Maltese holding company: an overview

01.03.2024

Introduction

A holding company represents a distinct corporate structure created primarily to own controlling equity stakes in other companies. Rather than conducting its operations, a holding company's core function involves the management and oversight of subsidiary entities. This article examines key features of holding companies and contrasts them with operating companies across areas such as objectives, structure, risk profile and applicable regulations. It also highlights potential tax advantages available to holdings in jurisdictions such as Malta.

The primary purposes of a holding company include:

Providing centralized oversight and governance over subsidiaries to align group-wide objectives.
Facilitating effective capital allocation and consolidated reporting across a group.
Diversifying both operational and financial risk across multiple underlying investments held through subsidiaries.

There are distinct differences between holding structures and conventional operating companies:

Holdings derive value from investments and subsidiaries’ performance rather than selling own products/services.
Due to a multi-layered structure, holdings require greater focus on group-wide strategy and controls.
Holdings allow risk to be distributed across sectors, assets, and geographies through strategic subsidiary investments.
The tax regulation and incentives available may differ significantly depending on domicile.

The legal and tax regulations that apply to a holding company depend on the particular jurisdiction in which it is established. Malta offers a competitive tax regime specifically for holdings, including refundable tax credits and exemptions on certain foreign-source income. Appropriate professional advice is highly recommended when structuring a holding company.

While holdings and operating companies both represent legally incorporated enterprises, they serve fundamentally different economic purposes. By clarifying their distinctive attributes, businesses can determine the appropriate framework to support their commercial goals and efficiently manage legal and fiscal obligations.

The pros for opting a Maltese holding company

Malta has emerged as an attractive European jurisdiction for incorporating and basing holding companies. Its competitive tax regime, robust legal framework, EU membership and expanding treaty network offer significant advantages. This article examines the key benefits of establishing a Maltese holding structure.

Taxation incentives

Malta operates a system providing holdings with refundable tax credits. This effectively reduces net tax on profit distributions to 5% (Maltese holdings registered are subject to tax at 35%. However, shareholders can claim compensation of 6/7 of the tax paid). Share disposals and dividend income may also qualify for exemptions, while foreign tax credits minimize international double taxation. These incentives make Malta tax-efficient for regional or global holdings.

Legal and regulatory environment

As an EU member state, Malta's legal system is recognized internationally as reputable and reliable. It upholds property rights and protections for foreign investors essential to holdings. Regulatory compliance is also facilitated for dealings across the EU single market. This environment inspires confidence for overseas stakeholders and makes Maltese structures robust.

Market access and expansion

Membership in the EU single market allows unrestricted trade between Malta and 27 other European states, enabling localized holdings to scale pan-EU operations. Customs duties and charges are eliminated for intra-EU trade, while harmonized regulations ease establishment across member countries. This integration aids market diversification.

International agreements

An expanding multilateral tax treaty network helps reduce tax obligations in cross-border scenarios. Agreements now exist with over 70 jurisdictions to limit instances of double taxation. This prevents tax liabilities acting as disincentives for overseas expansion or activity through a Maltese base, supporting internationalized holdings.

Malta’s legal and tax landscape makes it a reliable jurisdiction for locating a holding entity. The array of fiscal advantages and accessibility to European and global markets offer a platform for growth through holdings based in the country.

Key Maltese legislation for holding companies

Malta has developed a comprehensive legal framework to facilitate the establishment and administration of holding companies. The main regulations governing Maltese holdings relate to company law, income tax and special tax incentives. This article outlines key features of the relevant legislation.

Legislation	Description
Companies Act 1995	Based on British company law principles, Malta's Companies Act 1995 forms the backbone of corporate regulation. It covers all aspects of a company's constitution, operations, and dissolution. Provisions concerning capital maintenance, accounting standards, and reporting obligations help align holding structures with international norms enabling robust oversight and governance.
Income Tax Act	Malta operates a full imputation tax system with special rules applicable to holdings under the Income Tax Act. This covers taxation of company profits, capital gains, dividend distributions, and refundable tax credits. Shareholder dividends can qualify for tax credits equivalent to a substantial portion of tax paid at the corporate level.
Special Tax Incentives	Additional fiscal benefits are available to Maltese holdings under specific regulations such as the Income Tax Act for Companies Carrying on Family Business and the Business Promotion Act. These provide exemptions from capital gains tax and foreign tax credits to mitigate international double taxation. Where conditions are satisfied, reduced effective tax rates can be obtained.

