Malta effective tax rate - from profit to pocket?

[Maverick7]

I'm trying to get my head around the attractiveness (or otherwise) of relocating to Malta from the UK, where I currently run an FBA business through a UK-registered company. I would plan to keep the UK-registered business as it is, but may consider also setting up a Malta Co to operate a second FBA business/brand. My expectation would be to actually move there, e.g. as a resident/non-domicile, and I would work from there. No work would be carried out for the UK-registered company in the UK.

There are questions over the extraction of profit from the UK-registered business if tax resident of and operating the business from Malta, but my initial uncertainty really stems from being clear as to how much of the distributable income generated by a Malta Co one can get into their pocket.

I understand that the effective corporate tax rate of a Malta Co can be reduced to 5% or even 0%, but as far as I can tell this is only at the corporate level, with any distribution effectively being taxed at 35% at the upper rate. Is that correct?

I hear Malta in the same breath as Cyprus, but I equally understand Cyprus combines a 12.5% tax rate on Cyprus Co's with no tax on dividends to resident non-doms, even if generated from operating in the country. This would seem to put 35% against 12.5%, so clearly, something is perhaps wrong with my initial understanding.

Thanks

 

[Mr Gus]

The effective tax rate can be 5% or 0% if you don't remit the money‌ to Malta directly. Meaning... You made a profit of 100K and paid the 5% tax‍ and pay out the 95K in dividends to a non-maltese bank account and keep it⁠ there for I believe atleast 1 year, then the effective tax rate will be 5%.⁤
So if you don't have already have a little piggy bank to pay for rent,⁣ food etc before you come to Malta you will have to pay out a salary⁢ or dividends which you will have to pay Maltese tax on, but I assume since︀ you already have a business you will have some savings.

The setup would involve 2︁ or 3 companies.
Option1: A Maltese Trading Co and a foreign Holding Co (Downside being︂ you will have to first pay the 35% and request a refund of the 30%︃ to be paid to the foreign holding company)
Option 2: A Maltese Trading Co, Maltese︄ Holding Co and a foreign holding Co (the added benefit of this is that can︅ you pay the 5% directly and don't have to request a refund)
Option 3 wildcard:︆ Some people on this forum have talked about a non-resident Cyprus company which you register︇ in Malta which will get you to 0% with much lower cost. (I don't have︈ the fine details of this setup but some others on this Forum can help you︉ out I believe)

You have to keep in mind that getting a business bank account︊ with the local Maltese banks is practicly impossible so you are left with EMI's that︋ accept Maltese companies, there are two local EMI's.. WAMO and Finductive. EMI's like Wise and︌ Revolut don't accept Maltese companies anymore (personal accounts are fine though), so your banking options︍ are very limited... Also the cost of the traditional 5% setup is quite pricey since︎ you have to setup and maintain 2 to 3 companies.

In Cyprus you indeed only️ pay 12.5% corporate tax however you have to pay 2.25% when you distribute dividends (Pro's‌ about Cyprus you don't have to wait a year before you can use the money‍ and you only have to setup one company.) Banking in Cyprus with the local banks⁠ is a little bit easier I believe but don't have the fine details about that⁤ as well.)

From what I've heard Cyprus is a more liveable place, but never lived⁣ there so I would recomend checking out both places before making a decision of moving⁢ there if you haven't already. From personal experience Malta has a couple of downsides... The︀ water pressure in most appartment buildings is awful, there are trashbags all over the island,︁ there is no central place where people can dump their trash so they just put︂ in in front of their doors. There is almost no nature. The island is really︃ small, so spending the whole year can be a challenge without getting bored. The island︄ floods a few times per year (Somewhere between September and February) meaning the whole islands︅ comes to a stand still, becuase they don't do water management. You will have to︆ get your own car or bike if you want to higher your chances in getting︇ on time somehwere because the public transport is cramped and always too late. (The ferries︈ are pretty nice though). The beaches are also cramped af and overloaded with tourists, the︉ whole islands is actually overloaded with tourists, best bet if you want to have a︊ nice day at the beach is to take the ferry to Gozo and checkout the︋ beaches there.

