divider

Corporate & Commercial


CORPORATE & COMMERCIAL

Malta has a clear, modern, well developed and tried and tested corporate law regime, which lies at the heart of modern business and was and still is a major contributor to Malta’s rapid growth as an international commercial, corporate and financial services centre. The cornerstone piece of legislation within this regime is the Companies Act, 1995 which is broadly based on UK company law (the U.K. Companies Act, 1985 and Insolvency Act, 1986), and which has been updated from time to time to transpose and incorporate principles of relevant EU Company Law Directives.

The Companies Act regulates 3 types of commercial partnerships, namely:

  • the limited liability company, with the liability of shareholders limited to the amount (if any) unpaid on their contributions and which represents the commercial vehicle typically used in Malta;

  • the limited partnership (or partnership ‘en commandite’), which may have its capital divided or not divided into shares, where at least one general partner would be unlimitedly and jointly and severally liable for the obligations of the partnership but with the limited partnerships having their liability limited to the amount of their contribution; and

  • the partnership ‘en nom collectif’ (or general partnership), a tax transparent vehicle where all the partners are unlimitedly and jointly and severally liable for the obligations of the partnership.

These offer excellent opportunities for structuring operationally and tax efficient and sound vehicles with different control structures.

Alongside its robust company law regime, Malta has taken a series of legislative, policy and other initiatives in various sectors of business and commerce to strengthen and back its attractiveness as a flexible and safe place to structure and do business with, in or from. These include, amongst others:

  • Malta’s policy to be an on-shore jurisdiction, which meets all the tax evasion co-operation and anti-money laundering and combating of terrorism obligations and standards expected by the international community as a whole;

  • A very efficient on-shore tax regime for holding and trading companies at all levels and in all sectors, together with the very extensive network of double tax treaties that Malta has concluded;

  • Malta’s membership of the EU in 2004 and its becoming part of the Eurozone in 2008;

  • The updating and revision of civil and commercial laws, not only to comply fully with the acquis communautaire, but also to give effect to a series of locally bred innovations devised to support or facilitate the entry into, validity, performance and enforcement of business and commercial transactions in various industries and sectors (including banking, financial services, shipping, aviation, transport, leisure, real estate), including laws relating to collateral and other security interests and close-out netting, segregated cell corporate structures, trusts and capital markets;

  • The establishment of an Arbitration Centre and the promulgation of arbitration laws and generally the advancement as arbitration as an effective and efficient alternative means of dispute resolution.

Saliba Stafrace Legal is a commercial law firm which can provide excellent quality,timely and cost-efficient legal advice and services in respect of a wide array of corporate and commercial law matters in various business sectors, thanks to its partners’ and members’ extensive experience and expertise in these areas. The firm has also managed to build up and continues to develop a local and international network of correspondents and service providers with a view to offering comprehensive and integrated services to clients, both at start-up phase and on an on-going basis thereafter. The practice areas covered by the firm include:

  • company structuring and incorporation – go to links ‘Maltese Companies’ and ‘Taxation of Maltese Companies’;

  • registration of other commercial partnerships;

  • conversions from one type of commercial partnership to another;

  • establishment and registration of branches – go to link ‘Registration of Branches’;

  • corporate services, including company secretarial services and domiciliation / registered office facilities;

  • corporate governance;

  • director services contracts and employment law;

  • prevention of money laundering;

  • corporate and shareholding restructurings;

  • capitalisations;

  • joint ventures;

  • mergers and acquisitions;

  • cross-border mergers;

  • division of companies;

  • corporate liquidations and insolvency;

  • redomiciliation / migration of companies – go to link ‘Redomiciliation’

  • corporate finance;

  • secured financing;

  • capital markets and listing of securities;

  • general commercial and contract law;

  • projects and privatisations.

Through its network of correspondents and service providers, clients may also be provided with a full-range of corporate administration services, including:

  • Nominee / fiduciary shareholding services;
  • Persons providing the services of a director;
  • Accounting / book-keeping and liaison with auditors;
  • Tax and VAT registration and compliance;
  • Tax refund claims;

The firm may also provide assistance with the opening of a bank account in Malta.


