In this post, we will try to answer five key questions that entrepreneurs who are new in Malta most often ask.
- What does the Company Act of Malta contain?
- How does VAT work in Malta?
- How does double taxation work in Malta?
- What is the legislation regarding foreign investment in Malta?
- What are the implications of hiring staff in Malta?
If you have more queries or prefer to be guided via a one-to-one consultation, it is easy to schedule an online appointment or visit our offices.
What does the Company Act of Malta contain?
The Company Act in Malta
For historical reasons this is based on the Company Law of the United Kingdom. and mostly concerns civil matters rather than common law. It was initially called the Commercial Partnerships Ordinance and it was to be replaced in 1995 with the new legislation the Company Act in Malta. Companies had to restructure according to this and register with the Registry of Companies in Malta. Naturally, some regulations in the Company Act in Malta also follow the principles of the EU directives, as Malta is a member of the European Union, as for all member states. These rules can be found in the transcript of the Company Act 1995 in Malta. We can help all foreign investors who wish to come here to set up a company. We can go through the requirements of each type of structure and after that they can decide and select the type of business that fits best their needs. Limited companies are the most often choice. However there exists also public companies where shareholders are more than 50. This is mostly used for large companies.
Requirements for foreign investors
We can also offer advice on the laws regarding work. Employment Law is related to the Companies Act in Malta. Many texts are concerned with the rules of the Labour Law. Some examples are: legislation regarding employment can be found in the Industrial Relations Act, the Conditions of Employment Act, the Social Security Act, and the Employment and Training Services Act. Relationships between employer and employee are all covered in the main acts concerning Labour Law. Whether it is the written or oral contract of employment and all duties and obligations of the employer and the employee in a Maltese company are stipulated in the Act. Everything must be according to the company act in Malta and we can advise you precisely in these areas.
How does VAT work in Malta?
VAT
Value added tax (VAT) was established in Malta in 1995, and has undergone many changes since then. And when Malta became an EU member In 2004, the EU’s Council Directive harmonized value added tax. Value added tax is applied to any economic activity which its effective management and control is held in Malta. hence all forms of transactions are subject to value added tax.
Value Added Tax Rates in Malta
The standard rate of VAT in Malta is 18%. But there is also a reduced VAT rate of 7% that applies to tourism accommodation. However, only hotels or resorts authorized by the Malta Tourism Authority (MTA) can benefit from the reduced rate. Another reduced rate of 5% applies to electricity, medical services and equipment, printed materials, certain foods, works of art, cultural events and the mending of clothes, shoes and leather items.
Malta has a zero tax rate for credited supplies that include:
- Export of goods outside the European Community,
- Brokerage services,
- The processing of goods re-exported outside the Community,
- International transport of passengers,
- Certain foods except catered ones,
- Pharmaceutical products,
- School transports,
- Transports for employees,
- Gold supplied by the Central Bank,
- Intra-community supplies.
Supplies exempt from VAT without credit are:
- Immovable properties,
- Insurance services,
- Financial services,
- Cultural and religious services,
- Lottery,
- Gambling,
- Postal services,
- Healthcare services,
- Education,
- Water provided by a public authority.
Any company supplying goods or services in Malta or any country in the European Union is subject to VAT if its annual turnover exceeds 12,000 euros. If its transactions are below this threshold, the company must register for VAT, however it has the possibility to drop out of the Maltese VAT system, in which case the company will not invoice VAT, but it cannot claim any VAT refunds either. Non-Maltese companies delivering goods and supplies in Malta must also register for VAT, but the registration threshold applies differently to foreign companies and so they must name a VAT representative to maintain a relationship with the tax authorities.
VAT rates in Malta are:
- 18% on the taxable value of every taxable supply of goods, services or importation.
- 7% on accommodation supplies in premises licensed under the H.C.E.B. Act.
- 5% on various printed matter.
- 5% on the supply of electricity
- 5% on various confectionery items.
- 5% on various medical accessories.
- 5 % on various items for the exclusive use of the disabled.
- 5% on works of arts, collectors’ items and antiques.
- 5 % on minor repairing of bicycles, shoes and leather goods, clothing and household linen (including mending and alteration)
- 5% on domestic care services such as home help and care for the young, elderly, sick or disabled.
There are also certain products which are exempt and on which no VAT is charged.
Registering for VAT
An application form can be obtained from the VAT department. The application must be filled and submitted to the department together with a copy of a legal identification document i.e. an identity card or passport. In case of a limited liability company a Memorandum and Articles of Association will also be required together with a copy of identification document of the director who signs the application. We can advise you on registering for VAT to make sure it is as straightforward as possible and to provide you with the best possible strategy for your business.
