Expertise

Tax authorities are becoming increasingly rigorous not only on compliance but they are taking a more investigate approach on aggressive tax planning, use of structures in other jurisdictions, transfer pricing, bench-marking and also on unexplained wealth. As tax legislation and regulations are becoming increasingly complex, there is also a drive for tax transparency, tax audits and investigations and unexplained wealth orders.   As a firm specialising in tax related matters, we offer our professional expertise and assistance to individual and corporate taxpayers facing tax disputes, tax audits or investigations.  Our tax professionals may assist in routine inspections which may be resolved without much difficulty as well as in-depth tax investigations requiring high expertise and knowledge to resolving such issues.  Our tax professionals may assist not only with the handling of such tax matters but may also represent individual and corporate taxpayers in resolving these tax audits and investigations with the Commissioner for Revenue.  Our goal is not only to minimise tax risks and exposures for the taxpayer whilst ensuring that our client maintains appropriate relations with tax authorities.   In this regard, we offer an extensive support service covering:

• Review of tax positions, tax returns and tax payments;
• Assessing tax risk profiles and exposure;
• Handling compliance checks;
• Handling tax interventions and enquiries;
• Detailed capital accretion exercises aimed especially at individuals facing unexplained wealth orders;
• Negotiation and resolution of disputes with tax authorities, and
• Advising on interest and penalties.

[vc_row][vc_column][vc_empty_space][vc_cta h2="How can we help you?" add_button="right" btn_title="Contact Us" add_icon="left" i_icon_fontawesome="fa fa-phone" btn_link="url:http%3A%2F%2Fwww.avanzia.com.mt%2Fcontact-us%2F|||"]Avanzia Taxand is a corporate service provider licensed by the Malta Financial Services Authority and may also act as tax representative with the Inland Revenue Department.  Tax advice and tax compliance remain our core focus and we ensure that clients are always in compliance with the myriad filing obligations and notifications.[/vc_cta][/vc_column][/vc_row]

[vc_row][vc_column][vc_column_text]Malta has been an EU Member State since 1 May 2004 and the adoption of EU Directives coupled with a unique full imputation system of taxation as well as tax refunds has developed the country into an international financial centre.  Malta is the country of choice for foreign investments into the EU. However, several companies in a multitude of sectors have set up in Malta for several reasons. Although the country and the local market are small, companies have no restrictions in accessing the EU market and beyond.  Malta has developed an advanced IT infrastructure, very good telecommunications and connections, an extensive treaty network, a professional and business friendly atmosphere amongst professionals and regulators, and a can-do attitude all of which have contributed to Malta’s success beyond its relative size.  

Corporate taxation and the full imputation system

Maltese registered companies are subject to income tax on chargeable income at a standard rate of 35%. Companies incorporated in Malta are subject to tax on their worldwide income but companies incorporated outside Malta but are tax resident in Malta by virtue of their effective management and control are subject to tax on income arising in Malta and income remitted to Malta.  One may also claim that companies are not effectively subject to tax because of the full imputation system of taxation whereby the tax paid by the company is credited in full to the shareholder/s following a distribution of profits. This ensures that there is no double taxation as often happens under the classical system.  Moreover, a system of tax refunds which shareholders may claim depending on the source of income leads to an effective tax rate which may be well below the 35% tax rate applicable to companies.  

Tax accounting

Every Maltese company is required to allocate its profits to five tax accounts.  The allocation of profits to the tax accounts is a very important aspect of the Maltese tax system as it determines the tax treatment applicable to shareholders and the tax refunds which may be claimed upon a distribution of profits. The following is an overview of the five tax accounts, the type of income or gains allocated to each tax account and the tax refunds which may be claimed by shareholders: [wpdatatable id=30][/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_column_text]

Participating holding and the participation exemption

A comparative study shows that Malta has one of the best participation exemption regimes. A Maltese company in receipt of dividend income or capital gains from a participating holding may claim the participation exemption.  Alternatively, the company may elect to be subject and pay tax and this would enable the shareholder to claim a full refund. A participating holding must be an equity holding which is defined as a holding of the share capital in a company which is not a property company and entitles the shareholder to at least any two of the following rights:

1. A right to vote;
2. A right to profits available for distribution, and
3. A right to assets available for distribution on a winding up of that company.

A participating holding arises when any one of the following criteria is met:

1. A company holds directly at least 5% of the equity shares of a company whose capital is wholly or partly divided into shares, which holding confers an entitlement to at least 5% of any two of the above-mentioned rights; or
2. A company is an equity shareholder in a company and is entitled at its option to call for and acquire the entire balance of the equity shares not held by that equity shareholder company; or
3. A company is an equity shareholder in a company and the equity shareholder company is entitled to a first refusal in the event of the proposed disposal, redemption or cancellation of all of the equity shares of that company not held by that equity shareholder company; or
4. A company is an equity shareholder which holds an investment representing a total value of at least €1,164,000 (or the equivalent in a foreign currency) in a company and such investment is held for an uninterrupted period of not less than 183 days; or
5. A company is an equity shareholder in a company and where the holding of such shares is for the furtherance of its own business and the holding is not held as trading stock for the purpose of trade.

A capital gain derived from a participating holding automatically qualifies for the participation exemption, however, in the case of dividends derived from a participating holding they will be exempt from tax provided that the body of persons in which the participating holding is held satisfies any one of the following three conditions:

1. it is resident or incorporated in the EU; or
2. it is subject to foreign tax of at least 15%; or
3. it does not have more than 50% of its income derived from passive interest or royalties.

Where none of the above three conditions are satisfied, then both of the following conditions must be satisfied:

1. the equity holding in the non-resident company is not a portfolio investment, and
2. the non-resident company or its passive interest or royalties are subject to tax of not less than 5%.

A portfolio investment is an investment in securities such as shares, bonds and such like instruments, held as part of a portfolio of similar investments for the purpose of risk spreading and where such an investment is not a strategic investment and is done with no intention of influencing the management of the underlying company.  Also, the holding of shares by a Maltese company in a foreign body of persons which derives more than 50% of its income from portfolio investments is deemed a portfolio investment. The participation exemption may also apply to a participating holding in certain partnerships, collective investment vehicles and European Economic Interest Groupings.  

Summary and illustrations

The mechanics of the full imputation system, the allocation of profits to the various tax accounts and the tax refunds and the overall effect of their interaction may be illustrated in the following examples: [wpdatatable id=16] [wpdatatable id=20] [wpdatatable id=25] [wpdatatable id=26][/vc_column_text][vc_empty_space][/vc_column][/vc_row][vc_row][vc_column][vc_column_text]PH: Participating Holding TAS: Tax at Source. The credit of the tax paid by the company given to the shareholder is the effect of the full imputation system. COMET: Combined Overall Malta Effective Tax.  This is the net effect of the tax paid by the company and the tax refund received by the shareholder in Malta.   It is pertinent to point out that a tax refund becomes due to the shareholder by the Inland Revenue Department within 14 days from when the company’s audited financial statements (accounting for the dividend distribution) and a complete and correct income tax return are submitted to the tax authorities, the tax liability is paid in full and an application for refund on the prescribed form, together with the dividend certificate and other documents as requested by the International Tax Unit are submitted by the shareholder or his tax representative. Income tax is paid in the same currency as the company’s share capital, which is also the currency in which the company prepares and submits its audited financial statements.  The tax refund is also paid in the same currency, thus eliminating any forex risks.  