MALTESE COMPANIES

Advantages

There are various structuring flexibility, cost-related and other advantages offered by Maltese companies, including:

  • Relative ease of incorporation;
  • Low minimum capital requirements;
  • Corporate right and control structuring possibilities trough classes of shares;
  • No local shareholders required;
  • Licensed trustees or fiduciaries as registered shareholders possible;
  • No local directors required (though recommended to create substance and the services of these are available locally);
  • Audited accounts must be prepared in accordance with IFRS’s and filed for public inspection;
  • Choice of accounting year-end;
  • Share capital, accounting and tax in a foreign currency possible;
  • Low registration and maintenance costs;
  • No exchange controls;
  • Efficient tax treatment –go to link ‘Taxation of Maltese Companies’.

Maltese Company – Essential Characteristics & Formation

The Companies Act regulates two types of company, namely the private limited liability company (“private company”) and the public limited liability company (“public company”).

A private company is one which, in its Memorandum and Articles of Association, (a) restricts the right to transfer its shares; (b) limits the number of its members to 50; and(c) prohibits any invitation to the public to subscribe for any shares or debentures of the company. A private company shall not offer shares or debentures to the public, or allow any of its securities to be admitted to listing or trading. A public company is one which has no such restrictions.

A private company may also be a private exempt company (“exempt company”) if its Memorandum or Articles of Association contain the following conditions: (a) that the number of persons holding debentures of the company is not more than 50; and (b) that no body corporate is a director of the company, and neither the company nor any of the directors is party to an arrangement whereby the policy of the company is capable of being determined by persons other than the directors, members or debenture holders thereof. An exempt company which qualifies to draw up abridged annual accounts enjoys certain exemptions with respect to the accounts documents which must be filed with the Registry.

An exempt company may be a single-member company (“single-member company”) having only one shareholder, where the objects of such a company (as set out in the Memorandum of Association) specify which activity of the company shall be its main activity and the business of the company shall consist principally of that activity.

The main statutory requirements for the formation of a Maltese company and its essential characteristics are the following:

Company Name

This can be any name chosen by the promoters, provided it is not the same or confusingly similar to that used by another commercial partnership or a name which in the opinion of the Registrar is offensive or otherwise undesirable. Names can be booked prior to incorporation – for 3 months.

Registered Office

Every company registered in Malta must have a registered office in Malta.

Objects / Activities

A company may be formed for any lawful purpose, but its Memorandum of Association must specify the main objects and business activities must be given. In the case of a single-member company the Memorandum must state the single main trading activity of the company.

Depending on their objects, companies may need a licence from the Malta Financial Services Authority or a trading licence from the competent authorities.

Share Capital

The minimum capital requirement for private companies amounts to approximately Euro 1,200, of which 20% must be paid up upon registration, whereas the minimum capital for public companies is approximately Euro 46,600, of which at least 25% must be paid up on inception. The share capital of a company may be denominated in any foreign currency.

The share capital may be divided into different classes of shares, with different voting, participation and other rights and restrictions.

Shareholders

Subscribers/ shareholders may be individuals or corporate / legal entities. The shares of a company may also be held by a trustee / fiduciary, who is duly authorised in accordance with Maltese Law, either under trust or under mandate.

Directors

The Directors can be either Maltese and/or foreigners. The company must have at least one director (and at least 2 directors in case of as public company).

Company Secretary

A company must appoint a secretary responsible ‘inter alia’ for keeping statutory books (including minute books) and foiling statutory returns with the Registry.

Meetings

A company must in each year hold at least one general meeting as its annual general meeting, and may also hold any number of other general meetings during the year as may be necessary (these are referred to as extraordinary general meetings).

Accounting and Auditing

A company must prepare financial statements for each accounting reference period (financial year). A company’s financial year is a period of one year ending on its accounting reference date, as such date is chosen and notified by the company to the Registrar, failing which it shall be 31 December. An accounting reference date may subsequently be altered by following the procedure prescribed by law.

A company’s financial statements must be drawn up in accordance with the provisions of the Companies Act, 1995 which requires all companies to maintain proper books of accounts and to prepare financial statements which give a true and fair view of the company’s assets, liabilities, financial position and profit or loss. Parent companies must also prepare consolidated accounts in respect of themselves and their subsidiaries.

The financial statements must be audited by a Certified Public Accountant and Auditor.

Generally accepted accounting principles in Malta are International Financial Reporting Standards (IFRS).