There are some pro's as well 😉 Options of food are pretty good with︌ plenty of great Italian restaurants but you can find pretty much any types of food︍ on Malta. The weather is great most of time (however this is subjective) summer gets︎ really hot though. The local population is very friendly and polite.. The British and French️ expats/tourists not so much. Internet speed and access is really good as well. If you‌ are into clubbing and bars you will have great time as well. Also the lack‍ of enforcement of rules allows you to get away with a lot more then in⁠ the average western european country... Drunk driving, reckless driving and ignoring traffic rules in general⁤ is completly normal for some reason. I would also recomend to look for appartments in⁣ SDA, prices are higher but it's worth paying for. I believe housing access and prices⁢ are much better then in Cyprus as well..

 

[Maverick7]

Thankyou @Mr Gus for that incredibly detailed and insightful post. It's certainly given me a‌ lot to digest and explore further, but the key thing I take from it, for‍ now, is that one can end up with most (less 5%) of a Malta company's⁠ profit (pre-distribution) in pocket, in Malta, if you can essentially accept a year lag.

• Is there anything specific (a formal rule, or otherwise) that expressly details the rules around how⁤ long the proceeds of dividends must be left in non-Maltese bank accounts before they can⁣ be used in Malta without tax consequence?
  
• Are you able to give any broad indication⁢ of the costs of setup and maintenance of Option 1 or Option 2?
  

On the︀ other end of my situation, and possibly this is the wrong forum, but would there︁ be a common way to extract ongoing profit from the UK-registered company, without doing it︂ as a dividend (presumably untaxed in Malta) and losing out on the corporation tax?

 

[Mr Gus]

I am not sure if there are rules made up, however︅ most tax advisors will tell you 1 year.

The cost I paid for incorporation in︆ Malta per company was 831 EUR (including vat) excluding the share capital of 1200 EUR.︇ In Cyprus I paid 3348 EUR (excluding vat) + 480 EUR for a nominee secretary.︈

The answer you last question I think that is going to be difficult, if there︉ is no exit tax in the UK the dividends will probably be untaxed if you︊ recide in Malta and transfer them to a non-maltese bank account, but I suggest getting︋ in touch with someone that has experience with Malta & UK. The only way I︌ can think of is taking out a salary but not sure where you will have︍ to pay tax on the salary.

 

[Barney2201]

I have a similar situation but already left UK (4 years ago to Channel Islands),‌ you could set up a Cyprus company but domicile it outside of Cyprus (I live‍ in Sark so no tax) then invoice or management fee profit of UK Co to⁠ your Cyprus company then pay out profit with no withholding tax to your tax free⁤ location, I think this could also work for many other locations such as UAE if⁣ you want a desert lifestyle. I think the key is not to create red flags⁢ with HMRC, always pay some corp tax just extract an amount which makes it all︀ worthwhile. Obviously depends on the numbers involved…

 

[Maverick7]

@Barney2201 I did consider that in practice a management fee paid out of the UK‌ Co. to Malta Co. would have the effect of reducing the UK Co. profit as‍ much as one desired (in effect bypassing the corporation tax drag of distributing post-tax profits⁠ as a dividend), but I'm not clear on the HMRC rules that are applicable to⁤ this, e.g. whether if the management of the UK Co. is genuinely happening elsewhere if⁣ that is considered legitimate, or whether it is treated as disguised remuneration.

 

[umbear84]

Hi,
I opened a two company structure in︊ Malta.

I consulted several accountants, but in the end I went with a very large︋ and very expensive firm. I did it with them because they were the only ones︌ who spoke to me clearly and professionally and because I had to much to lose.︍

This is the first year, so I have not yet paid taxes on the dividends,︎ but if I decide to do the Consolidation, i.e. pay 5% directly, I will be️ able to bring the money back to Malta without paying additional taxes on them, only‌ if I invest them (company shares, real estate, etc.). If I remit the money to‍ Malta for ordinary expenses, they will be taxed on a remittance basis, after six months,⁠ after 1 year, after 2, 5 or 10.

If I decide instead to pay taxes⁤ at 35% and receive a refund of 6/7, I can remit the money to Malta⁣ immediately without paying additional taxes, but in that case I have to wait for the⁢ refund.

For setting up the 2 companies in Malta I spent about 10000€, the maintenance︀ costs are the same.

 

[Maverick7]

@umbear84 Thank you for your contribution to my thinking.

