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Malta: What Are The International Tax Planning Opportunities? Part 1

400 300 Ciantar Associates

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In the first of a 3-part introduction to Malta’s tax system, we look briefly at its main advantages and benefits and show you why Malta is fast becoming a significantly important financial centre within the European Union.

A long history of fiscal and investment incentives for foreigners wishing to set up shop in Malta have led to a very attractive package for both investors as well as for non-residents wishing to use Malta in their international tax planning structures.
The Main Advantages of Malta’s Tax System
  • Net tax payable of 5% on company profits
  • Nil tax payable on incoming dividends from subsidiaries situated outside Malta (subject to certain conditions)
  • Possibility to opt to be taxed at 35% on incoming dividends and subsequently apply for a full refund or 6/7 refund on the Malta tax paid (i.e. 5% net tax). This might be beneficial in cases where the foreign shareholders would need to show that income has suffered tax
  • Net tax payable of 10% on passive income received from outside Malta (such as interest and royalties)
  • A Maltese Company can act as both a holding company and a trading company with no negative tax consequences, thus eliminating the need to open separate companies
  • A branch of a non-resident company carrying out activities in Malta will be treated in the same way as a resident company with resultant tax planning opportunities, and benefitting from the same net tax rate of 5% as companies
  • No Withholding taxes on outbound dividends, interest or royalties
  • Three or more tier Malta companies are possible
  • Relief on tax suffered abroad on incoming dividends possible up to full amount of Malta tax payable (35%) (if such dividend does not satisfy the conditions for exemption mentioned above)
  • Possibility to claim relief on Malta tax payable on income received from outside Malta, even if such income has not been subject to tax abroad or if such income has suffered tax at a lower rate
  • Full exemption on stamp duty and capital gains upon the transfer of shares between non-residents (subject to certain conditions)
  • Possibility of reorganisation relief, wherein a company can be amalgamated, split, or merged without losing any accumulated tax losses (in fact, tax losses can be surrendered or claimed within a group and set off against any other type of income and such claimed losses can be carried forward indefinitely)
  • All costs incurred in the production of the income is allowed as a tax deductible expense, there are no disallowed expenses (except for formation expenses)
  • Ability to hold shares under fiduciary (nominee). In order to hold shares under fiduciary a fiduciary agent must be a specially licensed company. Such company is bound by law NOT to reveal the identity of the ultimate beneficiary owners of a company to ANY party including the financial regulatory body (Malta Financial Service Authority) Indeed the only authority who has the right to ask for this information are the Courts of Malta and then only in cases of serious suspicion of fraud or money laundering
  • Malta currently has over 50 double taxation agreements in place including with all EU countries and with the US. Moreover the number is increasing yearly.
Other Benefits:
  • Member of the EU
  • Member of the Euro Zone
  • A sound banking system with representatives of some major banks like HSBC and Lombard Plc. The banking sector in Malta was almost completely unaffected by the world economic crisis due mainly to their low exposure to international finance
  • Maltese legislation conforms fully to EU law, EU code of conduct of business and abides to the Organization for Economic Co-operation and Development (OECD) standards
  • Possibility of redomiciliation of companies from anywhere in the world as long as such redomiciliation is allowed in the jurisdiction of the country of incorporation of the company and the country is not a black-listed country
  • English being one of the two official languages
  • A democratic and stable government
  • A well-established legal system based on UK law
  • A professional English speaking work force with a European mentality
  • A relatively low cost base
  • One of the best IT infrastructures in the EU
  • Good flight connections to all major EU cities.
Parts 2 and 3 of this series will delve deeper in to the features and benefits of Malta’s tax system, but for now, if you would like any more information on why Malta could be the jurisdiction of choice for your clients’ tax planning opportunities, please do not hesitate to get in touch.
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Malta: When It Comes To Funds, Why Choose Anywhere Else?

1024 778 Amicorp Fund Services

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Malta’s accession to the European Union in May 2004 has brought with it a growing reputation as a hedge fund domicile of choice. Malta was voted as Europe’s most favoured fund domicile by Hedge Fund Review’s 2013 and 2014 service provider rankings.

Flexible regulation, transparency and good governance are just some of Malta’s advantages, as well as its status as a cost-effective domicile for funds, asset managers, fund administrators and for custodians catering to the thriving fund industry.

Malta hosts around 600 investment funds with a combined net asset value of almost €10 billion, and the sector is growing and attracting sophisticated asset management activities all the time.

EU membership has enabled Malta to introduce rights so that investment services and UCITS schemes may be registered in Malta and passported to any EU country.