Audited accounts must be filed with the Registrar within the period prescribed by the Companies Act. Where the company carries on business or has business interests of more than 90% outside Malta, the deadline for approval of the accounts by the company may be extended to 18 months, by following the required procedure.

Time Required for Incorporation

The length of time to incorporate depends on the type of company and on whether all information and documentation is available and in order. In normal circumstances registration can be secured within 3 working days from submission of all relevant documents.

European Company – Societas Europaea

A European Company may be formed, constituted or otherwise established in Malta in terms of Council Regulation 2157/2001 of 8 October 2001 on the Statute for a European Company.

General corporate advantages:

  • Relative ease of incorporation;
  • Low minimum capital requirements;
  • No local shareholders or directors required (though recommended to create substance and available);
  • Licensed trustees as registered shareholders possible;
  • Audited accounts must be prepared in accordance with IAS’s and filed for public inspection;
  • Choice of accounting year-end;
  • Low registration and maintenance costs;
  • No exchange controls.


TAXATION OF MALTESE COMPANIES

Malta has created an efficient and yet onshore and internationally accepted tax regime for holding and trading companies operating in all sectors and industries, be it financial services, investments, leisure and entertainment, media, intellectual property, import / export, project management, ship and aircraft management, consultancy services, group treasury management, back-office operations etc.

Maltese Taxation – Advantages & Highlights

  • Standard corporate rate for Malta resident companies is 35%;

  • Malta has full imputation system – mostly relevant for Maltese shareholders not enjoying the tax exemptions on dividends;

  • Flexible participation exemption regime – see below;

  • Net tax paid in Malta is lowered through system of refunds to shareholders of company – see below;

  • No withholding tax on dividends (or interest or royalties) to non-residents;

  • No stamp duty on issues or transfers of shares by or in Malta companies licensed under the Investment Services Act or with majority of business interests abroad;

  • No tax on capital gains made by non-residents on disposal of their shares in Malta companies;

  • Double taxation treaty with almost 70 countries. Provides excellent tax planning opportunities;

  • Share capital, accounting and tax (and tax refunds) in a foreign currency is possible;

  • Tax only payable at the earlier of 18 months after year-end, or when a dividend is paid.

Maltese Company – Basis of Taxation

In terms of the Income Tax Act (Chapter 123 of the Laws of Malta) (the ‘ITA’), companies incorporated in Malta are automatically deemed to be both resident and domiciled in Malta (whereas those redomiciled to Malta from another jurisdiction would be considered incorporated in Malta from the date of redomiciliation) and are accordingly taxed in Malta on their worldwide income.

Malta resident companies are taxed on their business profits (after deducting expenses) at the normal corporate rate of 35%.

Full imputation system of tax

Malta adopts a full imputation tax system wherein tax paid by a company is, on the distribution of dividends, imputed to the shareholder as a tax credit against the shareholders’ tax liability. Since the 35% tax rate applicable to companies is equivalent to the maximum progressive rate of tax payable by individuals, a dividend distribution would typically result in no further tax payable at the level of the shareholder.

Tax Accounting System

The Malta income tax system utilizes different tax accounts for different sources of income namely the Final Tax Account (FTA), the Immovable Property Account (IPA), the Foreign Income Account (FIA), the Maltese Taxed Account (MTA) and the Untaxed Account (UA).

The attribution of chargeable income to the different tax accounts is an important aspect of the Maltese tax system as this determines the entitlement and rate of tax refunds upon a distribution of profits. However, no further tax is imposed on distributions of profits to non-Maltese-resident shareholders.

TAX REFUNDS – trading companies

A shareholder in receipt of a dividend distributed by a companyout of profits, which have been allocated to its FIA or its MTA is entitled to claim a refund of the Malta tax on those profits, subject to the satisfaction of the applicable statutory provisions.

The system of tax refunds applies in respect of:

(i) companies incorporated or otherwise resident in Malta,

(ii) foreign companies carrying out any activities in Malta, or

(iii) foreign companies operating through branches in Malta.

The dividends so paid by the Maltese company out of profits allocated to any of its taxed accounts (MTA or FIA) are NOT subject to further tax (whether by withholding or otherwise) in the hands of the shareholder.