Can I confirm I︆ understand correctly that you opted for a 2 company structure involving a Maltese operating company︇ and a foreign holding company, i.e. Option 1 in @Mr Gus original reply?

And, the︈ advice you received was that Option 2 by @Mr Gus which would avoid the need︉ to pay 35% and then claim a 6/7 refund, would mean any money remitted back︊ to Malta would be taxed regardless of time, subject to some limited exceptions?

I am︋ made a bit unsure by your statement "if i decide to do the consolidation", because︌ I would have assumed if the above is correct that that option is no longer︍ available based on the way you set up your structure?

Thanks

 

[MarkusCostigan]

Foreign CAPITAL GAINS, if remitted, are never taxed, right?

 

[umbear84]

Right

 

[umbear84]

Hi,
sorry for the late reply, but I didn’t see your answer yesterday.
To answer you,︂ yes it’is available because there is an LLP in UK that owns the shares of︃ the holding company in Malta.
With the “option 2” setup you can choose between 6/7︄ refund or consolidation at 5%.

 

[Maverick7]

@umbear84 Thanks. So if I understand correctly, you have a Malta Op Co., a Malta‌ Holding Co. and a UK LLP? And if you opt to consolidate the Malta Op‍ Co. and Holding Co, paying only 5% with dividend payout to the UK LLP, the⁠ advice you received was that you wouldn't be able to remit that back to Malta⁤ at any point without paying tax on it? Conversely, if you don't opt to consolidate⁣ and Malta Holding Co. pays 35% and the UK LLP then claims a 6/7 refund,⁢ that money from the UK LLP can be remitted back to you in Malta at︀ any point without any further tax?

Sorry for the questions. I just want to make︁ sure I'm clear and, I'm interested in your contribution because it sounds like the more︂ expensive (and so one would hope better) advice you received might be at odds with︃ what some might try and sell me.

 

[umbear84]

@Maverick7
This is︄ correct, but not entirely.

If we apply for consolidation we can put the money back︅ into Malta without paying additional taxes, but only in case they are used for investments︆ and not for ordinary expenses such as rent, buying a car etc.

It seems that︇ consolidation works great for non-residents, refund works better for residents. Unless you are a resident,︈ but you don’t need that money for daily expenses.

 

[Maverick7]

@umbear84 Thanks. Would you be able to share the name of the provider/firm you used,‌ or any others that you saw as viable options or would 100% avoid? I think‍ I'm at the stage of speaking to someone now to confirm the best fit for⁠ our circumstances, but I don't want to simply end up talking to those who have⁤ best optimised their websites for google search.

 

[umbear84]

No problem.
I write you in PM

 

[JustAnotherNomad]

Have you considered making your UK company tax resident in Malta under the tax treaty?‌ I think this should be possible. Then you could keep the UK company, but it‍ would be taxed as if it was registered in Malta. I believe this is called⁠ redomiciliation.
You can't just siphon off 100% of the profits with invoices - there's something⁤ called transfer pricing restrictions that would forbid this. You can only pay the "market rate"⁣ to a related party, the payer would still have to retain a profit.
CSB Group⁢ is a large and well-known company in Malta. But I don't have any experience with︀ them, can't even remember how I heard about them, probably on this forum recommended them.︁
If I remember correctly @Konstanz has a business in Malta, too, maybe he has some︂ tips as well.

 

[Barney2201]

Not a bad explanation of re-domicile here. Does this mean the directors have to be‌ Malta resident or could they be resident elsewhere? Understanding re-domiciliation of companies to Malta

 

[JustAnotherNomad]

I'm not sure if it's the same thing. What I meant is that most likely,‌ both the UK and Malta have a clause in their tax code that a company‍ shall be deemed tax resident in the country where its management is located.
And the⁠ UK-Malta tax treaty would probably say the same thing.
So if the directory moves to⁤ Malta, it could probably be argued that the company should now be tax resident in⁣ Malta (or that there is a Maltese permanent establishments accounting for 100% of the company⁢ profits), so that the company should pay all its taxes in Malta like a Maltese︀ company.
But you should discuss that with an expert. For what I meant, yes, the︁ directory would have to reside in Malta, since the company would have to be managed︂ from Malta...

 

[umbear84]

Actually, from what I know, it’s not︃ possible to re-domicile an UK entity in Malta.

 

[lonizzita]

please write me‌ the name of the provider in pm