Maltese Resident (Non-Dom) + US LLC (Delaware)

[mpao]

Hi offshoreguys!
I was wondering if I can face any tax problem in Malta if I'd like to run an online business through a Delaware LLC.
It seems to be too convenient to be true since I would end up paying no taxes (the LLC will be exempt in USA and this personal income will be exempt in Malta because it will be from a foreign source - I will not remit it in malta).

Can you please share your thoughts and, in case, your experience?

Thank you all!

 

[Don]

Companies incorporated overseas are considered to be resident in Malta when the control and management of their business are exercised in the country.

Maltese resident companies are subject to income tax at a flat rate of 35%.

What you are saying could work if you were structured as a passive business owner resident in Malta and there will be someone else managing the business.

Its best if the managing member is resident in a zero tax country or in a jurisdiction where there is no management and control test for determining corporate tax residence.

Last edited: Jan 22, 2024

 

[Marzio]

Don said:
Companies incorporated overseas are considered to be resident in Malta when the control and management of their business are exercised in the country.
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A company which is incorporated outside Malta but has its control and management in Malta will be considered as resident but not domiciled in Malta.

Companies which are resident but not domiciled in Malta are subject to tax in Malta on all income and chargeable gains arising in Malta, and on income arising outside Malta which is remitted back to Malta.

No tax is payable on foreign income which is not received in Malta and on capital gains arising outside Malta to a company which is not ordinarily resident and domiciled in Malta, even if remitted to Malta.

 

[mpao]

But it is not the same scenario of having a maltese trading company + holding company (for the tax rebate)?
The director of the holding company is usually the same director of the maltese company, so the management and control of the holding company is done by a maltese resident non-dom.

What am I missing? 😵

 

[Don]

Marzio said:
Companies which are resident but not domiciled in Malta are subject to tax in Malta on all income and chargeable gains arising in Malta, and on income arising outside Malta which is remitted back to Malta.
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Make sure none of the income is considered Maltese-sourced and not remitted to Malta, and be resident somewhere where it's not taxed.

Income derived from employment or from a profession, business or other self-employment arises in Malta if the activities are performed in Malta.

mapo said:
But it is not the same scenario of having a maltese trading company + holding company (for the tax rebate)?
The director of the holding company is usually the same director of the maltese company, so the management and control of the holding company is done by a maltese resident non-dom.

What am I missing? 😵
Click to expand...

It's not the same regime.

There's also a fiscal unit regime without the rebate but an effective 5% tax.

Also, the branch of an overseas company in Malta would be taxable in Malta only on income arising in Malta and on income arising outside Malta but remitted to Malta.
Say you attribute the profits of the LLC to a Maltese branch or resident company, which will not tax it.

Last edited: Jan 22, 2024

 

[mpao]

Don said:
Make sure none of the income is considered Maltese-sourced and not remitted to Malta, and be resident somewhere where it's not taxed.

Income derived from employment or from a profession, business or other self-employment arises in Malta if the activities are performed in Malta.


It's not the same regime.

There's also a fiscal unit regime without the rebate but an effective 5% tax.

Also, the branch of an overseas company in Malta would be taxable in Malta only on income arising in Malta and on income arising outside Malta but remitted to Malta.
Say you attribute the profits of the LLC to a Maltese branch or resident company, which will not tax it.
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So for a maltese resident, which is the most convenient country from a tax perspective to open a company for a small online business (revenue of €100k/y)?

 

[Don]

mapo said:
So for a maltese resident, which is the most convenient country from a tax perspective to open a company for a small online business (revenue of €100k/y)?
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Delaware can be an economic choice, but as a Maltese tax resident to keep it with 0% tax it comes down to:

• not remitting income to Malta
• business substance outside of Malta (making sure the income does not arise from Malta)

 

[Marzio]

Don said:
Income derived from employment or from a profession, business or other self-employment arises in Malta if the activities are performed in Malta.
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I personally know from first hand experience at lest 4 non-doms that are using the resident non domiciled company to sell coaching online and only pay 5K taxes because their income is over 35K.

Maybe they are too little for Malta to check i don't know or mabye when they say "income arises in Malta" they mean doing business with Maltese domiciled companies.

 

[GrumpyMess]

Marzio said:
I personally know from first hand experience at lest 4 non-doms that are using the resident non domiciled company to sell coaching online and only pay 5K taxes because their income is over 35K.

Maybe they are too little for Malta to check i don't know or mabye when they say "income arises in Malta" they mean doing business with Maltese domiciled companies.
Click to expand...

No one would go to Malta if they'd enforce this rule, that's why

 

[Don]

Marzio said:
I personally know from first hand experience at lest 4 non-doms that are using the resident non domiciled company to sell coaching online and only pay 5K taxes because their income is over 35K.

Maybe they are too little for Malta to check i don't know or mabye when they say "income arises in Malta" they mean doing business with Maltese domiciled companies.
Click to expand...

To quote Sols: "Don't like German tax? Don't live in Germany. Simple as that" - we can apply the same principle to Malta, although the tax risk there is probably a tad lower, even if you just consider the rates.