The applicable refunds available on the distribution of dividends to shareholders are as follows –

  1. 6/7ths refund

The 6/7 refund is the normal refund applicable to companies in respect of trading activities (but also in respect of passive foreign sourced income allocated to FIA in respect of which no double tax relief has been claimed). It usually applies to (amongst others) fund managers, administrators and other investment services providers and financial institutions; group finance structures; captive insurers companies; gaming companies; and international buying and selling companies. Resultant effective tax paid in Malta is 5%. But foreign tax paid can be taken into account for purposes of refund calculation and this refund is calculated on tax suffered gross of any form of double tax relief (in case of MTA allocated income; otherwise if relief is claimed in respect of FIA income, 2/3 refund below applies), which can lower further the tax leakage in Malta (subject to max. refund not exceeding Malta tax paid);

  1. 5/7ths refund

This refund applies to 2 limited scenarios, namely to:

  • passive interest or royalties that are not derived, directly or indirectly from a trade or business and where any foreign tax suffered thereon is less than 5%.

  • Maltese companies holding shares in an underlying company not qualifying as a ‘participating holding’ and therefore not eligible for a participation exemption (see below).

Effectively the ultimate tax leakage can therefore be 10%.

III. 2/3rds refund

This refund applies to activities being conducted by banks, financial institutions and others on business outside of Malta in respect of foreign passive income and other foreign sourced income allocated to the FIA on which any form of double tax relief is claimed (whether treaty relief, Commonwealth relief, unilateral relief or Flat Rate Foreign Tax Credit). If no such relief is claimed on FIA income, then 6/7 relief applies – thus decision of whether to claim relief or otherwise and which refund to claim depends on circumstances of each case. Again, this refund is calculated on tax suffered gross of any form of double tax relief (except FRFTC) (subject to maximum refund not exceeding Malta tax paid) which can bring tax leakage further down.

FULL REFUND / PARTICIPATION EXEMPTION – holding companies

Shares held by a Maltese company in a company, Maltese or foreign limited partnership or foreign, non-resident collective investment vehicle (none of which being a “property company” as defined in the Income Tax Act) may qualify as a “participating holding”. This would result in a tax-efficient regime for the Maltese company, in that:

  • The shareholders of the Maltese company would be able to claim a full (100%) refund on any tax paid upon any income or gains derived by the Maltese company from a participating holding or from the disposal of such holding and distributed to such shareholders;

  • Alternatively, a Maltese company which qualifies for a participating holding can also claim a participation exemption, thus avoiding the need to pay any tax whatsoever on any income or gains derived by it from the participating holding or from the disposal of such holding.

The 100% refund or participation exemption is applicable when the profits out of which the relevant dividend is distributed are derived (dividends and/or capital gains) by the company from a participating holding. The ITA provides for six alternative situations in which an equity holding would be treated as a participating holding. These include:

(i) where a company holds directly at least 10% of the equity shares of a company whose capital is wholly or partly divided into shares, which holding confers an entitlement to at least ten percent of any two of the following equity holding rights: (i) right to vote; (ii) profits available for distribution; and (iii) assets available for distribution on a winding up; or

(ii) where a company is an equity shareholder in a company and the equity shareholder company 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

(iii) where a company is an equity shareholder in a company and the equity shareholder company is entitled to 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

(iv) a company is an equity shareholder in a company and is entitled to either sit on the Board or appoint a person to sit on the Board of that company as a director; or

(v) a company is an equity shareholder which holds an investment representing a total value, as on the date or dates on which it was acquired, of a minimum of one million, one hundred and sixty-four thousand euro (€1,164,000) (or the equivalent sum in a foreign currency) in a company and that holding in the company is held for an uninterrupted period of not less than 183 days; or

(vi) 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 a trade.

It should be noted that although the provision refers to the holding of equity shares in an underlying company, the full refund / participation exemption applies also to a holding in a Maltese partnership ‘en commandite’ (limited partnership structure) or in a foreign body of persons of a nature similar to the Maltese partnership ‘en commandite’ (limited partnership structure) the capital of which is not divided into shares, or a holding in a foreign collective investment scheme, not resident in Malta, where the liability of investors in such scheme is limited to the amount invested by them: provided that the holding in such limited partnership or collective investment scheme satisfies at least 2 of the equity holding rights referred to above. Furthermore, the Commissioner of Inland Revenue has discretion to determine that an equity holding exists even where such holding is not a holding of the share capital in a company or does not consist solely of such a holding of share capital, but where it can be demonstrated that in substance there is at any time an entitlement to at least two of the equity holding rights.