Branches and oversea companies

A branch or a permanent establishment (PE) of a foreign company is subject to tax at the standard rate of 35% on the profits attributable thereto.  It is interesting to note that the shareholders of the foreign company may still claim tax refunds provided the foreign company distributes profits which have been subject to tax in Malta (at the level of the branch or PE).  This may also apply to a foreign company which is tax resident in Malta by virtue of its effective management and control. Such foreign companies registered in Malta are referred to as an ‘oversea company’ because of the same terminology used in The Companies Act.  

Advance revenue rulings

Maltese legislation provides for Advance Revenue Rulings (ARR) which may be obtained by application from the International Tax Unit of the Inland Revenue Department.  ARRs are valid for a period of five years and are renewable. The ARR is still valid even if there is a change in legislation although in this case the ARR expires once two years are over from the legislative change. The attractiveness of ARRs has somewhat decreased following the EU Directive whereby the Maltese tax authorities provide information related to ARRs to the EU Commission and other EU Member States.  

Notional interest deduction

In 2018 Malta introduced the concept of a notional interest deduction (NID). Before the introduction of these rules, debt financed entities could claim a tax deduction equivalent to the interest however no similar deduction was available for equity financed companies.  The NID is optional and entitles companies to claim a tax deduction equivalent to the notional interest calculated on its equity thus making equity financing on the same level playing field as debt financing for taxation purposes. NID is determined by multiplying the reference rate to the invested risk capital.  The reference rate is the risk-free rate set by reference to the current yield to maturity on the Malta Government Stocks with a term of approximately 20 years plus a premium of 5%, and the invested risk capital of the undertaking is the share capital, share premium, positive retained earnings, non-interest-bearing loans and any other positive equity components. Any capital directly employed in the production of income which is exempt from tax does not fall part of the invested risk capital. One of the main advantages of the NID is that the combined overall Malta effective tax (COMET) may be reduced and reduces the need for the shareholder/s to claim tax refunds.  

The patent box regime

As from year of assessment 2020 (basis year 2019), any person incurring qualifying IP expenditure and from which qualifying IP income is derived, may claim a deduction which may reduce the chargeable income from qualifying IP by 95% thereby drastically reducing the taxable income of the person and may also be applied upon the disposal of the IP.  The assets that are considered as qualifying IP are defined in the Rules and include registered patents and assets covered by protection rights, however, exclude brands, trademarks and trade names.  The deduction is aimed for assets which are developed by the person rather than for acquired assets.  The deduction is however not limited to assets developed in Malta but require that the beneficiary maintains sufficient substance as is commensurate with the type and extent of activity being carried out. For further details, you may refer to the The Patent Box Regime news item.  

Tax consolidation in Malta

Following the publication of the Consolidated Group (Income Tax) Rules by means of Legal Notice 110 of 2019, Malta introduced fiscal unity rules providing for a consolidated tax group.  As a result, certain groups of companies may, from the year of assessment 2020 (basis year 2019), opt to be treated as one single taxpayer. The definition of a group in these rules is different and much wider than the definition contained in the Income Tax Act allowing both Maltese companies as well as foreign entities that fall within the definition of a company to form part of the consolidated group. The foreign entities need not be tax resident in Malta to form part of the fiscal unit, but it is necessary that they are tax registered in Malta. The Rules lay down the requirements relating to the formation of the Fiscal Unit and also discusses what shall constitute ignored transactions in determining the Group’s chargeable income and tax payable. The main benefit of the tax consolidation or fiscal unity is the cash flow advantage especially when compared to the current operation of the partial shareholder tax refunds upon a distribution of taxed profits. The new tax consolidation rules reduce the tax due to the combined overall effective tax rate without the need to wait for the income tax refund on distributed taxed profits. However, the tax consolidation may also be useful within a local context since it is wider in scope than the surrendering of tax trading losses.  Clearly, in view of the embedded anti-abuse provision, the purpose of these rules is not to provide a tax advantage. For further details, you may refer to the Tax Consolidation in Malta news item.  

Other benefits

The salient features highlighted above are coupled with other benefits including:

• No withholding taxes;
• No thin cap rules or debt-to-equity ratios;
• No capital duty and wealth taxes;
• No stamp duty on share transfers in companies whose activities are outside Malta;
• Non-resident persons are exempt from capital gains arising on certain share transfers;
• Participation exemption regime applicable to branches, certain partnerships and other entities;
• An extensive treaty network with over seventy treaties currently in force;
• Step-up upon an inward redomiciliation.

[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_empty_space][vc_cta h2="How can we help you?" add_button="right" btn_title="Contact Us" add_icon="left" i_icon_fontawesome="fa fa-phone" btn_link="url:http%3A%2F%2Fwww.avanzia.com.mt%2Fcontact-us%2F|||"]Avanzia Taxand is a corporate service provider licensed by the Malta Financial Services Authority and may also act as tax representative with the Inland Revenue Department.  Tax advice and tax compliance remain our core focus and we ensure that clients are always in compliance with the myriad filing obligations and notifications.[/vc_cta][/vc_column][/vc_row]

[vc_row][vc_column][vc_column_text]Malta, being an EU Member State since 1 May 2004, has established itself as an international financial centre.  The legislative framework is in conformity with EU law.  The Companies Act is modelled on the UK Companies Act and provides for various types of entities such as SICAVs, INVCOs, foundations, limited partnerships, general partnerships, single member companies, limited liability companies and public companies.   The most commonly used entity is the limited liability company which can be either private or public:

• A private company must include ‘Limited’ or ‘Ltd’ as the last word in its name. It may be exempt or non-exempt and it is also possible to have just one shareholder (referred to as a single member company).  A private company must have less than fifty shareholders and the company must prohibit invitations to the public to subscribe to any shares or debentures.
• A public company (Plc) is defined as a company that is not a private company and therefore it may offer its’ shares or debentures for subscription to the general public.

  The company incorporation and registration procedure is very efficient and the following three simple steps must be followed:

• Provide all the necessary information and documentation to satisfy the KYC or CDD requirements of EU Directives and the Prevention of Money Laundering and Funding of Terrorism Regulations;
• Establish a banking relationship and transfer the funds representing the initial paid up share capital of the company; and
• Draw up a Memorandum and Articles of Association which must include the company name, its registered address in Malta, its objects and powers, details of the share capital structure and the shareholders, details of the directors, legal and judicial representatives and company secretary. The Memorandum and Articles of Association must be signed by the promoters / shareholders and need not be executed in front of a notary.