Alongside the advantages of EU membership and access to a market of over 500 million people in 28 EU economies, Malta also enjoys excellent relations outside of the EU, specifically with other Mediterranean nations in North Africa and the Middle East, making it an attractive base for European, American or Asian companies wishing to enter markets to the south. In addition, Malta is a signatory to more than 70 double-taxation treaties, covering most of the world’s high-growth markets facilitating international business.

Malta has established a comprehensive regulatory framework for the registration and marketing of funds and investment vehicles. Malta’s financial services framework and tax laws are in line with EU directives and requirements and regulated by the Malta Financial Services Authority (MFSA). The licensing process with the MFSA is quick, efficient and thorough.

That said, the MFSA does not accept just any type of investment funds into Malta, but will readily assist those funds carrying a seal of quality. The MFSA carries out regular due diligence on the fund manager, the board of directors and the members of the investment committee, and regulatory and statutory issues may be discussed with the regulator, even at the earliest stage.

What funds does Malta offer?
Collective investment schemes may come in the form of the SICAV, with its variable capital nature and the possibility of establishing sub-funds. This is the most widely used vehicle, particularly in the non-retail sector, and it can be structured to include master feeder funds and umbrella funds with segregated sub-funds.

Professional Investment Funds (PIFs) are targeted at increasingly experienced investors. PIFs target 3 main types of investor: the experienced investor, the qualifying investor and the extraordinary investor. The regime is designed to fast track regulatory approval with a reduced level of ongoing regulation and supervision, but the type of investor, and therefore the ongoing regulation, is determined by qualifying criteria.

The creation of a new regime for Alternative Investment Funds (AIF) is one of the biggest recent additions to Malta’s fund market after the coming into force of the Alternative Investment Fund Managers Directive (AIFMD) in 2014. Malta was one of the first EU member states to transpose the AIFMD into law and the AIF regulatory regime was specifically set-up to cater for this new fund category.

Malta’s legislation also provides for the setting up of UCITS (Undertakings for Collective Investment in Transferable Securities) and non-UCITS retail funds.

A new vehicle was established in 2012, called the Recognised Incorporated Cell Company (RICC). Directly targeting fund platform providers, this structure allows the RICC to provide, in exchange for payment of a platform fee, certain administrative services to its Incorporated Cells.

What about the Benefits & Costs?
The tax structure in Malta provides a significant incentive. Companies that list securities on the Malta Stock Exchange are not charged with capital gains tax and no stamp duty is due on the transfer of such shares or securities.

Malta’s regulatory and ongoing costs are extremely competitive and, when taken together with the various funds options, regulation and passporting rights, makes it a very attractive proposition.

How can Amicorp Fund Services Malta help?
Amicorp Fund Services Malta Limited forms part of Amicorp Group and is recognised as a fund administrator by the MFSA and offers a complete package of support services. These services allow our clients to focus on their core competencies of investment management and capital-raising. We achieve these goals by focusing on the following factors:

  • Fully automated fund administration services, based on state of the art, globally recognised technology, which integrates NAV calculation, investor administration, general ledger and KYC/AML features
  • Establish automatic feeds of financial data whenever possible, whether it concerns broker information or market data

The reporting package is carefully reviewed by a team of highly experienced fund administrators. As an ISAE-3402 Type II certified fund administrator, our internal control process is accredited by one of the reputable ‘Big 4’ firms. Using our state-of-the-art PFS Paxus software and online web reporting, we provide accurate and timely information to fund operators and investors.

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Malta: What Are The International Tax Planning Opportunities? Part 2

1024 737 Ciantar Associates

SOLUZIONI

In Part 1 of our overview of Malta’s tax system, we looked briefly at the main features Malta can offer when considering tax planning for your clients.

In this part, we will take you through some of those benefits in more detail.

From 1st January 2007 a new set of provisions to the Income Tax Act and the Income Tax Management Act came into force, further strengthening Malta’s bid to become an important financial centre within the EU by 2015, the date set by the Maltese Government.

Malta practices a full imputation system of taxation which is unique within the EU. The basic concept of this system is that income received net of tax is grossed up in the hands of the recipient and taxed once more at the applicable rates of tax of that individual or body corporate. The tax suffered on the income is than taken as a tax credit and a refund or a topping up of the tax will then take place according to which rate of tax is the higher. This system coupled with a classical system gives rise to plenty of tax planning opportunities, which is what is making Malta so popular with investors worldwide.

The headline corporate tax rate is of 35%. However, upon a distribution of a dividend, shareholders can claim a refund of up to 6/7 of the tax suffered on the dividend bringing the net effective tax down to 5%. This refund is paid within a maximum of 6 weeks from the payment of the company tax.

