Ερωτήσεις και απαντήσεις

Your question is two fold and I shall try to answer both.

First…there are two ways to go about increasing the share capital and allotting shares to your wife and children. This can be done either by the transfer from you of existing shares or else by increasing the company’s share capital and allotting these to the wife and children.

The first option would be a private agreement between you and the wife and children and no cash need be injected into the company.

For the second option, since the company is issuing new shares, there must be some form of compensation. In your case you stated that you did not wish to inject cash. Then perhaps these shares can be paid for by converting some existing loan that you have with your company. This would first need to be loaned or granted to the wife and children through a private agreement and then capitalized into share capital.

To retain control of the company affairs, there are various ways to go about it. Such include the allocation of preference shares to the children or to a different class of ordinary shares with non-voting rights.

To form a company we suggest that , first of all, you ensure that there is exist enough scope in doing so This means that the benefits of operating a company outweighs the initial costs of setting it up and of the annual running costs.

To form a company is quite a straightforward affair as long as one is an EU citizen (or company). One requires a copy of the ID card (or registration certificate in case of a foreign company), a bank account in which the share capital in deposited (minimum of Euro 235 paid up for a private company) and a Memorandum and Articles of Association as per the requirements of the Companies Act ’95.

A registration fee is payable according to the authorised share capital a company opts to have (minimum Euro 350).

A private company can be either with one shareholder (single member) or with a number of shareholders.

Any amalgamation can be done in two ways. Either through merger by acquisition, whereby a company acquires the assets and liabilities of the other company (ies) in exchange of shares and the acquired company (ies) is (are) dissolved.

Otherwise it can be done through a merger by formation of a new company whereby both assets and liabilities of the company (ies) is (are) taken over by the new company and the existing company (ies) is(are) dissolved.

One has to assess whether the method qualifies for the short process or the long one. To qualify for the short process, the company taking over the other company (ies) has to hold at least 90% or more of its(their) voting shares. If it holds 100% of its voting shares, then the amalgamation procedure and accordingly the time frame will be shortened further. In fact, in such a case the amalgamation would then take effect after the expiry of 3 months from the publication of the notice of amalgamation.

In case where a company does not have a shareholding in the acquiring company (ies) or it only has a minority shareholding, then this entails the long process which normally takes around nine months to complete.

The company secretary is normally appointed by the directors and should be an individual who has the requisite knowledge and experience to discharge the function attributable to a company secretary.

The law does not provide an indication of the duties normally delegated to a company secretary. However, one can find such an indication if the First Schedule to the Companies Act 1995. These include:

  • be responsible for keeping the minutes book both for general meetings and directors’ meetings
  • be responsible for the upkeep of registers of members
  • ensure proper notices are given of all meetings
  • ensure that all returns and documents of the company are prepared and registered with MFSA and other regulatory
  • entities within the requirements of the Act.

One also needs to point out here that, under various Maltese laws, the company secretary is presumed to be an OFFICER of the company and therefore PERSONALLY responsible for many acts and obligations just as a director is.

Taking on a partner just for the financial resources he can bring into the business, can be a very expensive experience in the long run. Although very attractive in the initial stages of the operations, over the years such financing arrangement may start to appear as a heavy burden to bear.

The partner would want a fair return for his investment which would normally be higher than current bank interest rates in view of the inherent risks to this capital. What is more, since he is sharing in the risks of the venture, he may also request that he shares in the decision making process which you may consider as unacceptable interference.

If the business proposal is backed by a solid business plan we would suggest bank finance as a better alternative for the following major reasons:

  • It has a predetermined cost in the form of bank interest.
  • Such cost is normally cheaper than what an investor would expect.
  • Once the bank finance is repaid, you will have regained full ownership of your operations
  • Banks normally do not get involved in your day to day business decision process.

That said, however, all this also depends on your credit capacity, that is the maximum amount you can possible borrow. It also depends on the vision and strategic objectives of your company. If you are looking at a growth strategy, than you will probably have to trade-off a certain amount of control for the cash injection by taking on a partner. At the end the returns on your investment should not diminish if your home work is right. Be careful however with interpersonal and culture issues.

Any person, company, partnership or organization that processes, stores and uses data of a personal nature in connection with an economic activity has to register under the Data Protection Act.

The Act makes certain exceptions, such as any entity that processes data in connection with state security, persons who work on their own (and do not employ other persons) or non profit making organizations that are exempt from the payment of tax.