  The following are a summary of the main statutory requirements relevant to companies:[/vc_column_text][vc_empty_space][table][table_head][table_row][table_heading_cell]Requirements [/table_heading_cell][table_heading_cell]Description[/table_heading_cell][/table_row][/table_head][table_body][table_row][table_cell]Share Capital[/table_cell][table_cell]The minimum authorised and issued share capital for private companies is €1,164.69 with at least 20% of the nominal value paid up, whilst that of a public company is €46,587.47 with at least 25% of the nominal value paid up. [/table_cell][/table_row][table_row][table_cell]Currency[/table_cell][table_cell]The company’s share capital may be denominated in any currency. The Companies Act requires that financial statements are prepared in the same currency in which the share capital is denominated whilst the Income Tax Act provides that the tax payment and any tax refunds are done in the same currency of the share capital.[/table_cell][/table_row][table_row][table_cell]Registered Address[/table_cell][table_cell]A company must have a registered address in Malta.[/table_cell][/table_row][table_row][table_cell]Objects and Powers[/table_cell][table_cell]The Company’s activities must be clearly laid down in the Memorandum of Association. A single member company must restrict its objects. Certain activities may require a license from the regulator, the Malta Financial Services Authority.[/table_cell][/table_row][table_row][table_cell]Shareholders[/table_cell][table_cell]There are no restrictions with respect to shareholders. Natural persons, corporate entities and trustees may all hold shares in a Maltese company. Malta has adopted the EU Directive on the Register of Beneficial Owners (RBO) and therefore a natural person having an ownership interest or voting rights of more than 25% or exercises control must be disclosed.[/table_cell][/table_row][table_row][table_cell]Board of Directors[/table_cell][table_cell]The Board may be composed of just one director. Directors may be natural persons or corporate entities and there are no restrictions with respect to nationality or residence. However, for substance requirements and management and control purposes, board meetings must be held in Malta, with the meetings properly minuted and decisions effectively taken in / from Malta.[/table_cell][/table_row][table_row][table_cell]Legal and Judicial Representative[/table_cell][table_cell]Maltese legislation provides that a company must have a legal representative/s who is empowered to represent the company on agreements, contracts etc. A judicial representative is empowered to represent the company in legal proceedings at the law courts etc. The directors, or any of the directors may occupy these posts.[/table_cell][/table_row][table_row][table_cell]Company Secretary[/table_cell][table_cell]A company must have a natural person occupying the post of company secretary. There are no restrictions with respect to residence or nationality.[/table_cell][/table_row][table_row][table_cell]General Meetings[/table_cell][table_cell]An Annual General Meeting (AGM) must be held every year to approve the audited financial statements. Such general meeting need not be held physically in Malta. In terms of the Companies Act, a resolution signed by all the shareholders is tantamount to a physical meeting.[/table_cell][/table_row][table_row][table_cell]Financial Year[/table_cell][table_cell] A company may opt for a financial year end other than 31 December as long as the period is not less than six months and not more than eighteen months. Approval must be sought from the tax authorities and notification given to the Registry of Companies.[/table_cell][/table_row][table_row][table_cell]Annual Accounts[/table_cell][table_cell]Companies must keep proper accounting records and have their accounts audited. Audited financial statements must be approved at the company’s AGM within ten months after the financial year end for private companies and within seven months after the financial year end for public companies. Licensed companies are required to submit their audited financial statements to the Malta Financial Services Authority within four months of the financial year end. All audited financial statements must be filed with the Registry of Companies and they are available online.[/table_cell][/table_row][table_row][table_cell]Form of Accounts[/table_cell][table_cell]Malta adopts International Financial Reporting Standards as adopted by the EU. However, a qualifying company may adopt the General Accounting Principles for Small and Medium-Sized Entities (GAPSME).[/table_cell][/table_row][table_row][table_cell]Annual Return[/table_cell][table_cell]All companies must submit an annual return to the Registry of Companies upon each anniversary of the company’s registration date. The annual return includes details of the capital, the shareholders, directors and company secretary and changes which took place during the year.[/table_cell][/table_row][table_row][table_cell]Registration Fees[/table_cell][table_cell]Upon incorporation, companies must pay a registration fee to the Registry of Companies which is calculated on the authorised share capital. The fee varies between €245 for an authorised share capital of up to €1,500 and a maximum of €2,250 for an authorised share capital of over €2.5 million. A registration fee is also payable annually together with the submission of the annual return. The annual registration fee varies between €100 for a company with an authorised share capital of up to €1,500 and a maximum of €1,400 for a company with an authorised share capital of over €2.5 million.[/table_cell][/table_row][table_row][table_cell]Exchange Control[/table_cell][table_cell] There are no exchange controls in place. As a result, companies may have bank accounts outside Malta.[/table_cell][/table_row][table_row][table_cell]Taxation[/table_cell][table_cell]Maltese incorporated companies are subject to tax at a standard rate of 35% on their worldwide income. Companies which are incorporated outside Malta but are tax resident in Malta are also subject to tax at a standard rate of 35% but on income arising in Malta and income remitted to Malta. Malta adopts the full imputation system of taxation and therefore the tax paid by companies is credited in full to the shareholders upon a distribution of profits. For more details refer to Corporate Taxation.[/table_cell][/table_row][table_row][table_cell]Redomiciliation[/table_cell][table_cell]Maltese legislation allows companies to change their domicile by migrating in or out of Malta. This enables companies to move from one jurisdiction to another without the need of going through a liquidation process. [/table_cell][/table_row][/table_body][/table][/vc_column][/vc_row][vc_row][vc_column][vc_column_text]For more details on redomiciliations to and from Malta, you may wish to refer to Redomiciliation.[/vc_column_text][vc_empty_space][vc_cta h2="How can we help you?" add_button="right" btn_title="Contact Us" add_icon="left" i_icon_fontawesome="fa fa-phone" btn_link="url:http%3A%2F%2Fwww.avanzia.com.mt%2Fcontact-us%2F|||"]Avanzia Taxand is a corporate service provider licensed by the Malta Financial Services Authority and may assist clients not only to incorporate companies but also ensure compliance with the above statutory requirements and other obligations.[/vc_cta][/vc_column][/vc_row]

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Even if the company has no deductible expenses, the rate of tax is reduced from 35% to an effective rate of 18.75%.  Upon a distribution of taxed profits, refunds will apply and so the net effective tax is reduced to 6.25% or lower.  The company may reduce the effective tax rate paid in Malta even further if it has any deductable expenses, or it claims the Notional Interest Deduction (NID) on the invested risk capital.  

Tax Treaties

Malta has an extensive double taxation treaty network with over 70 double taxation agreements most of which are based on the OECD model convention.  The reduced withholding tax rates on dividends, interest and royalties paid to residents of Malta are as indicated hereunder. Since Malta is an EU Member State, the Parent Subsidiary Directive and the Interest and Royalties Directive may also apply and the withholding tax rate could be reduced even further. [wpdatatable id=18][/vc_column_text][/vc_column][/vc_row]

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[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_empty_space][vc_cta h2="How can we help you?" add_button="right" btn_title="Contact Us" add_icon="left" i_icon_fontawesome="fa fa-phone" btn_link="url:http%3A%2F%2Fwww.avanzia.com.mt%2Fcontact-us%2F|||"]Avanzia Taxand is a corporate service provider licensed by the Malta Financial Services Authority.  We may assist in drafting all the necessary documentation necessary for an inward and an outward redomiciliation and liaise with the relevant authorities in order to complete all the necessary formalities.[/vc_cta][/vc_column][/vc_row]

[vc_row][vc_column][vc_column_text]The Income Tax Act brings to charge “gains or profits from any employment or office, including the value of any benefit provided by reason of any employment or office”.  The legislation does not define ‘employment’ or ‘office’ but with the introduction of the Fringe Benefits Rules in 2001 we now have a definition of ‘officer’ which means the holder of an office and includes an individual who is a director of a company, or holds directly or indirectly more than 5% of the ordinary share capital or of the voting rights in a company or is a partner in a partnership.  The said rules also define ‘employee’ and ‘employer’ and therefore one can easily deduce what constitutes employment – the provision of any service under a contract, whether written or not.