If a Maltese registered company owned in full or in part by non-resident shareholders received dividend income from a Participating Holding (PH) i.e. dividend income from outside Malta, a full refund may apply to the shareholders upon distribution of a dividend . In certain cases the company may benefit from what is known as a Participation Exemption (PE) whereby a company need not pay the tax on this income from the outset.

The definition for PH is as follows:

• When a company holds directly at least 10% of the equity shares of the company, or
• Has the option to acquire up to 10% of the share capital, or
• Is entitled to first refusal in the event of a proposed disposal off all equity shares, or
• Has the right to sit on the board of directors, or
• Holds an investment of at least €1.2 Million in a company not resident in Malta and which is held for an interrupted period of 183 days or,
• Where these shares are held for the furtherance of the business, such holding should not be held as trading stock for the purpose of a trade.

The definition has been extended to include certain partnerships, thus enhancing Malta’s competitiveness as a holding company jurisdiction.

In order for a company to qualify for a PE it is enough to satisfy these provisions. However, for new companies incorporated on or after 1st January 2007 and for existing companies after 31st December 2010, the following anti-abuse provisions apply:

1. The foreign entity in which the PH is held must be resident or incorporated in a country or territory which forms part of the EU; or
2. is subject to any foreign tax at a rate of at least 15%; or
3. less than 50% of its income must be derived from passive interest or royalties.

If ALL three conditions are NOT met then BOTH of the following conditions must be satisfied:

1. The PH must not constitute a portfolio investment; and
2. either the body of persons not resident in Malta; or
3. its (the body of persons) passive interest or royalties have been subject to foreign tax at a rate of not less than 15%.

If a company satisfies the conditions for a PH and the anti-abuse provisions, it can opt not to declare this income in its tax return outright and no tax will be due.

Alternatively, the company may opt to declare this income, which might be beneficial in cases where the foreign shareholders would need to show that income has suffered tax. In this case, the company will benefit from a full refund payable within a maximum of 6 weeks from payment of the tax.

If a company satisfies the definition of PH but not the anti-abuse provisions it will still benefit from the 6/7 refund, i.e. it will have to pay the corporate tax of 35% and upon a distribution of a dividend the shareholder will apply for the a refund of the tax paid, effectively bringing down the net tax charge to 5%.

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Passive Income
Companies receiving passive interest or royalties from abroad, a 5/7 refund will apply on tax suffered in Malta upon a distribution of a dividend.

Passive interest or royalty income is defined as income which is NOT derived directly or indirectly from a trade or business, where such interest or royalties have not suffered any foreign tax, directly, by way of withholding, or otherwise, at a rate of tax which is less than 5%.

Such income will be taxed normally in the hands of the Maltese company (i.e. 35%) but will only result in 5/7 refund when distributed (i.e. 10%).

It is possible to ask the Inland Revenue department for an advance revenue ruling on whether such income falls under these provisions or not.

 

In this article, we have described in more detail two areas in which Malta offers exciting tax planning opportunities – simple and advantageous to individuals and companies seeking to do business in a jurisdiction making itself impossible to ignore.

In our final part, we will take a look at two more areas where Malta can be advantageous for your clients. In the meantime, if you would like any more information on why Malta could be the jurisdiction of choice for your clients’ tax planning opportunities, please do not hesitate to get in touch.

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Establishing Insurance Companies in Malta

1023 683 Jatco Insurance

chrisgravina-office-malta

Since Malta joined the European Union (EU) in May 2004, it has become an attractive domicile for establishing an insurance company or an affiliated insurance company.

A Maltese insurance undertaking is defined as a company authorised in terms of the Insurance Business Act, whose head office is in Malta, and is entitled to carry on business of insurance in a member/EEA state in exercise of a European Right.

Malta has an established regulatory framework that operates to EU standards and which accommodates insurance companies. Thus, Malta is worth considering as the location for a captive where the ability to issue policies directly into the EU/EEA may provide significant savings on fronting and collateral costs. This offers cost saving advantages to:

Multinationals with operations in EU locations;
UK corporations paying significant Employers’ Liability and Motor Third Party premiums;
Companies using captives to provide insurance to their customer base, e.g. travel, warranty, credit protection, room cancellation insurance.