Registration has to be effected by 15th July 2004 in the case of electronic processing and by October 2007 in the case of manual systems.

The registration fee is a flat Lm10 and covers a period of 1 year.

Unless you need to amend the existing processes or introduce new ones, the answer is no.

However if during the year new processes are introduced or existing ones amended, then you have to notify the Commissioner on the appropriate form. No further fees are payable on such notifications.

Yes, you can appoint a personal data representative to represent you.

Whatever the case, you always have to appoint a Data Controller, who will be responsible for all the processes carried out within the organization or business.

Under the agreement signed on 16th April, 2003 between Malta and the European Union, Malta had obtained derogation for a transitional period of seven years during which it can refuse work permits even to EU nationals. Malta also negotiated a further safeguard that applies permanently after this seven year period.

Since January 2001 Malta did not apply for an extension of this derogation and hence any EU national can now reside and work in Malta.  The only formality required is that such employment be advised to the Employment and Trading Corporation (ETC) on the requisite form.

As from 1st May, 2004, EU nationals can open any kind of business they wish in Malta.

In its negotiating position paper Malta said that it “will ensure that on accession the freedom of establishment and the freedom to provide services will apply equally to Maltese and EU natural or legal persons”.

Upon membership, any Maltese company or individual may set up business in any EU country. Inversely, any EU citizen will have the right to set up a business in Malta. This does not apply to traders from non-EU countries where current restrictions will continue to apply.

There are reasons why a difference was made between employed workers and self-employed individuals.

First of all, it is known that the actual movement of self-employed within the EU is even more limited than that of workers. In Malta, it is also known that the local market is small and rather saturated. This gives less incentive for foreign self-employed to set themselves up permanently in our country. For obvious reasons of size, there is more incentive for business to use Malta as a base for export to the EU market, than to penetrate the Maltese market alone. After membership, Malta will shed the last remaining obstacles that still limit our access to the EU market.

But there is more to it than that. Unlike employed individuals, self-employed are subject to additional national rules relating to setting up and operation of business. This makes setting up for a self-employed individual not as straightforward as the exercise of the right to seek employment.

The fact that a person owns shares in a Malta registered company does not bring automatic entitlement to residence in this country.

Normally an investor coming to Malta from overseas would need to apply for a work permit in order to be able to work locally. The permit application will be submitted by the company itself and issued to the company which will retain responsibility for compliance of all statutory obligations ( example taxation and social security contributions) of the investor. The processing of such applications are normally given preference and very seldom is any application by an investor refused.

However since 1st May, 2004, such limitations were removed as far as they affect EU citizens.

Any person can apply for a permanent residency status in Malta acquire a home and live here for as long as one wishes provided he/she fulfills the conditions applicable to the particular scheme one applies under.

Malta actively promotes and welcomes citizens from all over the world to come and reside here provided they can prove that they will not be a burden to the local economy.

Any expat who is tax resident , but not ordinary resident, in Malta is taxed on

  • Income arising in Malta
  • Income arising overseas and remitted to Malta
  • Capital Gains arising in Malta

Malta has no inheritance tax, but on death of a permanent resident, his/her heirs will have to pay 5% stamp duty on any Malta property inherited that is transferred onto their name.

Further information on this subject can be found in our article Foreign Residents in Malta

Any foreign investor can establish a company in Malta with the intent of carrying on business outside our national territory.

When such accompany is owned by non residents of Malta, there could be various tax incentives in view of the IMPUTATION system of taxation adopted in Malta.

As from May 1st, 2004, the date of Malta’s accession to the European Union, the regulations covering the types of business that foreigners are permitted to operate in Malta have been amended.

As from that date citizens of the EU can own unlimited amount of shares in a Malta registered company with no limitation as to the type of trade that such company can undertake.

Under the Merchant Shipping Act a Malta registered ship or yacht has to be owned by:

  • A Malta registered company
  • A Foreign body corporate
  • An EU citizen.

As a result, in order for any non EU resident to register his yacht or ship under the Maltese flag, he has first to register a company in Malta.

We shall be most happy to assist in the registration process should you wish to go ahead with your plans.

Just setting up a Maltese company to invoice your Algerian clients for goods being shipped from India to Algeria is not enough to qualify your goods as MADE IN EUROPE.

Normally to get the EUR1 certification confirming that goods are of EU origin, the bilateral treaty between the EU and the respective country (Algeria) would stipulate a percentage of the value of the goods ( i.e. import price into Algeria) that must be added in the country of the exporting company (in this case Malta). It is therefore best to check on these percentages by asking your Algerian client to check with the relevant authorities in his country.