Malta’s legal environment enables holders to efficiently administer multi-layered corporate structures. Harmonized provisions on financial reporting improve transparency, while tax legislation offers unique savings opportunities. Supported by EU membership and a strong network of double tax agreements, Maltese law provides holding companies access to global markets with tax-efficient outcomes.

Holding companies corporate structures

Malta offers several flexible corporate structures that can serve as efficient holding companies. Each form has distinct features, advantages and applicable regulations that merit consideration when establishing a holding.

Private Limited Liability Company

The private limited company is the most popular holding vehicle in Malta. It confers limited shareholder liability and allows access to the country’s full imputation tax refund system. Private status enables greater control over ownership changes compared to publicly listed firms. These attributes provide an administratively simple structure suited to closely held regional holdings.

Public Limited Company

Public companies enable broader shareholder participation through tradable equity on stock exchanges. While less common for holdings in Malta, they facilitate capital raising from public markets. Public companies must comply with more stringent auditing, reporting and corporate governance requirements appropriate for large international groups preparing for an initial or secondary listing.

Partnerships

Malta also permits the use of limited and general partnerships as tax transparent holding vehicles. Income is attributed directly to partners. Partnerships allow flexibility in allocating profit shares compared to corporate structures. However, partners will not benefit from limited liability protections.

Malta provides appropriate holding vehicles customizable to an ownership group’s preferences concerning limited liability, capital needs, taxation, and governance obligations. Each legal form confers specific advantages that should guide incorporation decisions for holdings.

Establishing a holding company in Malta

Malta’s legal and regulatory framework contains specific provisions applicable to the formation and administration of domestic holding companies. Below, we describe basics concerning registration, capitalization, governance, reporting, and general corporate housekeeping. Adhering to these standards helps ensure compliance and effective oversight of Maltese-based holdings.

Registration formalities

The establishment process involves submitting incorporation documents and director/shareholder details to the Malta Business Registry (MBR). The MBR will issue a certificate of registration after vetting applications to confirm all requirements are satisfied. Appropriate legal or compliance advice is highly advisable during setup.

Share capital rules

Private limited liability holdings must have a min. authorized share capital of €1,165 paid up to at least 20% on incorporation. Public companies require a larger €46,600 capital base. The permitted use of foreign currency for share capital facilitates global investment. Ongoing capital maintenance stipulations also apply.

Governance and administration

Maltese holdings must register a local corporate office and notify this address to the MBR. They are also obliged to appoint directors, as well as company secretaries, to manage compliance activities and record-keeping. The organizational structure must include regular shareholder meetings to consider audited financial statements as tabled by directors with other resolutions.

Reporting requirements

Audited accounts serving as an annual return must be filed with the Registry within set periods. This improves transparency in line with EU standards. Ongoing event-based disclosures to the MBR may also be necessary around changes in registered details.

We remind you that this information represents the process of registering a holding in Malta only in very general terms. We would be happy to offer a profound overview according to your needs.

Documents for registering

Forming a holding company in Malta requires submitting the prescribed documents to the MBR for approval. These statutory filings provide details on the proposed structure, governance, and operations. This guide outlines the key documents investors need when registering a Maltese holding vehicle.

Governing documents

As the constitutive documents, a company's Memorandum and Articles of Association must be filed. The Memorandum outlines share capital and activity scope. The Articles govern internal management, administration, and shareholder decision-making procedures. Both must comply with company regulations.

Registration application

A standard application form collects administrative details about the holding entity including proposed name, directors, company secretary, legal address in Malta and activities classification. This officially initiates the registration process.

Participant consent forms

Directors, the company secretary and shareholders must each complete consent documents with their personal details authorizing their respective appointments to be filed with authorities.

Identification documents

The Registry will vet suggested directors, the secretary, and shareholders by requiring notarized copies of identification documents. For entities, certificates of incorporation and corporate structures listing ultimate beneficial owners must be provided.