Income tax implications for individuals

Subject to treaty provisions, employment income arising in Malta is subject to income tax in Malta at the following progressive rates: [wpdatatable id=54]

Resident and domiciled individuals

The Income Tax Act defines a ‘resident in Malta’ as being any individual who resides in Malta.   Although not clearly defined, the Income Tax Act makes distinctions between ordinarily residence, residence and temporary residence.  The distinction is primarily based on the intention to stay in Malta as well as the duration of such stay. Chargeability to tax depends on the residence and domicile of the taxpayer.  Domicile is not defined in Maltese legislation. The concept of domicile is a legal concept and generally refers to the place where a person was born, lives and establishes his home and intends to live indefinitely.  Maltese law adopts the UK approach to domicile whereby a person previously not connected to Malta who establishes residence here will not be easily deemed to have attained a Maltese domicile. Such a Maltese domicile will only be attained if such an expatriate has, and circumstances show, that he has lost his foreign domicile and intends to indefinitely and permanently establish Malta as his home.  Married persons may opt for a joint tax computation or a separate tax computation using either parent rates or single tax rates. No deductions are given against the gross employment income which is brought to charge to tax except for specific deductions such as, a deduction in respect of private school fees, alimony payments, childcare fees, homes for elderly fees and sports fees. Different deduction cappings apply as set in the respective subsidiary legislation. (more…)

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[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_empty_space][vc_cta h2="How can we help you?" add_button="right" btn_title="Contact Us" add_icon="left" i_icon_fontawesome="fa fa-phone" btn_link="url:http%3A%2F%2Fwww.avanzia.com.mt%2Fcontact-us%2F|||"]Avanzia Taxand is an Authorised Registered Mandatory (ARM) authorised as such by the Inland Revenue Department. We may therefore handle the application and liaise with the tax authorities.  Avanzia Taxand may also act as a tax representative enabling us to deal with all compliance requirements and filing obligations with the tax authorities.[/vc_cta][/vc_column][/vc_row]

[vc_row][vc_column][vc_column_text]A Professional Investor Fund (PIF) is a special class of a collective investment scheme (CIS) which is subject to a much lighter and more flexible regime than UCITS, AIFs and other retail funds.  

Qualifying Investor

Following amendments introduced during 2016, PIFS may be promoted to a qualifying investor who is defined as an investor that invests a minimum of €100,000 in the PIF and which may not, at any time, be reduced below this minimum amount by way of a partial redemption.   A qualifying investor may be one of the following:

• is a body corporate which has net assets of more than €750,000 or which is part of a group which has net assets of more than €750,000 or, in each case, the equivalent thereof;
• is an unincorporated body of persons or association which has net assets of more than €750,000 or equivalent;
• is a trust where the net value of the trust's assets is more than €750,000 or equivalent;
• is an individual whose net worth or joint net worth with that of the person's spouse, exceeds €750,000 or equivalent; or
• is a senior employee or director of a service provider to the PIF.

The fund is required to obtain a Declaration Form in which the qualifying investor confirms that he/she/it has read and understood the mandatory risk warnings and describes why he/she/it has satisfied the applicable requirements to be considered a qualifying investor. It should be noted that the total amount invested may not fall below the established threshold of €100,000 unless this is the result of a fall in the NAV. Furthermore, provided that the minimum threshold is satisfied, additional investments of any size may be made. The minimum investment applies to each investor. However, in the case of an umbrella fund comprising several sub-funds, the respective thresholds are applicable on a per scheme basis rather than on a per sub-fund basis, thereby enabling the investor to spread the investment requirement across the various sub-funds. A PIF is exempt from risk spreading and/or diversification requirements and is not subject to borrowing or leverage restrictions other than those which may be specified in the offering document.  A PIF is required to issue an offering document setting out the nature, structure, objectives, risks and functionaries of the fund. The offering document must be submitted to the MFSA before being circulated to the investors.  

Legal Structure

Whilst the structuring of any fund will depend upon the promoters’ specific objectives and preferences, typical set-ups would involve the creation of voting shares issued to the fund’s promoters, providing them with the effective control over the structuring and general operation of the fund, whilst non-voting shares are issued to investors in the fund. Any changes to the rights attaching to the voting shares, redemption of such shares, and/or issue of additional voting shares will always require the prior approval of the MFSA. A PIF may be set up as an investment company with variable share capital ("SICAV"), an investment company with fixed share capital ("INVCO"), a limited partnership, a unit trust or a common contractual fund. Usually, clients opt for the corporate form (SICAV) for various reasons, including operational flexibility. A CIS may be structured as a multi-fund (umbrella) scheme, with a number of sub-funds thereunder, constituted by one or more different classes of shares (which may be denominated in different currencies). The assets and liabilities of each sub-fund are considered to constitute a separate patrimony distinct from the assets and liabilities of (and ring-fenced from the creditors of) the other sub-funds. Furthermore, it is possible for a CIS in the form of a SICAV to be constituted as an incorporated cell company ("ICC"). The ICC may establish one or more funds as incorporated cells, each cell being a limited liability company (SICAV or INVCO) with separate legal personality (unlike the sub-funds of a multi-fund SICAV, which may have their assets and liabilities treated as a separate patrimony but do not have legal personality separate from that of the SICAV) and requiring a CIS licence independently from the ICC. It is also possible to set up a Recognised Incorporated Cell Company ("RICC").  The RICC is constituted as a limited liability company, which may establish incorporated cells in the form of SICAVs or INVCOs, and which purports to provide such incorporated cells with administrative services. The RICC is required to obtain recognition from the MFSA for the provision of administrative services, while each incorporated cell must obtain a CIS licence. The rules on ICCs and RICCs are designed particularly to accommodate fund platforms.  

Board of Directors

The Board of Directors of a PIF must be composed of one or more directors independent from the Manager and the Custodian. In practice, however, it is typical for two or more directors having experience in the financial services industry to be appointed, in order to ensure dual control of the fund’s business. In the case of a self-managed fund, this issue of independence between the fund manager and the fund does not exist since the fund will be managed by its own directors and investment committee, if appointed. The Scheme is required to obtain the written consent of the MFSA before the appointment or replacement of a Director. Furthermore, no Corporate Director shall be appointed unless it is regulated in a reputable jurisdiction and the name/s of the person/s who will represent the Corporate Director on the Board of Directors of the PIF are disclosed to the MFSA. In approving prospective Directors of a PIF, the MFSA will, as a matter of procedure, consider:

1. their collective expertise in matters relating to PIFs;
2. prior experience of the prospective Directors on fund boards; and
3. knowledge on matters relating to principles of good corporate governance and regulatory issues.

 

Fund Management

The management arrangements for a PIF may be structured in one of two ways:

1. Managed by an external fund manager; or
2. A self-managed fund.

 

External Manager

Where an external manager is appointed, such manager may be established in Malta or outside Malta. If established in Malta, the proposed manager should be in possession of a Category 2 Investment Services Licence and be duly licensed and authorised by the MFSA to provide investment management services to collective investment schemes. On the other hand, if the manager is established outside Malta, the MFSA will conduct its “fit and proper” test in respect of the manager to ascertain whether it possesses the business organisation, systems, experience and expertise deemed necessary by the MFSA for it to act as Manager. In the event the PIF appoints an investment manager that is licensed as an Alternative Investment Fund Manager (AIFM), the PIF would be become subject to an additional layer of regulation to render it compliant with the Alternative Investment Fund Manager Directive (AIFMD). It is for this reason that the PIF regime is more suitable for managers having assets under management (AUM) of less than €100 million (leveraged) or €500 million (unleveraged).  