If you decide to go ahead, the way to do this is to carry out some processing in Malta of the goods before these are sent to final destination. The cost of such processing plus the profit margin of the Malta operation needs to come to the required PERCENTAGE ( i.e. difference between landed cost of goods in Malta to invoiced price from Malta). It would be best if such operations are carried out through a Malta registered company.

To carry out such processing operations the MALTA FREEPORT has a DUTY FREE ZONE with factory facilities whereby goods landed at the Freeport and processed in these factories are considered as NOT IMPORTED INTO MALTA and therefore do not attract customs duty. However costs of operating in this zone are quite expensive and unless turnover is high, perhaps it would not make economic sense.

Another possibility is that of operating in one of Malta’s other industrial zones. Here cost of operation are much lower and goods imported into Malta as raw material for processing and re export again do not attract customs duty.

A Maltese company operating in this manner can benefit from substantial taxation benefits on profits and therefore any such tax savings when compared to your current taxation costs should be considered as offsetting the additional costs of operating from Malta. If you need addition details of such taxation and other benefits please refer to our website for the following publication:

Industrial Incentives in Malta

Another possibility you may consider is the setting up of an Export Company in Malta, i.e. one that buys the goods from India and resell to Algeria. Such companies only attract 4.17% taxation on profits and if your current taxation level is higher, this could result in an overall savings. For further reading on this subject, please refer to our web site for the following two publications:

  • International Trading Companies (ITCs)
  • Tax Provisions for ITCs

International Trading Companies are supposed to be trading. This means that income from investments is not considered as trading income and therefore would not benefit for the tax rebates under the ITC regime

Once discovered by the Revenue that the company also has income from investments, this may also result in the withdrawal of the ITC status of the company, and hence even your trading income will lose the current tax benefits.

We therefore strongly suggest against such an action.

No, an objection is not valid against a PT claim form, but the Commissioner of Inland Revenue allows you to reduce such claim through a prescribed form, called the Provisional Tax Reduction form.

This has to be submitted before the prescribed payment date. The claimed tax can be reduced up to zero.

One has to note, however, that there is an anti abuse provision in the law. If one claims a reduction in Provisional Tax and subsequently this request is proved to be overstated, then the tax authorities will charge interest at 1% on the under paid tax from the date that such tax was due.

If the VAT return is filed with the Department without the accompanying payment, then the taxpayer will be subject to various penalties and interest.

Monthly interest of 0.52% of the tax due will start to accrue from the date that it becomes payable.  Further penalties are contemplated under the Act if the taxpayer is found guilty before a competent court.  These new measures are applicable as from 1st January 2014.

The changes brought about by Malta entry in the E.U. as regards VAT are many. By far the most radical is that goods ordered from the EU (intra-community acquisitions) by a VAT registered person do not attract VAT on entry into Malta. This does not mean that such goods do not have to be accounted for in the VAT records of the business. The concept of ‘Reverse charge’ will henceforth apply for such goods. In simple terms this means that although VAT is payable, this is immediately claimed back in the VAT return. This concept should affect the cash flow of importers in a positive way.

The point of sale system has to be certified by a practicing auditor.

Each POS system has to have a number of features which are laid out specifically in the VAT Act. Once an auditor is satisfied that it complies with the Act, he will issue an audit certificate which is to be sent to the VAT Department with a technical certificate issued by the supplier of the POS system.

The VAT Department will then issue an exemption certificate with an unique exemption number for that outlet.

The corporate tax rate on the profits of companies registered in Malta is 35%.

However, in view of the adoption of the IMPUTATION system of taxation, the profit earned by a company and the tax paid by such company are deemed to be earned and paid on behalf of the shareholders.

For non resident shareholders whose income from Malta is taxed at only 5%, the imputation system could result in substantial tax savings since, when receiving the dividends from their Malta company, they also receive a tax certificate of 35% representing the tax paid on that dividend.  Given that their own person tax liability on the Malta profit is only 5%, this means that they are entitled to a rebate of 30/35 of all tax paid by the company on their dividend.

This brings the effective tax suffered earned by their Malta company to just 5%.

Further information on this subject can be found in our article Tax Provisions for International Trading Companies.

Please note that one can never buy a Maltese passport.  The honour of having a passport needs to be earned in one of the ways specified in our Constitution.  One of these is your deep affinity with our country and the level of commitment and investments you have here.

