How to set up a company in Malta

A private limited liability company, which requires at least two shareholders.

For smaller businesses it can be unipersonal, in the case of the private exempt limited liability company.

For more than fifty shareholders, a public limited liability company may be required.

Other forms include (but much more rarely used):

• partnerships (en commandite, en nom collectif);
• association en participation;
• Societas Europaea;
• GEIE.
  

In most cases, the minimum share capital is €1,164.69, of which at least 20% must be entirely paid in. Provided a (foreign) investor passes the KYC and AML tests conducted by the corporate service providers and the banking institution that are entrusted in principle with the establishment of a company and the receiving of the money, there are no restrictions to foreign ownership of a Maltese company.

Upon establishment of the company, the following key figures must be appointed:

• Director(s);
• Company secretary;
• Auditors.

The company must have a registered address in Malta and usually all the above figures are licensed to practise their respective professions in Malta, although regulations (but not duties, which can be grouped in two categories: of loyalty and of care and skill) are a bit more relaxed for directors only, as they may be foreign residents. It is highly advisable, however, that also directors be Maltese professionals.

Company secretaries are a familiar figure in Common Law jurisdictions, but not so much in Civil Law ones. They hold a more administrative position and are personally responsible for keeping the minutes book both for general meetings and directors’ meetings, for the upkeep of registers of members for ensuring that proper notices are given of all meetings and that all returns and documents of the company are prepared and registered with MFSA and other regulatory entities within the requirements of the law.

Every year, Companies must hold an annual general meeting, which does not necessarily need to be held in Malta. Every quarter, VAT returns and related payments are due.

Companies must keep proper accounting records sufficient to give a true and fair view of the company’s results and affairs and must file an annual return and financial statements with the Registrar of Companies.

There are no particular requirements the shareholders must comply with when incorporating a company in Malta, but it is important that they select the right corporate service providers and consider the tax consequences in the jurisdiction of origin as well as the tax advantages offered by Malta.

With regard to the latter, it may be worth considering establishing two companies in Malta: a-so called “holding” and a so-called “trading”. The holding company’s only activity would be to own 100% of the shares in the trading company and would therefore have one main source of income, represented by the dividends paid to it by the trading company, which in turn is the one that conducts the business. Whilst this structure entails almost an entire duplication of structures (although this does not mean a duplication of costs, as, for instance, the registered address can be the same), the advantage is that, upon distribution of dividends from the trading company, the holding company may ask the Maltese tax authorities for a tax refund. This in very practical terms results in the trading company being subject to a worldwide income tax at a flat 35% rate, but the holding company is in most cases entitled to receive a refund which is usually 6/7 (i.e. 30%) of the amount paid, this resulting in an effective income tax burden of only 5%. It should be noted that a similar arrangement can be done with foreign holding companies, although this further complicates tax analyses, since the refund in Malta is tax-exempt, whilst abroad it may be taxed and much more importantly it needs to be justified, also in terms of BEPS and tax inversion regulations.

The shareholder must provide the corporate service provider entrusted with incorporating the company with three names for the company, in order of preference.

The shareholder must furthermore indicate the registered address (which can be the seat of the corporate service provider).

The corporate service provider drafts the Memorandum of Association (which includes name, business scope, share capital, shareholder, first directors and company secretary), as well as the Articles of Association, which combined are referred to as “M&A”.

Documents to be submitted include:

• certified true copy of the certificate of incorporation of the shareholder, in case the latter is a company;
• certified true copy of the ID card or passport of the shareholder or shareholder’s legal representative, bearing certification by a reputable bank, lawyer, accountant or person of similar status, containing the following words: “I confirm that this document is a true copy of the original document and the photo is a true likeness of [name], seen and verified by me” and signed to that effect. Such statement should also be dated;
• certified true copy of utility bill or other documents which verify residential address (not older than three months);
• a bank reference letter is also required in order to open the bank account.

The share capital necessary for the incorporation is usually paid by cheque by the corporate service provider and signed (and of course refunded) by the shareholder.

Typically, a company is established within a week.

The main challenges can be grouped into three types.

Banking

Opening a bank account in Malta is not easy and local banks require economic substance on the island, i.e. a proper physical presence, with local directors, employees, offices, a reasonable turnover and ideally a line of business which generates local jobs and growth and is not excessively adventurous or advanced (a cryptocurrency trader, for instance, may find it almost impossible to open a bank account)

Administration

Whilst Malta is definitely much more straightforward than many European jurisdictions, adopts English as one of the two official languages and has the advantage of being a Civil Law Country with several Common Law institutions, including the functioning of companies, keeping up with returns and other formalities may be a bit burdensome for very small businesses and it is essential to use professional lawyers and corporate service providers: a low-cost option may result in severe mistakes, penalties and fines.

Taxes

The notion that “you only pay 5% income tax in Malta” is a myth that must be dispelled. Malta is part of the EU, adopts the CRS and is certainly not a tax haven, even if some of its incentives can be more effective than those in place in other Countries.