Synopsis
Malta is an independent republic, having gained independence from the United Kingdom in 1964, situated in the centre of the Mediterranean Sea about 60 miles south of Italy and 180 miles north of North Africa. Government is exercised by a democratically elected parliament with elections being held every five years. Population is approximately 365,000. English and Maltese are the official languages but Italian is also widely spoken. English is the business language. Malta is a member of the Commonwealth of Nations and becomes a full member of the European Union from May 2004.
The legal system is based on the Napoleonic code but British Law has had a strong influence particularly in fiscal and commercial law. The official currency is the Maltese Lira (Lm) and Lm1 equals approximately €2.20.
Malta has signed tax treaties with Australia, Austria, Belgium, Bulgaria, Canada, China, Cyprus, Finland, France, Germany, Hungary, India, Italy, Libya, the Netherlands, Norway, Pakistan, Poland, Portugal, Sweden, Switzerland, the United Kingdom, and the United States of America. At the beginning of 1996 Malta substantially revised its corporate law so as to remove the distinction between offshore and onshore companies and thereby hopes to guarantee that all Maltese companies will obtain favorable treatment under these tax treaties.
THE MALTA COMPANY
It was still possible to register Maltese “offshore” companies up until the end of 31st December 1996 and such companies may continue to operate until 23rd September 2004 or ten years from the date of incorporation, whichever is the earlier. Offshore companies pay a fixed rate of tax of 5% on world wide income.
The new regime does away with the distinction between offshore and onshore companies and Malta now offers two types of company which will be of interest to the tax planner: the International Holding Company (IHC) and the International Trading Company (ITC). These entities are taxed as described below and are designed to take advantage of the tax treaties signed by Malta. The ITC is statutorily defined as a company which is engaged solely in carrying on trading activities from Malta with persons outside Malta and has objects expressly limited to such trading activities. The ITC may not hold foreign investments or equity. An IHC is a company whose activities are limited to foreign equity participation and other similar passive income generating activities. Such entities are taxed in a particularly advantageous manner where income is received from “participating holdings”.
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Last reviewed: Saturday, July 01, 2006
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