Self-Managed Fund

In the interests of simplifying the structure, it is also possible that the fund is established as a self-managed fund. Doing so would effectively vest responsibility for the discretionary management of the assets of the fund in the Board of Directors. In proposing this structure, the fund will need to satisfy the MFSA that the fund is capable of organising and controlling its affairs in a responsible manner and shall have adequate operational, administrative and financial procedures and controls to ensure compliance with all regulatory requirements and shall provide the MFSA with all the information it may require from time to time. Where the fund is self-managed, the Board of Directors may consider appointing an Investment Committee which must be composed of at least 3 persons (who shall be expected to satisfy a full “fit and proper” probity check and competence assessment by the MFSA) and which committee shall be collectively responsible for the day-to-day investment management of the assets of the scheme according to the Terms of Reference established by the Board of Directors and approved by the MFSA. One member of the investment committee should be a resident of Malta. If the self-managed fund route is followed, the initial, paid up share capital for the scheme should be at least €125,000, or the equivalent in any other currency and the NAV of the Scheme is expected to exceed this amount on an on-going basis. If a self-managed fund exceeds the AUM thresholds of €100 million (leveraged) or €500 million (unleveraged) it would also be required to comply with specific provisions of the AIFMD.  

Other Service Providers

Both the administrator and the custodian appointed to service a PIF may be based outside Malta.  PIFs are not required to appoint a custodian, although in such circumstances the fund would be expected to have adequate safekeeping arrangements in place, which must be satisfactory to the MFSA. The following foreign services providers, appointed in respect of a PIF licensed by the MFSA, are exempt from the requirement to hold a licence or recognition certificate issued by the MFSA under the Investment Services Act:

• a person resident outside Malta acting as trustee or custodian;
• a person resident outside Malta providing the services of management of investments and, or investment advice;
• a person resident outside Malta providing administrative services.

The above-mentioned exemptions are not automatically operative but their applicability is subject to a determination in writing by the MFSA. PIFs are required to appoint a Compliance Officer, a Money Laundering Reporting Officer and a local auditor approved by the MFSA. If a PIF effects its investments through one or more SPVs owned or controlled via a majority shareholding of the voting shares either directly or indirectly by the PIF, the SPV(s) must be established in Malta or in a jurisdiction which is not an FATF blacklisted country. In principle, the PIF must through its directors or general partner(s) at all times maintain the majority directorship of any SPV.  

Enhanced Flexibility

PIFs are permitted to use side pockets in order deal with situations where certain assets within the fund's portfolio become illiquid or comparatively hard to value, subject to certain conditions. The use of side letters is allowed, but these must be circulated and approved by the Board of Directors / General Partner / Manager prior to issue, and must be kept in Malta at the registered office and be made available to MFSA for inspection. Drawdown arrangements, whereby investors commit themselves to subscribe for a maximum amount of units in the fund which may be issued at a discount, are also permitted subject to certain disclosure requirements and other conditions.  

Application process and fees payable to MFSA

The application for a licence to operate a PIF must be made to the MFSA. The MFSA may only license a PIF if it is satisfied that the PIF will comply in all respects with the relevant legislation, regulations and rules and that its directors and officers, or in the case of a unit trust or limited partnership, its trustee(s) or general partner(s) respectively, are fit and proper persons to carry out the functions required of them in connection with the scheme. Upon submission of all documentation relative to the licence application in draft form (to the satisfaction of MFSA) and payment of the application fee, it is usually a matter of weeks for the MFSA to issue an in-principle approval in respect of the Fund. This is then followed by a submission of all documents duly signed in original, after which the MFSA issues a licence accordingly. The PIF may appoint any service provider (e.g. investment manager, adviser, administrator, custodian or prime broker) it deems necessary. Where all service providers are based outside Malta and the PIF has not appointed a local resident director (in the case of a scheme set up as an investment company), a local general partner (in the case of a scheme set up as a limited partnership); or a local trustee (in the case of a scheme set up as a unit trust / common contractual fund), the PIF has to appoint a Local Representative. The fee structure for fees payable to the MFSA by PIFs and AIFs is as follows:[/vc_column_text][vc_empty_space][table][table_head][table_row][table_heading_cell][/table_heading_cell][table_heading_cell]Scheme[/table_heading_cell][table_heading_cell]Sub-funds[/table_heading_cell][/table_row][/table_head][table_body][table_row][table_cell]Application for a PIF licence[/table_cell][table_cell]€ 2,000[/table_cell][table_cell]€ 1,000 (per sub-fund)[/table_cell][/table_row][table_row][table_cell]Annual Supervisory Fee[/table_cell][table_cell]€ 2,000[/table_cell][table_cell]€ 600 (per sub-fund)[/table_cell][/table_row][/table_body][/table][vc_column_text]

Taxation

For income tax purposes, a distinction is made between prescribed and non-prescribed funds. Essentially, a CIS that has assets situated in Malta constituting at least 85% of its total asset value is classified as a Prescribed Fund.  Other licensed funds, including funds in an overseas-based scheme, are Non-Prescribed Funds. In the case of Prescribed Funds, the CIS qualifies for an exemption from tax on income "other than income from immovable property situated in Malta and investment income" earned by the Prescribed Fund. The withholding tax on local investment income is 15% for bank interest and 10% for other investment income.  Income derived by the Prescribed Fund from immovable property situated in Malta is taxed at 35%. There is no withholding tax on investment income received by Non-Prescribed Funds (including overseas based CISs), which enjoy an exemption from tax on income (other than income from immovable property situated in Malta) and capital gains realised on their investments.  They also enjoy an exemption from stamp duty. There is no wealth tax in Malta. Foreign investors are not subject to Maltese tax on capital gains or income when they dispose of their investment (through redemption by the Fund or disposal to a third party) or when they receive a dividend or other income from the Fund. They are also entitled to benefit from the stamp duty exemption obtained for the Fund in connection with the acquisition or disposal of their units in the Fund.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_empty_space][vc_cta h2="How can we help you?" add_button="right" btn_title="Contact Us" add_icon="left" i_icon_fontawesome="fa fa-phone" btn_link="url:http%3A%2F%2Fwww.avanzia.com.mt%2Fcontact-us%2F|||"]Avanzia Taxand is a corporate services provider licensed by the MFSA and we may assist in the application process, the drafting of documentation in connection with the legal set-up as well as some of the ongoing compliance requirements and filing obligations.[/vc_cta][/vc_column][/vc_row]

[vc_row][vc_column][vc_column_text]

[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_empty_space][vc_cta h2="How can we help you?" add_button="right" btn_title="Contact Us" add_icon="left" i_icon_fontawesome="fa fa-phone" btn_link="url:http%3A%2F%2Fwww.avanzia.com.mt%2Fcontact-us%2F|||"]Avanzia Taxand is a corporate service provider registered with the MFSA and we may assist in the application process with the MFSA, the drafting of documentation in connection with the corporate structure set-up as well as some of the ongoing compliance requirements and filing obligations especially those related to secretarial and taxation.[/vc_cta][/vc_column][/vc_row]

[vc_row][vc_column][vc_column_text]The iGaming industry as well as the e-Commerce industry have significantly increased the need of payment gateways in Malta.  The Maltese authorities have proactively responded to this change and now Malta become a destination of choice for the setting up of Payment Institutions (PI).  Malta has developed an advanced telecommunications infrastructure and offers a highly skilled multilingual workforce making it a supreme destination to the setting up of customer care centres.   PIs are regulated by the Financial Institutions Act, 1994. In 2017, the European Union (EU) had published the Payment Services Directive 2 (PSD2) (Directive 2015/2366/EU) to be transposed by Member States, including Malta, into their laws and thereby repealing Payment Services Directive 1 (PSD 1). The transposition deadline for its implementation was set to 13 January 2018. The new directive builds on the previous directive and is designed to increase consumer protection, make payments safer and enhance innovation and competition. The regulatory and supervisory requirements for PIs are less rigid than those required for other credit or financial institutions. Unlike credit institutions, financial institutions cannot fund their activities through the taking of deposits or other repayable funds from the public.    