Apart from satisfying the conditions of the participating holding referred to above, in the case of dividend income, a participating holding acquired on or after 1 January 2007, must satisfy any of the following conditions:

(a) the underlying company is resident / incorporated in EU; or

(b) is subject to any foreign tax rate of at least 15%; or

(c) not more than 50% of the income of the underlying company derives from passive interest/royalties.

Condition (c) in particular is quite flexible.

Although unlikely, if none of conditions (a) to (c) is satisfied, there is an additional dual test:

(x) the investment by the Maltese company must not qualify as a portfolio investment,and therefore (by definition) the underlying company must does not derive more than 50% of its income from portfolio investment; and

(y) the underlying company must be subject to foreign tax at a rate that is not less than 5%.

An exemption from tax applies also in respect of income and gains attributable to a permanent establishment (including a branch) outside Malta or to the transfer of such permanent establishment.

When a company claims the participation exemption, the relevant profits are allocated to its Final Tax Account. Any dividends distributed by the Maltese company to its shareholders out of profits allocated to the Final Tax Account shall NOT be subject to further tax (whether by withholding or otherwise) in the hands of such shareholder.

General Rules relating to Refunds

  • Tax refund is not itself taxable;

  • Refund is to be paid by the Commissioner of Inland Revenue on production of appropriate support documentation (e.g. dividend warrant);

  • Although there is a cash-flow disadvantage (in that tax must first be paid by the company and taxed profits distributed to shareholders before refund is claimed) refund is paid within 14 days from when it becomes due;

  • Refund to be paid in the same currency in which the relevant profits were charged to tax (which is also the share capital and accounting currency) – avoids currency risk exposure.

Further tax benefits

  • Certain companies and structures are subject to special tax regimes, e.g. collective investment schemes (which are practically tax neutral), shipping companies and others;

  • Maltese business promotion legislation provides fiscal and other benefits to specified industrial and other business enterprises;

  • Special tax rates (15% flat rate) on employment income of certain non-Malta domiciled or ordinarily resident ‘Highly Qualified Persons’ holding specified senior employment posts with Malta financial services licensed companies and certain other entities – designed to attract more foreign investment and specialised skills to Malta in relevant industriesin which a shortage of Maltese qualified manpower exists.


REGISTRATION OF BRANCHES

Maltese law allows the establishment in Malta of a branch of any foreign corporation,wherever situated and whatever its legal form. Such establishment requires registration of the branch with the Registry of Companies, through a simple and straightforward registration procedure.

Such establishment and registration does not confer separate legal personality on the branch, which would in legal terms remain and constitute an integral part of the oversea company, and yet the branch operations in Malta are afforded specific treatment and are eligible to the same fiscal and other benefits as though the branch were a separate legal person.

In fact, the same corporate tax system applicable to Maltese companies is applied to the income of the branch, and the oversea company is entitled to use Malta’s double tax treaties (subject to the provisions and conditions thereof). The establishment of branches in Malta has therefore proved to be a useful tool in setting up tax efficient cross-border commercial structures, through tax migration, redomiciliation and other measures resulting in corporations having their ‘registration’ and ‘domicile’ split between two different countries.

All the above has led to a constantly increasing number of oversea companies registering branches in Malta.

Procedure of establishment

A body corporate constituted or incorporated in a country outside Malta (an “oversea company”) wishing to establish a branch or place of business in Malta must appoint an authorised representative resident in Malta.

The oversea company must deliver a statutory return (From M) to the Maltese Registry of Companies, within one (1) month from the establishment of the branch, containing all relevant information, including the name and address by and at which the branch carries on its activities in Malta; the activities to be carried out by it; the name and address of the authorized representative in Malta and details of his authority to act in such capacity.

Such statutory return must be accompanies by a number of documents, including an authentic copy of the memorandum and articles of association, charter, statute or other constitutive instrument of the oversea company itself (translated into English, where applicable) and a list and details of the directors and company secretary or other persons vested with the administration of the oversea company.

Registration fees are payable on submission of the statutory return, the amount of which depends on the amount of registered capital of the oversea company or (where it has no registered capital) on the number of members thereof stated in the constitutive deed (with a minimum of €245 and a maximum of €2,250).

Ongoing requirements

Changes to details given upon registration

On the occurrence of any change to the constitutive instrument, or changes amongst the directors or others vested with the administration of the oversea company, or to the local authorised representative, the oversea company must inform the Registrar thereof.

