Malta Holding Company

Act II of 2007 enacted on 16th March 2007 has introduced new and improved amendments to the Maltese Holding Company regime. At a glance, the new measures are the following:  

• The introduction of a Participation Exemption on dividends received from a participating holding or from gains on the disposal of such holding.

• A more beneficial definition of a participating holding, to include investments held as trading stock.

• New Anti-Avoidance provision specifically targeting participating dividends received from low tax jurisdictions

• Lower effective tax rates for non-participating holding income received by the Maltese Holding Company

Companies registered or continued in Malta after 1st January 2007 can benefit from these new provisions relating to the Participation Exemption. Such exemption means that the foreign dividends received by the Maltese company by a qualifying holding or gains from the disposal of such holding would be exempt from tax and withholding tax in Malta.

(a) a company holds directly at least ten per cent of the equity shares of a company not resident in Malta whose capital is wholly or partly divided into shares;
 

(b) a company is an equity shareholder in a company not resident in Malta and the equity shareholder company is entitled at its option to call for and acquire the entire balance of the equity shares not held by that equity shareholder company to the extent permitted by the law of the country in which the equity shares are held;

(c) a company is an equity shareholder in a company not resident in Malta and the equity shareholder company is entitled to first refusal in the event of the proposed disposal, redemption or cancellation of all of the equity shares of that company not held by that equity shareholder company;

(d) a company is an equity shareholder in a company not resident in Malta and is entitled to either sit on the Board or appoint a person to sit on the Board of that company as a director;

(e) a company is an equity shareholder which invests a minimum sum of five hundred thousand liri (or the equivalent sum in a foreign currency) in a company not resident in Malta and that the investment in the company not resident in Malta is held for an uninterrupted period of not less than 183 days;

(f) a company is an equity shareholder in a company not resident in Malta and where the holding of such shares is for the furtherance of its own business and the holding is not held as trading stock for the purpose of trade.

 
The New Anti-Avoidance Provisions

For a participating holding to be claimed, any foreign entity in which the participating is held must satisfy at least one of the following criteria:

1. It is resident or incorporated in a country or territory which forms part of the EU;
2. It is subject to any foreign tax of at least 15%;
3. It does not have more than 50% of its income derived from passive interest or royalties.
   
   When none of the above conditions are met, then both the following two conditions must be fulfilled:
   
   •    The equity holding by the company registered in Malta in the body of per-sons not resident in Malta is not a portfolio investment; and
   
   •    The body of persons not resident in Malta or its passive interest or royalties have been subject to any foreign tax at rate which is not less than 5%.
   
   In those instances where the participating holding qualifies as a ‘participation exemption’, the Maltese company has the option not to declare the income in its tax return resulting in no tax being payable in Malta.