Activities of PIs

PIs may engage in the following activities which are laid down in the Second Schedule to the Financial Institutions Act:

1. Services enabling cash to be placed on a payment account as well as all the operations required for operating a payment account;
2. Services enabling cash withdrawals from a payment account as well as all the operations required for operating a payment account;
3. Execution of payment transactions, including transfers of funds on a payment account with the user’s payment service provider or with another payment service provider for the execution of direct debits, including one-off direct debits, the execution of payment transactions through a payment card or a similar device and for the execution of credit transfers, including standing orders;
4. Execution of payment transactions where the funds are covered by a credit line for a payment service user to execute of direct debits, including one-off direct debits, execute the payment transactions through a payment card or a similar device and execute  credit transfers, including standing orders;
5. Issuing and/or acquiring of payment instruments;
6. Money remittance;
7. Execution of payment transactions where the consent of the payer to a payment transaction is transmitted by means of any telecommunication, digital or IT device and the payment is made to the telecommunication, IT system or network operator, acting solely as an intermediary on behalf of the payment service user and the supplier of the goods and services.

PIs may also carry out the following additional activities:

• The provision of operational and closely related ancillary services such as ensuring execution of payment transactions, foreign exchange services strictly in relation to payment services, safekeeping activities, and storage and processing of data;
• The operation of payment systems;
• Certain business activities other than the provision of payment services;
• When payment institutions engage in the provision of payment services, they may only hold payment accounts used exclusively for transactions, and
• Payment institutions may grant credit related to certain payment services referred to in (4), (5) or (7) above only if further requirements* are met.

* The further requirements are:

• the credit is ancillary and granted exclusively in connection with the execution of a transaction; and
• notwithstanding national rules on providing credit by credit cards, the credit granted in connection with a payment and executed with the act shall be repaid within a short period which shall in no case exceed twelve months; and
• such credit is not granted from the funds received or held for the purpose of executing a payment transaction; and
• the own funds of the payment institution are at all times, to the satisfaction of the supervisory authority, appropriate in view of the overall amount of credit granted.

 

Licensing of PIs in Malta

The law lays down the following statutory minimum requirements which must be satisfied and fulfilled before granting a license to a company:

• Its’ initial share capital is in accordance with the principles established by the law (see below);
• There are at least two individuals who will effectively direct the business of the financial institution in Malta, that is, “the four eyes” principle;
• All qualifying shareholders, controllers and all persons who will effectively direct the business of the institution are suitable persons to ensure its prudent management;
• The authority is satisfied that the financial institution has sound and prudent management, and has robust governance arrangement;
• The authority is satisfied that there are no close links between that company and another person/s which through any law, regulation, administrative provision or in any manner prevent the company from exercising effective supervision of the company under the provisions of the Financial Institutions Act.

PIs are required that at the time of authorisation have initial capital as follows:[/vc_column_text][vc_empty_space][table][table_head][table_row][table_heading_cell]Activity provided by PI[/table_heading_cell][table_heading_cell]Minimum initial capital requirement[/table_heading_cell][/table_row][/table_head][table_body][table_row][table_cell](6) above[/table_cell][table_cell]€20,000[/table_cell][/table_row][table_row][table_cell](7) above[/table_cell][table_cell]€50,000[/table_cell][/table_row][table_row][table_cell]From (1) to (5) above[/table_cell][table_cell]€125,000[/table_cell][/table_row][/table_body][/table][vc_empty_space][vc_column_text]In applying for a PIs license with the MFSA, the following documents must be submitted:

• Form 1 as annexed to Financial Institutions Rule 01 -  Application for Authority to Set up a Financial Institution Operating in or from Malta;
• Form 2 as annexed to Financial Institutions Rule 01 – Questionnaire for Qualifying Shareholders other than Individuals;
• In terms of Financial Institutions Rule 01 – Personal Questionnaire for individuals who are or propose to be Directors, Controllers or Managers;
• A programme of operations setting out in particular the type of activities to be undertaken;
• Proposed level of initial capital;
• A business plan including the structure, organisation, management systems, governance arrangements and internal control systems of the institution and a forecast budget calculation for the first three financial years;
• A description of the procedure in place to monitor, handle and follow up a security incident and security related customer complaints, including incidents reporting mechanism;
• A description of the process in place to file, monitor, track or restrict access to sensitive payment data;
• A description of business continuity arrangements;
• A description of the principles and definitions applied for the collection of statistical data on performance, transactions and fraud;
• A security policy document;
• A description of the internal control mechanisms;
• A description of structural organisation;
• Audited financial statements for the last three years, if available;
• The identity of statutory auditors and audit firms;
• The applicant’s legal status;
• The address of the applicant’s head office;
• A description of the measures taken for safeguarding payment service users’ funds.

The authority will determine an application for a licence within three months of receipt of the formal complete application and will determine whether to grant a licence without conditions, a licence subject to certain conditions, or refuse the application for a licence.  

A typical credit card payment process

The following are the parties to the payment process when using a credit card: [/vc_column_text][vc_empty_space][table][table_head][table_row][table_heading_cell]Party[/table_heading_cell][table_heading_cell]Description[/table_heading_cell][/table_row][/table_head][table_body][table_row][table_cell]Cardholder[/table_cell][table_cell]A consumer who uses a credit card to purchase goods and services.[/table_cell][/table_row][table_row][table_cell]Merchant[/table_cell][table_cell]A provider of goods and services who accepts credit card payments.[/table_cell][/table_row][table_row][table_cell]Payment service provider[/table_cell][table_cell]A payment gateway which is responsible to acquire data authorisation and encryption.[/table_cell][/table_row][table_row][table_cell]Acquiring bank[/table_cell][table_cell]The bank which holds the merchant’s bank account.[/table_cell][/table_row][table_row][table_cell]Credit card brand network[/table_cell][table_cell]This includes brands such as VISA, Mastercard and American Express, amongst others, whose networks are used to facilitate interactions between issuers and acquirers when authorising and settling transactions.[/table_cell][/table_row][table_row][table_cell]Issuing bank[/table_cell][table_cell]The bank which issued a credit card to the consumer on behalf of card networks.[/table_cell][/table_row][/table_body][/table][vc_empty_space][vc_column_text]The payment goes through the following stages:

Authorisation of a transaction

• The cardholder uses a credit card to settle a purchasing transaction.
• A merchant’s POS system / e-commerce website contacts the PSP who, depending on the card brand used, contacts the designated acquirer for transaction authorisation.
• The acquirer sends the payment details to the card association.
• The latter then sends the payment details to the issuing bank for authorisation.

Authentication of a transaction

• The issuing bank receives the request for payment authorisation from the credit card network and validates the data received including the credit card number and CVV number, confirms availability of funds and matches the billing address of the credit card and payment files received.
• The issuing bank approves or declines the payment transaction.
• The response is sent back to the merchant through the same channels i.e. through the credit card network, then to the acquiring bank, PSP and finally to the merchant.
• For successful transactions, the issuing bank blocks the purchase amount on the cardholder’s account.