Accounts

An oversea company established in Malta is required to submit to the Registry a set of accounts (a balance sheet, a profit and loss account and notes to the accounts), in such form and containing particulars and including documents, and within the sameperiod, as that applicableunder the Companies Act to companies registered in Malta. The Registrar however has a discretion to accept accounts (including the balance sheet, profit and loss account and notes to the accounts) prepared in the form required under the law of the jurisdiction where the oversea company is constituted, if these give substantially the same or more information than that required to be given in respect of a Maltese company under the Act; otherwise the Registrar may accept the oversea company’s accounts supplemented however with branch specific accounts prepared as required by Maltese law(i.e. in respect of the branch operations).

As in the case of companies registered in Malta,where the branch carries on business or has business interests of more than 90% outside Malta, the deadline for approval of the accounts by the companymay be extended to 18 months,by following the required procedure.

Winding up of branch operations

The Companies Act provides for the dissolution and winding up of the affairs of an oversea company in Malta, and for this purpose Maltese law treats the branch as though it were a distinct legal entity which can be dissolved through the same methods allowed for the liquidation of Maltese companies (i.e. through solvent / members’ voluntary winding up or insolvent / creditors’ voluntary winding up or winding up through the Court). The branch may be so dissolved and wound up, whether or not the oversea company itself is being wound up. The Registrar of Companies must be notified of the winding up of the branch operations, as well as (where applicable) the winding up of the oversea company itself in its jurisdiction of incorporation.

Various and complex conflicts of law (private international law) issues and issues of jurisdiction of different courts in different courts will invariably arise in case of the winding up and/or insolvency of the Maltese branch and the oversea company, and professional legal advice should be sought in this respect.

Taxation of branches

The same corporate tax system applicable to Maltese companies is applied to the income of the branch of the oversea company. Thus the income of the branch would be subject to Maltese tax at the standard corporate rate of 35% applicable to companies registered in Malta, and the chargeable income of the branch is computed in the same way as that of a Maltese company. Upon distribution of taxed profits of the branch by the oversea company to its shareholders, the refunds normally applicable would be available to such shareholders (subject to the relevant conditions for such refunds). Furthermore, the branch having a participating holding in an underlying company would be entitled to claim the participation exemption on income and gains arising from such participation holding. See link ‘Taxation of Maltese Companies’

The profits of the branch are not subject to any withholding tax at the time of transfer / repatriation or later, but are only subject to the standard corporate tax as aforesaid payable on the year immediately following that in which they arise.

As pointed out above, branches in Malta of oversea companies may make use of the provisions of the various double tax treaties which Malta has concluded with various countries (subject to the conditions laid down in such treaties) which provides excellent tax planning opportunities for oversea companies establishing in Malta.

Prospectus of corporations incorporated or otherwise constituted outside Malta in a non-EU or non-EEA member state

The Companies Act prescribed special rules in respect of the offer of securities to the public in Malta or the issue and distribution of a prospectus in Malta by a foreign corporation incorporated or otherwise constituted outside Malta in a non-EU or non-EEA member state, whether or not such corporation has been or will establish a branch in Malta and be registered as an oversea company in Malta. Where such foreign corporations are established in the EU/EEA, the provisions of the Prospectus Directive (2003/71/EC) as transposed into Maltese law will apply.

REDOMICILIATION

Malta has implemented flexible and effective redomiciliation rules for corporate bodies way back in 2002, which have since then been successfully used by an increasing number of commercial companies and financial services vehicles, including collective investment funds. Foreign companies and corporations incorporated in any jurisdiction (except FATF blacklisted countries) are allowed to migrate to Malta.

The main attraction of redomiciliation is that the entity can maintain its corporate existence without the necessity of being wound up, with all the benefits this clearly entails in terms of cost saving and continuity of infrastructure, operations and performance.