It's worth noting that the US Banking secrecy ended around a month ago.
https://www.fincen.gov/news/news-re...rding-access-beneficial-ownership-information
Soon, they will start exchanging data with other jurisdictions, as they are implementing information exchange in phases, so it is a matter of time before the risk of getting caught using non-compliant structures increases further.

1. Jurisdictions will inquire about UBO data from the US.
2. Follow up with John Doe summons to the IRS to obtain details from the banks and insurance companies.
3. If a foreign country informs the IRS that a UBO resident in their country wired money to the US to evade tax back home, -> a violation of the federal mail and wire fraud statute is punishable by both a huge fine and jail.

Ultimately, it's easy to draw conclusions based on the limited amount of information, but the risks depend on the exact structure they are using.

 

[Marzio]

Don said:
To quote Sols: "Don't like German tax? Don't live in Germany. Simple as that"
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It's Malta that invented the resident non-domiciled company concept, i'm more than happy to give them 5K flat tax over 35K of foreign income + tax on income remitted to Malta.

If i'm the company director of an offshore company but i outsource operations to contractors outside of Malta i don't have anything to hide.

 

[Don]

Marzio said:
It's Malta that invented the resident non-domiciled company concept, i'm more than happy to give them 5K flat tax over 35K of foreign income + tax on income remitted to Malta.

If i'm the company director of an offshore company but i outsource operations to contractors outside of Malta i don't have anything to hide.
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Indeed, that's the correct way to do it.

 

[GrumpyMess]

Marzio said:
If i'm the company director of an offshore company but i outsource operations to contractors outside of Malta i don't have anything to hide.
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It doesn't matter where the work takes place, it matters where the company is managed from.

Marzio said:
It's Malta that invented the resident non-domiciled company concept, i'm more than happy to give them 5K flat tax over 35K of foreign income + tax on income remitted to Malta.
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You're right in that otherwise there's no point in non-dom if they were taxing just as regular ones. If this 5K flat tax does not require complex reporting forms as well isn't that the best option for the EU?

 

[MrBurns]

Malta CFC rules only trigger above 750k profit and AFAIK Malta doesn't care at all what it's foreigners are doing. You're free to run 20 offshore companies from your home in Malta.

 

[GrumpyMess]

MrBurns said:
Malta CFC rules only trigger above 750k profit and AFAIK Malta doesn't care at all what it's foreigners are doing. You're free to run 20 offshore companies from your home in Malta.
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Doesn't Malta care even if individual requests tax residence certificate under a double tax treaty?

 

[Marzio]

GrumpyMess said:
It doesn't matter where the work takes place, it matters where the company is managed from.
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I'd say it's a gray area.

The company is tax resident in Malta because of management and control BUT if the work is perfomed in Malta the arising income will be considered sourced from Malta and subject to taxation.

But then again we are talking about Malta and collecting 5K without doing anything is better than chasing people trying to prove that the income was arising in Malta.

Of course this is valid for solopreneurs and one man show companies.

MrBurns said:
Malta CFC rules only trigger above 750k profit
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CFC rules don't matter since the offshore company is already tax resident in Malta.

https://corriericilia.com/publications/resident-non-domiciled-companies

 

[Don]

The other idea that was uncovered is to operate as a Maltese PE:

TAX BENEFITS OF PE:

1. Tax resident in Malta, with Maltese tax number
2. Owners of overseas company are entitled to tax refund
3. Remittance based taxation in Malta
4. No withholding tax on profit distributions
5. No advanced corporate tax requirement
6. No restrictions or tax on offshore payments
7. Access to tax treaties and EU directives

Requirements: place of business in Malta, and appointment of an authorised local resident in Malta

 

[mpao]

Don said:
The other idea that was uncovered is to operate as a Maltese PE:

TAX BENEFITS OF PE:

1. Tax resident in Malta, with Maltese tax number
2. Owners of overseas company are entitled to tax refund
3. Remittance based taxation in Malta
4. No withholding tax on profit distributions
5. No advanced corporate tax requirement
6. No restrictions or tax on offshore payments
7. Access to tax treaties and EU directives

Requirements: place of business in Malta, and appointment of an authorised local resident in Malta
Click to expand...

But in case I already pay my taxes in Malta as an employee of a Maltese company (I pay more than €5k/year) and I'd like to set up an US LLC for a side hustle, can I do it tax free?

The point I don't get it is that since I would be the only member of this transparent US LLC, even if I don't remit any income to Malta (let's assume I will use this foreign income to buy stocks and ETFs with a broker outside Malta), should I pay any tax on the income I generate abroad?

 

[Mr Gus]

MrBurns said:
Malta CFC rules only trigger above 750k profit and AFAIK Malta doesn't care at all what it's foreigners are doing. You're free to run 20 offshore companies from your home in Malta.
Click to expand...

How do CFC rules apply here?

 

[Marzio]

mapo said:
let's assume I will use this foreign income to buy stocks and ETFs with a broker outside Malta), should I pay any tax on the income I generate abroad?
Click to expand...

No tax is payable on foreign income which is not received in Malta and on capital gains arising outside Malta to a company which is not ordinarily resident and domiciled in Malta, even if remitted to Malta.

Source: Resident, non-domiciled companies - Corrieri Cilia