The authorisation and authentication process takes between two and three seconds.

Clearing and settlement

• The merchant sends the approved authorisations on a daily basis in one batch to the PSP.
• The latter directs information in batches to the credit card networks for settlement who in turn sends each of the approved transactions to the relevant issuing banks.
• The issuing bank transfers the funds to the credit card network and the payment goes through the same channels with each party deducting a charge until the merchant’s account is credited by the acquiring bank.
• Eventually the cardholder settles the bill with the issuing bank.

The settlement process can take anywhere from 24 hours up to 3 days.  

Passporting rights for PIs

Through the implementation of the European Passport Rights for Credit Institutions Regulations, a financial institution licenced or holding equivalent authorisation in another Member State or EEA State as a payment institution, may provide the activities for which it has been authorised either through the establishment of a branch or the freedom to provide services, including by engaging an agent.  The law prescribes the communication requirements for PIs that would like to passport the provision of services in Malta.  

Fees

An application fee of €3,500 is also required upon submission of the aforementioned application.  Financial institutions licensed under the Act must also pay an annual supervision fee of 0.02% of its total assets as reported at the end of the year immediately before the year in which the fee is payable. This must not be less than €2,500.  

Taxation

Financial Institutions are subject to the general rules of taxation in Malta.  Shareholders may avail themselves from the full imputation tax system and therefore when in receipt of dividends they are entitled to a tax credit which is equal to the tax paid by the distributing company on the profits out of which the dividends are paid.  Shareholders may also be entitled to tax refunds upon the distribution of taxed profits. Moreover, Malta has a wide network of double taxation agreements in place. Other benefits emanating from the Maltese tax system include the ‘participation exemption’ on profits derived from participating equity holdings and no capital gains on transfer of shares in a non-property company held by non-resident shareholders.  For further details on the Maltese taxation system, please refer to Corporate Taxation.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_empty_space][vc_cta h2="How can we help you?" add_button="right" btn_title="Contact Us" add_icon="left" i_icon_fontawesome="fa fa-phone" btn_link="url:http%3A%2F%2Fwww.avanzia.com.mt%2Fcontact-us%2F|||"]Avanzia Taxand is a corporate service provider registered with the Malta Financial Services Authority and we may assist in the application process with the MFSA, the drafting of documentation in connection with the legal set-up as well as some of the ongoing compliance requirements and filing obligations particularly those related to secretarial and taxation.[/vc_cta][/vc_column][/vc_row]

[vc_row][vc_column][vc_column_text]Malta has a long maritime tradition and it has established itself as one of the leading maritime hubs and service centres.  The Island has several yacht marinas and offers a whole range of maritime services and facilities. Malta has also developed a very strong legal and regulatory platform and Malta’s shipping register is the EU largest and one of the largest in the world. All types of vessels, both pleasure yachts and commercial ships, including vessels under construction, may be registered under the Malta flag.  If the owner is not a Maltese resident person or an EU citizen, we may act as a resident agent. Vessels older than 10 years are subject to additional scrutiny by Transport Malta.  Vessels older than 10 years are subject to an inspection from an authorised flag State inspector whilst vessels older than 15 years are required to undergo an authorised flag State inspection prior to provisional registration.  It is customary for Transport Malta not to accept registration of trading vessels of 25 years and over although in certain circumstances this may be considered. A vessel / yacht is first registered provisionally under the Malta flag for six months during which period all documentation must be finalised.  It is possible to request an extension of the provisional registration should this be required. The requirements for provisional registration are:

• Application for registration by the owner or an authorised representative, including, an application for change of name of yacht, if required;
• Proof of qualification to own a Maltese vessel.   If the owner is a Maltese company, we will provide all the required documentation, however, if the owner is a foreign corporate entity, we would require a declaration appointing us as resident agent, certified copies of the certificate of incorporation, statute and good standing certificate.  All documents must be notarised and apostilled. We also require a signed legal opinion confirming that the records of the entity have been examined and giving details on the directors and holders of office and of the persons authorized to represent the entity and to bind it with their signature and to appoint a registered agent.
• Declaration of ownership made in front of the Registrar and signed by the owner or an authorised representative.
• A copy of the current ship’s International Tonnage Certificate (in case of ships over 24 metres);
• Evidence of seaworthiness;
• Payment of the initial registration fees;
• Application for radio licence.

The following documents are to be submitted during provisional registration:

• A builder’s certificate in case the yacht is newly built or a bill of sale if acquired;
• A deletion certificate or cancellation document issued by the relevant authorities where the vessel was last registered, if applicable;
• A Certificate of Survey and a carving and marking note both signed by an approved surveyor.

Further documents will be required for commercial or larger vessels. Once all the necessary documents are made available, a certificate confirming registration is issued by the Shipping Directorate of Transport Malta.  The certificate is valid for one year and must be renewed annually together with the payment of the annual registration fees.  

Private yachts

The Shipping Directorate of Transport Malta considers a private registered yacht to be any pleasure yacht of 6 metres in length or more, which does not carry passengers for reward and is not engaged in trade but is used for the sole purpose of the owner.  

Commercial yachts

Yachts in commercial use which do not carry cargo and do not carry more than 12 passengers can be registered as commercial yachts under the Commercial Yacht Code. Maltese law is very advantageous for the operation of commercial yachts.   The following classes of yachts will be considered for commercial registration:

• Yachts in commercial use of not less than 15 metres in length and not more than 24 metres.
• Superyachts in commercial use of more than 24 metres in length and less than 500 gross tonnes.
• Superyachts in commercial use of more than 24 metres in length and 500 gross tonnes and over.

A company operating a recognised commercial yacht is exempt from income tax however will be subject to tonnage tax based on the gross tonnage of the commercial yacht.  

VAT implications

A Maltese vessel owner acting as a taxable person must be registered for VAT purposes in Malta.  Pleasure boat owners are required to register when the vessel is leased for a short-term period (charters not exceeding 90 days) or a long-term period (charters exceeding 90 days).     

Purchase

The purchase of the vessel should remain VAT neutral for a VAT registered vessel owner.  A vessel bought by a Maltese taxable person from another taxable person situated in another EU Member State is subject to the reverse charge mechanism and therefore no VAT is actually paid in Malta.  It is also possible for a vessel acquired from outside the EU to have the vessel imported into Malta and request a VAT deferment from the Maltese VAT Department on the understanding that the vessel will be used for commercial purposes.    

Lease

The place of supply of a lease of a pleasure boat to a non-taxable person (whether long term or short term) or short-term charter to a taxable person is the place where the yacht is actually put at the disposal of the customer.  This usually means that place of departure of the charter of the yacht. On the other hand, the place of supply of yachts for a long-term period to a taxable person is the place where the customer is established. Subject to obtaining pre-approval from the VAT Department, the yacht owner may charge VAT on a portion of the lease on the understanding that only a portion of the lease is consumed within EU territorial waters.  The owner of the yacht is required to provide proof of the time the vessel would spend in the EU or, in absence of sufficient information to provide such assessment, the VAT Department may apply a predetermined percentage of the lease taking place in the EU.  Such percentages are based on the length of the yacht. The effective VAT rate will be substantially reduced. We will be able to work out the VAT savings once we have the necessary details.  