The financial crisis in 2008-9, and the various initiatives taken by the EU, the US, OECD and FATF, which are resulting in a tighter scrutiny of offshore jurisdictions and a global trend towards higher levels of regulation, is inevitably leading more companies, group structures as well as fundsto move their operations from the traditional offshore centres to onshore ‘friendly’ domiciles. Malta is an onshore EU jurisdiction which has a strong reputation for being well regulated and flexible at the same time, and which has a very extensive network of double taxation agreement based on the OECD model, has been very much on the radar of these entities, and the number of these using Malta’s migration procedures is growing at a fast pace.The main attractions about Malta are the following:

  • Malta is traditionally a civil law jurisdiction, but its company law is largely based on UK company law, a mixture which facilitates the smooth continuation of entities originally set up under any legal system;
  • As a member of the EU, Malta aligned its laws with the acquis communautaire, making available the passporting and other harmonisation benefits sought by commercial entrepreneurs and financial services operators targeting Europe for the sale of their goods and services;
  • Malta applies international accounting and auditing standards and practices, making it easier for migrated entities to draw up their financial statements;
  • Straightforward re-domiciliation procedure with clear and basic documentation submission requirements;
  • Malta is cost-competitive, with salary and office costs, professional fees and other costs being materially lower than those prevailing in other EU commercial and financial services centres; and
  • The extensive double tax treaty network Malta has with almost 70 countries and the refund mechanism (reducing the net tax leakage in Malta to 5%) provide excellent tax planning opportunities for migrating entities and their shareholders.

In the context of funds and other licensed entities, there are also further specific attractions, including:

  • MFSA, the single regulator of financial services, is very approachable and takes a pro-active and open approach to new proposals;
  • The availability of the necessary infrastructure and technology, skilled human resources and choice of services providers;
  • The Professional Investor Fund regime in Malta, available to three categories of non-retail investors, allows funds to invest in any asset classes and to adopt any investment strategy, to borrow without restrictions (with a few exceptions), and also to appoint foreign managers, custodians and other service providers, allowing migration of funds of any type (be they hedge funds, fund of funds, private equity, real estate or other funds) which can retain their operational infrastructure without modifications (subject to any modifications which may result necessary should the fund and its manager be captured by AIFMD);
  • Funds already listed outside Malta may retain their existing listing (subject to approval of the relevant exchange) and/or apply for listing (including a secondary listing) on Malta’s recognized investment exchange;
  • Promoters of offshore funds can take opportunity from the redomiciliation event to convert their fund into the UCITS brand or into an AIF subject to AIFMD (by complying with the documentation and infrastructural requirements of the UCITS Directive or, as applicable, the AIFMD), thusbecoming eligible to the EU passport granted by the respective Directive and thereby using Malta as a gateway to European markets;
  • The tax neutrality on income and capital gains available at the level of the fund and non-resident investors, exemption from stamp duties, just add onto the fiscal benefits which increase the attraction of Malta as a domicile to migrate to.

APPLICABILITY OF CONTINUATION

The Continuation of Companies Regulations (Legal Notice 344 of 2002 – hereinafter the “Regulations”) allows for the continuation of corporate entities in Malta and out of Malta (inward and outward redomiciliation) under the Companies Act (Chapter 386 of the Laws of Malta) and the general direction of the Registrar of Companies.

The said corporate entity must be a body corporate registered or incorporated in an “approved country or jurisdiction” (not blacklisted by FATF) and set up in a structure similar to those recognised by the Maltese Companies Act. Moreover this continuation must be permitted by the law of the foreign jurisdiction and the constitutive documents of the corporate entity.

LEGAL EFFECTS OF CONTINUATION

Continuation signifies that a corporate entity may retain its already existing status as a body corporate, in the new jurisdiction where it is continued.

In effect, no new legal entity is created and this arrangement is intended to ensure that nothing prejudices or affects the continuity or continued operation of the entity. That is to say, the corporate entity retains all its assets and liabilities and remains bound by all obligations incurred as from the date of its incorporation in the first jurisdiction.

Continuation of a company in Malta does not affect any legal or other proceedings instituted or to be instituted by or against the company. In addition, continuation does not operate to release or impair any conviction, judgment, ruling, order, liability or obligation due or to become due or any cause existing against the company or against any member, director, officer, or persons vested with the administration or representation of the company.

Continuation in Malta is excluded only in exceptional cases, particularly where: –

  1. Proceedings for dissolution/winding-up/insolvency or proceedings of a similar nature, have been commenced by or against the company;
  2. A liquidator or special administrator has been appointed;
  3. There is a scheme or order whereby creditors’ rights are suspended or restricted;
  4. Proceedings for breach of law have been commenced against the company (not being in relation to some event which at the date of the occurrence thereof did not constitute a breach of law).

