubt follow suit). Non-trading offshore companies (investment holding companies) are exempt from tax; they do not have to file a tax return. 

There is no taxation of any payments by offshore companies to non-residents.

Until the end of 1996, incoming banks, insurance companies and mutual funds took the form of offshore companies; existing institutions can convert into one of the other corporate forms that are available, or they can remain as offshore companies until 2003. They pay fees on registration and annually as follows:

Offshore banks: Lm 25,000

Offshore insurers: Lm 5,000

Captive insurers: Lm 1,000

Offshore collective investment company: Lm 5,000

Apart from collective investment schemes (see above) there are no special tax regimes for financial institutions: they are taxed according to their corporate form, ie as Offshore Companies, International Trading Companies, International Holding Companies or regular Private Limited Companies as appropriate. A special taxation regime for insurers is being prepared as part of a general revision of Maltese insurance legislation.

Both Maltese trusts and foreign trusts registered in Malta have by definition non-resident settlors and beneficiaries, and are exempt from income tax, except that they pay an annual amount of Lm 200 to the Government.

Trusts do not have to file tax returns; the nominee company which is acting as their trustee makes an annual declaration of conformity with the law. No stamp duty or other taxes are payable in respect of trust transactions or documents. Trust property may be imported free of customs duty. A trust is not subject to exchange control unless a transaction is carried out with a Maltese resident.

The Central Bank of Malta applies exchange control under the terms of the Exchange Control Act 1972. Current transactions were freed from exchange controls in 1994; capital controls are being gradually loosened, and those that remain apply mostly to external investments by residents. 

The Maltese corporate forms likely to be used as offshore or non-resident entities are all exempt from exchange controls.

Non-residents are allowed to have foreign currency or Lm accounts with local financial institutions; these accounts can be freely credited with incoming effects, and with authorised (ie under exchange control) payments from residents. 

They can also be debited freely with payments to residents or overseas. Permission is also given readily to Maltese companies controlled by non-residents to maintain foreign currency accounts in Malta or overseas.

The various forms of offshore entity in Malta are limited as regards the trading they can do in the jurisdiction, but not as regards the running of their businesses from Malta.

International Trading Companies are allowed the following local activities:

purchases for export of Maltese goods provided that they are not made from a 15% shareholder in the buying company;

trading with companies registered in Malta under the Financial Services Centre Act 1988 (ie Offshore Companies);

trading with other International Trading Companies.

Registered Maltese and foreign trusts and International Holding Companies can hold a wide range of assets including the shares of other offshore entities; but not Maltese immovable property or companies owning such. The foreign unregistered trust comes into its own here, and can be used in a variety of more or less complicated structures to own Maltese property assets in a tax-effective way.

The situation of Trading and Non-Trading Offshore Companies is broadly similar to that of International Trading and Holding Companies, respectively.