Operational expenses

As a VAT registered taxable person, the Maltese yacht owner may claim back any VAT incurred on business related expenses in Malta as well as apply the self imposition of VAT on invoices from EU suppliers.  The yacht owner may also opt to claim back any VAT incurred in other EU Member States through the Eighth Directive subject to any conditions imposed by the Member State.  

VAT exemption

The supply of sea vessels and provided to such vessels are exempted from VAT.  Such exemption is only granted to sea vessels used for navigation in high seas and for the carrying of passengers for commercial, industrial or fishing activities, sea vessels used for rescue or assistance at sea or for coastal fishing as well as to sea vessels used for war.  This exemption does not apply to vessels used for leisure purposes. [/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_empty_space][vc_cta h2="How can we help you?" add_button="right" btn_title="Contact Us" add_icon="left" i_icon_fontawesome="fa fa-phone" btn_link="url:http%3A%2F%2Fwww.avanzia.com.mt%2Fcontact-us%2F|||"]Avanzia Taxand may act as a resident agent and we offer a one stop shop for owners wishing to register their vessel under the Malta flag.  We may set up a Maltese company to act as owner of the yacht and liaise with certified surveyors as well as the Shipping Directorate of Transport Malta in order to have the provisional registration and permanent registration.[/vc_cta][/vc_column][/vc_row]

[vc_row][vc_column][vc_column_text]Echoing the success achieved in the maritime sector, Malta has established the Aircraft Registration Act coupled with an investment in human resources and facilities. This Act amended the Civil Code and the Code of Organisation & Civil Procedure and implemented the provisions of the Cape Town Convention on International Interests in Mobile Equipment and its Aircraft Protocol which is well known for its benefits to banks and aircraft lessors. With the number of registered aircraft growing year on year, the success of the Maltese Aviation Registry is sustained a robust legislative framework.  Malta has become a stronger jurisdiction for both private and corporate jets with some key players in aviation choosing to relocate to Malta. The sector includes a variety of service providers encompassing aircraft registration, maintenance, repairs and overhauls (MRO), training, crew management and lease finance organisations.   Advantages of registering aircrafts in Malta   Industry related advantages

• Malta forms part of the Eurozone.

• Wide aircraft registration possibilities for applicants including owners of aircrafts under construction, operators of aircraft under temporary title, such as a lease, and buyers under a conditional sale or title reservation agreement.

• Possibility of registering aircraft engines separately thereby allowing for engine financing opportunities.

• Recognition of fractional ownership interests of aircraft entitling the holder to use the aircraft for a designated amount of time over a specified period.

• Possibility of registering an aircraft through a trust. While the trustee may be registered as the owner, Maltese law ensures the rights of the beneficiaries are enforced against the trustee in case of default

  Fiscal treatment

• Income derived from the ownership, leasing or operation of aircraft or aircraft engines engaged in the international transport of passengers or goods is deemed to arise outside Malta for Maltese income tax purposes irrespective of the country of registration of the aircraft or aircraft engines and whether the aircraft calls at or operates from.

• In view of Malta’s remittance basis of taxation, companies which are tax resident but not domiciled in Malta will not be subject to tax in Malta on income derived from the operation, leasing or ownership of an aircraft unless such income is remitted to Malta since such income from the operation of aircrafts used for international transport of goods or passengers is not deemed to arise in Malta. In such a case a company will only be subject to tax in Malta on income and capital gains arising in Malta and on foreign income which is remitted to Malta.  On the other hand, companies registered and domiciled in Malta will allocate such income arising from international transport to the foreign income account and may thus benefit from double taxation relief.

• Maltese tax legislation provides for an accelerated tax depreciation allowing for larger portions of the depreciation value to be claimed early in the depreciation cycle hence resulting in larger deductions over a shorter depreciation period. The minimum number of years over which aircraft airframe, aircraft engines, aircraft engine or airframe overhaul, aircraft interiors and other parts may be tax depreciated is four years.

• Maltese registered companies are subject to income tax on chargeable income at a standard rate of 35%.  The Maltese tax legislation adopts a full imputation system whereby tax paid by the company is credited in full to the shareholder following a distribution of profits. Moreover, a system of tax refunds which shareholders may claim depending on the source of income leads to an effective tax rate which may be well below the 35% tax rate applicable to companies.  Furthermore, Malta has an extensive tax treaty network with over 70 jurisdictions which ensures that no double taxation is paid on income derived by the Company.  For further details you may wish to refer to Corporate Matters and Double Taxation Relief.

• The private use of an aircraft by a non-Maltese individual who is an employee or officer of an employer, company or partnership whose business activities include the ownership, leasing, or operation of aircraft or aircraft engine which is used for or employed in the international transport of passengers or goods is not considered a fringe benefit thus not subject to taxation in Malta.

• In an attempt to attract qualified employees working in the aviation industry, eligible employees may benefit from a favourable tax rate of 15% on income derived from employment income subject to taxation in Malta. The reduced tax rate of 15% applies when the employment income exceeds €45,000 and is available for a period of five consecutive years for EEA and Swiss nationals and for a period of four consecutive years for third country nationals.  It is also possible to apply the 15% tax rate of eligible offices under the Highly Qualified Persons Rules however, under these rules, the minimum employment income for eligible office is higher.

• Companies that carry on a trade or business consisting of the repair, overhaul or maintenance of aircraft, engines or equipment incorporated or used in such aircraft may benefit from investment tax credits. Such tax credits are calculated either as a percentage of qualifying expenditure or wage costs for jobs which are directly created by the project. The investment tax credits are credited against the tax due in Malta.

• L.N. 369 of 2005 governs finance leasing of aircrafts for arrangements not exceeding four years.  Guidance was later issued by the Maltese tax department for finance lease arrangements not falling within the ambit of the legal notice.

• The VAT legislation in Malta transposes the EU VAT directives. The VAT legislation exempts with credit both the supply of an aircraft destined to be used by airline operators for reward chiefly for international transport of passengers and/or goods as well as the actual international transport of persons and goods.  The said exemptions are also available to other aviation related services.

  Regulatory An Air Operator Certificate (AOC), issued by Transport Malta Civil Aviation Directorate (TM-CAD) is required for an air transport organisation to carry out any air service within the European Community in accordance with Council Regulation 1008/2008 on common rules for the operation of air services in the Community. The Civil Aviation Directorate regulates aviation activities on the basis of its membership in the following organisations:

• The International Civil Aviation Organisation (ICAO);
• The European Civil Aviation Conference (ECAC);
• EUROCONTROL, and
• The European Aviation Safety Agency (EASA).

  An applicant for an AOC must:

• Have the principal place of business and, if any, the registered office located in Malta;
• Satisfy the TM-CAD that is able to conduct safe operations;
• Its organisation and management are suitable and properly matched to the scale and scope of the operations;
• Procedures for the supervision of the operations have been defined;
• Provide evidence of ownership or lease agreement, and
• Provide a certificate of de-registration if the aircraft was previously registered in other jurisdictions.

  How we can help Avanzia Taxand is able to provide a one stop shop in delivering your requirements related to the registration and management of the aircraft together with our strategic partner aoc.mt as follows:

• Assistance with indirect and direct tax advice in the realm of aviation and tax compliance;
• Company incorporation and related ancillary services such as book-keeping and administration;
• Assistance to clients in registering their aircraft in Malta and obtaining Air Operators’ Certificates (AOC) and Air Operators’ Licenses;
• Provide advice on operations management finance and aircraft leasing;
• Sale and acquisition of aircrafts, and
• Other compliance matters.

Our Partners

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