A body corporate that is continued in Malta under these provisions will enjoy the benefits (including tax benefits) available under Maltese legislation.

APPLICATION PROCEDURE FOR REDOMICILIATION

The continuation involves a procedure leading to approval by the Maltese Registrar for the company to be continued in Malta. In case of funds or other licensed entities, a dual continuation application procedure will be necessary, namely the corporate continuation application and the regulatory licence application, which procedures are however co-ordinated and moved ahead concurrently.

Documentation

The request for registration for continuation in Malta made to the Registrar of Companies must be accompanied by the following documents:-

  • an extraordinary resolution, or equivalent, by the foreign company approving the migration of the company to Malta;
  • a copy of the constitutive documents (Memorandum and Articles of Association or equivalent) of the foreign company, revised in order to comply with Maltese legislation;
  • a Certificate of Good Standing, or equivalent issued by the foreign competent authority, confirming compliance with the registration requirements of that foreign jurisdiction;
  • a declaration signed by at least two directors (or the sole director) or other persons vested with the administration or representation of the company confirming:
  • the name of the foreign company and the name under which it is being continued;
  • the jurisdiction where it is incorporated and the date of incorporation;
  • the decision to have the foreign company registered as continuing in Malta;
  • notification to the relevant authority of the decision to redomicile the company;
  • that no proceedings for breach of law have been commenced against the company;
  • a solvency declaration signed by at least two directors (or persons as aforesaid);
  • a list of the directors of the foreign company and the company secretary, or of the persons vested with the administration or representation of the company;
  • evidence of similar laws in the foreign country allowing for the foreign company’s migration and of the required stakeholders’ consent for redomicilation in terms of such foreign legislation (usually this evidence takes the form of a legal opinion).

Licensed companies: In addition to the documents which are required to be submitted to the Registrar of Companies as stipulated above, in the case of collective investment schemes as well as other corporate bodies performing activities which are subject to licensing in Malta, such as, for example, credit and financial institutions, insurance companies and investment firms, these will be required to apply for and obtain the applicable separate licencefrom the MFSA in accordance with Maltese law and will need to submit additional documents to the MFSA, details of which may be provided on request, depending on the type of licensable activity/ies in question.

Public companies: These are also subject to special requirements stipulated in the Companies Act, dealing principally with the need to submit a revised prospectus for the public offer of their securities in compliance with local prospectus requirements and, in the case of listed entities, the requirement to submit evidence of any required consent from the overseas authorities of the relevant exchange.

CERTIFICATION AND LICENSING

Licence – In case of redomiciliation of funds or other licensable entities, the MFSA will process the licence application (which should initially be submitted in draft form), vet all documents submitted (also in draft form, where applicable) and carry out the necessary due diligence enquiries as appropriate, following which, upon satisfaction that these are in order, it will issue an in-principle approval which would list the pre-licensing outstanding issues to be actioned by the applicant before issuance of the licence (these will primarily consist of the finalization, execution and submission of the licence application form and other documents initially submitted as drafts). Following satisfaction of these outstanding issues by the applicant, the MFSA will issue the licence on the same date as the Provisional Certificate of Continuation issued by the Registrar of Companies mentioned hereunder, which will enable the fund or licensable entity to start operating in Malta. During the whole process, the MFSA will liaise with the Registrar of Companies accordingly.

Provisional Certificate – a Provisional Certificate of Continuation will be issued by the Registrar of Companies once the application and supporting documents have been received and vetted. Such certificate will mean that (i) the companycontinues to be a body corporate registered in Malta and subject to all the obligations and capable of exercising all powers of a Maltese company registered under the Companies Act; (ii) the revised constitutive documents is considered as the Memorandum and Articles of Association of the company; and (iii) the company retains all its assets, rights, liabilities and obligations.

The company shall remain subject to any legal proceedings or judgments commenced or given prior to registration in Malta.

There is no difference at law and in practical terms between the effects of a provisional registration and a final registration and the company may start operating in Malta upon issuance of the Provisional Certificate of Continuation.

Final Certificate – within 6 months of the date of issue of the Provisional Certificate, the company should provide proof to the Maltese Registrar of Companies that the company has ceased to be registered in the original jurisdiction. Upon receipt of acceptable proof to this effect the Registrar will issue a Final Certificate of Registration.


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