Expanding business operations internationally can offer myriad advantages, such as tapping into new markets and diversifying income streams. One jurisdiction that has particularly caught the attention of UK-based companies is Malta. This island nation offers a corporate tax environment that is highly conducive for businesses seeking to optimise their tax position. The purpose of this blog post is to delve deep into the specific benefits that a UK entity can gain by forming a Limited company in Malta. We will focus on tax advantages, participation exemptions, and double taxation relief, among other benefits.
Malta’s business-friendly reputation isn’t without basis. The country has one of the EU’s most efficient corporate tax systems. Malta operates under a full imputation tax system, which avoids double taxation of company profits and dividends. This is beneficial for UK companies because the tax paid by the Maltese company can be credited against the shareholder’s tax liability, thus reducing the overall tax burden.
Furthermore, Malta offers an intriguing tax refund mechanism. Shareholders may claim a refund of a significant part of the tax paid by the Maltese company when dividends are distributed. The refund rate typically hovers at 6/7 of the tax paid, which often slashes the corporate tax rate to around 5%. This is a compelling reason for UK entities to consider Maltese subsidiaries.
The full imputation tax system in Malta is worth exploring in more detail. Under this system, the corporate tax paid acts as a shareholder credit. When a dividend is paid out, shareholders can offset this credit against their tax liability.
For instance, let’s assume a Maltese Limited company makes a profit of €100,000 and pays a corporate tax of 35%, amounting to €35,000. When the post-tax profit of €65,000 is distributed as dividends, the shareholders can claim a refund of 6/7 of the €35,000 paid in taxes, which equates to €30,000. This results in an effective tax rate of just 5% on the profits.
Comparatively, the UK’s corporate tax system doesn’t offer such a favourable refund mechanism, making Malta an attractive option for UK businesses keen on tax optimisation.
Nobody likes to be taxed twice on the same income. Fortunately, Malta and the UK have a Double Taxation Treaty to prevent this. The treaty provides several avenues for reducing withholding taxes and allows for credits on taxes paid in the other country.
Specifically, the treaty ensures that dividends, interest, and royalties arising in one country and paid to residents of the other country may be taxed in both countries. However, the rates are often reduced, making it financially advantageous for UK entities.
Further, Malta doesn’t levy withholding taxes on dividends, interest, or royalties paid to non-residents. This leads to more efficient repatriation of profits to the UK and significantly reduces the overall tax liability.
Malta’s participation exemption is another feature that UK companies can take advantage of. Under this rule, dividends and capital gains derived from a “participating holding” in a foreign entity may be exempt from Maltese tax, subject to certain conditions.
A “participating holding” occurs when a company holds at least 10% of the equity shares of a foreign entity or meets other specific criteria. The participation exemption can be particularly advantageous for UK holding companies that manage multiple foreign subsidiaries.
By meeting the required conditions, UK businesses can enjoy tax-free dividends and capital gains, further enhancing the financial efficiency of a Maltese Limited company.
A major highlight of forming a Limited company in Malta is the drastically reduced effective corporate tax rate, thanks to the tax refund mechanism discussed earlier. To put it in perspective, while the nominal corporate tax rate in Malta is 35%, UK entities can experience an effective tax rate of approximately 5% after refunds.
This not only saves a substantial amount in taxes but also improves the overall profitability of the business. It’s easy to see why Malta’s unique corporate tax system appeals to UK entities seeking more efficient global tax planning and optimisation strategies.
Malta offers many tax benefits that UK entities should take into account. The advantages are plentiful and compelling, from its full imputation tax system and generous tax refund mechanism to participation exemptions and double taxation relief. Given the increasingly globalised nature of business and the need for tax efficiency, a Maltese Limited company can be a strategic component in a UK entity’s international business structure.
Before taking any steps, it’s crucial to consult with tax professionals well-versed in both UK and Maltese tax law to ensure compliance and to tailor a tax strategy that meets your specific needs.
Seizing the opportunity to form a Limited company in Malta could be a game-changing move for UK businesses. The potential tax savings and financial efficiencies are well worth the investigation.
If you would like any guidence on how to move your business forward, GGGlobal has the necessary skillset to help you manage your business more efficiently and more profitably. if you would like some assistance, please dont hesitate to contact us.
From business planning to small loads to help support your growth, we are happy to advise and help where we can. Get in touch to start your no-obligation consultation!
If you would like any guidence on how to move your business forward, GGGlobal has the necessary skillset to help you manage your business more efficiently and more profitably. if you would like some assistance, please dont hesitate to contact us.
From business planning to assisting with your organisations growth, we are happy to advise and help where we can. Get in touch to start your no-obligation consultation!