The following are some examples but this list should not be taken as being exhaustive:-

(a)           Residential -The applicant would most likely need to spend some time in Malta in execution of his mandatory obligations vis-à-vis purchase/rental of property and the acquisition of the required Malta investments;

(b)           Philanthropic - recognition will be given should the applicant make a contribution to a local charity for example;

(c)           Commercial - if the applicant sets up a Maltese company, trust, foundation or other vehicle, the Agency would also consider this in the light of aiming to achieve a genuine link to Malta;

(d)           Social - Where an applicant integrates directly or indirectly in the social life of the Maltese population, say for example by having his personal yacht berthed in a Malta marina, and further, by participating in local sailing events;

 

Personal; personal visits (or holiday trips) to Malta would clearly score the most points. One may also consider other situations where although not being physically present in Malta, genuine links could be imputed. Examples of these could be where the applicant’s children are enrolled in a Maltese educational institution, the use of a Malta-based doctor, engaging or employing persons to service the house or apartment purchased or rented – be it a cleaning personnel, handyman or gardener.

Upon the passing of the first 120 days, in which the applicant’s proposal for obtaining citizenship by investment is being evaluated in depth, the Minister will issue an “ In Principle Approval “of the application. This is a strong statement by the Malta authorities that, based on the facts and documents presented, including a declaration or executive summary as to how the applicant intends to fulfill the “genuine link” requirement, the applicant has very strong credentials for acceptance within the Programme.

It is therefore at this point that the applicant would need to pay the balance of EUR 640,000 and pass on to fulfill and execute his mandatory requirements as well as continue to gather proof of establishment of his genuine links to Malta.

The onus is therefore now on the applicant as to whether to continue to actively pursue the Programme having been given the green light by Malta.

Clearly, if for some extraordinary reasons, the applicant fails to perform his obligations and abandons the Programme entirely, then the payment may be lost. However, at such an advanced stage in the process, one would presume that the applicant would be expected to carry this through to the end.

It is worth mentioning also that the law covering the Malta IIP refers to a period of 6 months to 2 years within which to execute the Programme, and if for some reason or other, the applicant delays to fulfill the 12 month genuine link proposal in his earlier application statement, the Programme continues to remain operational until such time as this requirement is fulfilled within such 2 year period – the only implication here would be that the final outcome of the Programme would be slightly delayed.

The only other reason that could possibly result in the loss of the amounts paid – following the issue of the ‘In Principle Approval’ – would be if matters of say a criminal nature come to light in respect of the applicant that would automatically debar him from continuing to execute the Programme.

Our authorities expect that one of the reasons for anyone wanting to become Maltese citizens is their affinity to the island.  And such affinity normally translates to one wanting to reside in the national country and enjoy all the benefits that such citizenship entitles you to.

On the other hand, being a Maltese citizen does not mean entrapment within our shores.  Our authorities realise that any entrepreneur with large investments overseas will translate to substantial periods of absence from our island.  And our authorities actually encourage overseas trade since this enhances our own national wealth.

Therefore there is no expectation that one is resident throughout the year.  But a regular period of local residency, even if a short one, is expected.

Maltese taxation is based on domicile and residence – but not citizenship.

Domicile of choice is not acquired through citizenship, but on the demonstrated fact that the person intends to continue to reside in Malta for the rest of his/her life, and the cancellation of all connections with the domicile of birth.

Residence, on the other hand, is established by fact i.e. the intention to reside in Malta for not less than 183 days in any calendar year.

This distinction is important since, whereas a DOMICILED person is taxable on world wide income whether of capital or income nature, a resident person is taxed on INCOME REMITTED to Malta only.  Capital gains earned overseas, whether remitted to Malta or not, are not taxable in Malta.

A non-resident of Malta (whether holding a Malta citizenship or not) is only taxable in Malta on INCOME ARISING (including that of capital nature )  in Malta.

Under Maltese law any capital gains arising from the sale of one’s residency is totally exempt from Malta Income tax if sold after it had been used as the seller ‘s main and sole ordinary residence in Malta for at least 3 years.  If sold earlier, a final withholding tax is charged on the selling price.

Malta has one of the most advantageous personal tax regime in the world , except for Tax Havens.  Some of the important tax issues that would be relevant to your as a Malta Citizen , would be:

  • No inheritance or death taxes
  • No estate duty
  • No wealth taxes
  • No other form of national, state or council taxation