The benefits of setting up an insurance company in Malta

1. Ability to write policies directly into the EU and European Economic Area – Full EU membership enables Maltese captives to dispense with the need for fronting companies into the EU/European Economic Area (EEA).
2. Effective and responsive regulation – Regulation is to EU standards while being flexible and responsive for which the most successful established captive domiciles are favoured.
3. Established financial centre – Insurance, legal and accounting expertise is all available within Malta’s highly trained professional workforce.
4. Tax efficiency – The standard rate of corporate tax in Malta is 35%, but an insurance company insuring risks outside Malta could benefit from the Malta tax refund system.
5. In addition, Malta has double taxation treaties with 60 countries.
6. Protected cell companies – PCC legislation enables a PCC to be formed in Malta whereby each cell’s assets and liabilities are legally separated.
7. Migration from other jurisdictions – The Continuation of Insurance Companies Regulations 2003 enables captives to be easily relocated from other jurisdictions which have similar legislation.

The benefits of using an Affiliated Insurance Company in Malta

1. Solution to market limitations: Captives can provide cover for risks that is not available or affordable in the traditional insurance market.
2. Improved and flexible risk management: Policies are custom-designed and specially tailored to the needs of the insured.
3. Reduced risk financing expenses: Lower transaction costs and administration expenses compared to traditional insurance programmes. Companies can also retain underwriting profit and investment income earned on loss reserves.
4. Better cash flow management: Companies have control over the payment or premiums and the timing and the payment of claims. They can direct the flow of funds to and from the captive according to their own investment strategy. This leads to a more efficient use of capital.
5. Direct access to reinsurers: Companies can buy excess loss protection on a wholesale basis rather than on a retail basis (traditional insurance policy). They benefit from better conditions and the opportunity of negotiating price and contract terms directly.
6. Coordinated risk management: Multinational companies can use a captive to manage risks at group level and centralize their insurance programmes. This translates into improved risk awareness and cost-transparency.
7. Protection from price fluctuations: Pricing swings occur periodically in the traditional marketplace. Companies using a captive can negotiate a premium established on the basis of their own loss experience. Other market factors and loss experiences of other insured parties have no effect.
8. Potential tax advantages for Captives: Malta tax refund system that could be beneficial to foreign investors.

Furthermore, the growth of the insurance sector, has attracted a significant increase in the number of insurance managers in Malta. Most insurance managers offer a full range of products and services which encompass every aspect of alternative risk management, from initial consulting, to program structuring and formation, to ongoing administration and regulatory compliance for insurance companies.

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Isle of Man: Why Are Family Office Services Becoming So Popular?

1024 913 Crowe Clark Whitehill

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Family Offices are private wealth management advisory services offered to ultra-high net worth investors to centralise focus and control over family finances, legal, tax and administration issues. It is an outsourced solution to manage the financial and investment affairs of wealthy individuals or families. It works to provide the best solution for building, preserving and transferring family wealth onto future generations.

The first known family office was setup for the Rockefeller family of New York in the 19th Century. The family, faced with increased wealth management concerns, began hiring trusted advisors with certain expertise to assist with the management and protection of their family’s interests. Thus the concept of family office was born.

Family Offices are most commonly utilised because assets have grown in size and complexity, demanding full-time professional management. The world’s most wealthy families establish Family Offices to ensure their wealth is suitably preserved for future generations.

One of the main attractions of the use of a family office for wealthy families is having one central source for information and advice on the family’s financial matters. Having a dedicated team of professionals who are completely focused on the client’s goals and financial aspirations in a completely confidential manner who can ensure wealth management and future proofing of complex structures to ensure the wealth is managed effectively for future generations.

One of the most important parts of any family office is to consolidate all relevant financial information into one report and coordinate with various financial institutions to establish an overall investment strategy. This saves valuable time and resources for family members and can focus the mind on the main goals for the family’s wealth and is a pragmatic way to manage overall investment risk.

A family office may also act as a connection between family members and as a trusted advisor for younger generations. Research has shown that many wealthy families are not able to preserve their wealth for longer than three generations. This is often caused by a lack of strategy within the family or a lack of communication between the family members. A family office can build long-term relationships with all family members and involve and educate the younger generation on wealth management matters. As the family office is a third party, it is often easier for family members to discuss financial matters with the family office instead of dealing directly with each other.

It has been said that the most important considerations of any family office are a professional comprehensive service, discretion and extensive wealth management experience and at CCW we can offer all three.

If you are considering a family office for your family or are a trusted advisor who is looking to move a family office which is currently in existence we would be happy to discuss your needs. Crowe Clark Whitehill have looked after families and their needs for over 30 years, our people are highly skilled and qualified client professionals. We have extensive experience in the management of international structures and through our network we have links to professional advisors in almost every jurisdiction around the globe.

Crowe Clark Whitehill’s services are uniquely crafted to give each family exactly what they need. We will take the time to get to know you, your aspirations and concerns. We understand that there is nothing more important than family and that you will be in trusting personal matters to us, we will work with you to gain understanding and build long term relationships.

 

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