Address verification

Registered office address details in Malta are needed. Lease contracts or serviced office agreements can serve as proof of a local address.

Registration duty

Confirmations of payment of the prescribed registration duty fee must also be included in application packs.

Professional advisory support is recommended when collating documents to streamline approvals. Completeness ensures an efficient registration process.

Setting up a holding company in Malta: process overview

Establishing a Maltese holding company requires following a structured registration process comprising pre-planning, application submission and completion of regulatory approvals. This overview sets out key milestones for investors to help map out this process.

Stage 1:

Strategy planning

The initial phase involves determining the holding’s investment rationale and legal format. Important areas to define include intended asset holdings, governance needs and targeted tax implications based on the envisaged structure. Selecting the vehicle format from available options is also suggested.

Stage 2:

Formal registration steps

This phase covers completing the official MBR application for affiliation. The main documents requiring preparation include the Memorandum & Articles of Association, standard application forms, participant declarations and proof of registered address. Once finalized as per statutory guidelines, the documents and registration fees can be submitted.

Stage 3:

Completion activities

On receiving an application, the MBR reviews submissions for compliance and may query ambiguities. Once satisfied, the holding company is formally registered and a certificate of incorporation issued. Additional post-incorporation steps like tax registrations, bank account opening and operational setup can then proceed.

Please note, this information is posted for informational purposes only. We welcome any requests to clarify aspects relating to establishing Maltese holdings.

Post-registration obligations

Once a holding company completes regulatory registration in Malta, certain ongoing compliance activities become necessary to formally commence operations. This part outlines common post-incorporation requirements new entities need to implement locally.

Bank account establishment

Newly formed holdings must set up a business bank account in Malta to facilitate transactions. This involves submitting founders’ identification documents, directorship certificates and filed Memorandum & Articles. Stringent customer due diligence and anti-money laundering checks by Maltese banks may lengthen the account opening process.

Malta tax registration

Holding companies must register with local tax authorities for corporate tax and VAT administration purposes. At this stage, proactive tax planning is advisable to optimize liabilities considering activities, assets, and distributions. Tools like double tax agreements can provide relief. Annual, audited tax returns will be required.

Records maintenance

Keeping registers of membership interests as well as minutes of board and shareholder meetings is compulsory. Storage for seven years and availability at the registered office address are typical requirements. Documented governance supports compliance best practices.

Meetings administration

Maltese company law specifies minimum annual general meeting timelines. Advance scheduling allows circulation of financial results and proposed resolutions ahead of yearly shareholder meetings and directors’ elections. Appropriate documentation provides helpful evidence.

Attending to these post-incorporation obligations reinforces compliant operations and effective governance for sustainable Maltese holding companies. Our specialists can further clarify any aspects, should investors need assistance following successful registrations.

Safeguarding Maltese holding companies

To secure sustainable success, Maltese holdings must actively govern risks and shield assets from identified threats. This calls for structured evaluation, mitigation strategies and formal protection mechanisms.

Preventative risk management starts with profiling business exposures across financial, legal, operational and reputational categories based on probability and impact assessments. Common tools adopted include:

Portfolio diversification. Allocating across industries and geographies to avoid concentration risk.
Insurance arrangements. Transferring risk to cover losses from disruptions.
Compliance monitoring. Tracking obligations to avoid penalties.
Embedding these sustainably guards against threats materializing.

Asset protection strategies

Specialized instruments also help ringfence holdings’ capital:

Locating assets strategically across entities and jurisdictions, offering protection.
Placing funds under independent trustee oversight limits direct control whilst retaining economic benefits.
Limiting publicity on ownership structures obstacles improper claims.

Robust composite strategies for both risk management and asset protection allow Maltese holdings to defensively nurture investments whilst expanding over the longer-term. Our advisory team can further detail best practices.

YB CASE offers professional services for setting up holding structures in Malta, providing guidance throughout the entire procedural path. YB CASE specialists have in-depth knowledge of aspects of Maltese law and the fiscal system, which makes it possible to provide clients with comprehensive advice and operational support on aspects of organizational formation, accounting, and resource conservation. YB CASE guarantees an excellent level of professionalism and confidentiality, aiming to maximize efficiency and meet all clients' business needs during the process of setting up a holding company in Malta.