How does double taxation work in Malta?
In order to overcome the problems of double taxation on income and provide low withholding taxes on dividends, incomes and royalties for the companies for foreign investors who do not have a residency in Malta, but whose business is located here and producing profits, Malta has signed double tax treaties with 67 countries and jurisdictions. Incomes can either be exempt from Maltese taxation or can be taxed here and receive a refund in the country of residence (to the limit of the sum that would have been taxed locally), according to the tax treaty signed. There are lower taxes for a treaty country than for a non-treaty one and while withholding tax on dividends, interests and royalties depends on many factors, however we can advise each client on his particular situation.
How it works
Here are how it applies in various cases of the regulations of the double tax treaties.
With a minimum of 25% of a Maltese company’s capital for a non-resident entity with the residing country Albania, China, Finland, Germany, Hungary, Korea, Kuwait, Latvia, Luxembourg or the Netherlands, the withholding tax on dividends is 5%, and for the rest of the circumstances it is 15%. a Denmark resident with a company which has at least 25% of the capital held won’t pay any withholding tax on dividends and 15% in the rest of the cases. A resident of France, Poland, Sweden or Switzerland owning a Maltese Company with at least 10% of the capital will have an exemption on the dividends’ tax. Withholding taxes on interests and royalties will not exceed 15% and in many cases are not charged at all. Besides these provisions, the double tax treaties signed with Malta specifies what the conditions are for making an exchange of taxpayers’ lists.
The countries and jurisdictions which have signed double tax treaties with Malta are the following: Albania, Australia, Austria, Bahrain, Barbados, Belgium, Bulgaria, Canada, China, Croatia, Cyprus, Czech Republic, Denmark, Egypt, Estonia, Finland, France, Georgia, Germany, Greece, Hong Kong, Hungary, Iceland, India, Ireland, Isle of Man, Italy, Jersey, Jordan, Korea, Kuwait, Latvia, Lebanon, Libya, Lithuania, Luxembourg, Malaysia, Montenegro, Morocco, Netherlands, Norway, Pakistan, Poland, Portugal, Qatar, Romania, San Marino, Serbia, Singapore, Slovakia, Slovenia, South Africa, Spain, Sweden, Switzerland, Syria, Thailand, Tunisia, Turkey, United Arab Emirates, United Kingdom, United States of America.
What is the legislation regarding foreign investment in Malta?
Since joining the EU, Malta has made strong efforts to ensure a steady flow of foreign investment. It enjoys an 'A' investment grade rating by Standard's and Poor's and "A3" by Moody's. There are various mechanisms available to enhance your company’s competitiveness. The following are the main points. The Business Promotion Act offers incentives for businesses that work in the areas of manufacturing and processes. The Companies Act of 1995 is the primary source of law regarding the incorporation of limited liability companies in Malta. The Companies Act enables regulations for limited liability companies with variable share capital and companies with share capital in foreign currencies. The Income Tax Act of 1948 and its amendments that set a unique taxation rate of 35% for Maltese limited liability companies. For some companies that export goods or services, a reduced rate of 5% applies. The Malta Enterprise Act was enacted in 2003 and provides rules and regulations for granting incentives to help the Malta Enterprise Corporation set guidelines for industrial incentives by considering the factors a company will be formed upon. The Malta Financial Services Authority Act of 1989 is in charge of the regulations regarding financial services in Malta, such as banking and investment services. The Investment Services Act of 1994 contains a set of rules regarding investment services and insurance.
The main elements of the Malta Enterprise are:
- 65% investment allowance for plant and machinery and 20% for industrial buildings
- Investment tax credits for companies in economic activities such as pharmaceutics, electronic and electrical
- Loan guarantees and loan interest subsidies
- Incentives for job creation
- Malta has completed double tax treaties with over 60 countries and companies have the option of operating with the Malta Freeport and the custom-free zone.
- Tailor-made incentives can be further discussed with Malta Enterprise.
Our experts can go into greater detail upon contact and ensure that you avail of the best possible conditions for your company.
What are the implications of hiring staff in Malta?
Malta’s republican constitution of 1974 is the basis of working rights in Malta. It upholds the basic doctrines of workers’ rights, including inter alia the maximum number of daily working hours, a weekly rest day, holidays without pay, the establishment of a minimum working age, gender equality, professional and vocational training for workers, contributory social insurance and the provision of the means of subsistence for those unable to work.
The other main areas of note are the Employment and Industrial Relations Act (EIRA), the Employment Commission Act, the Employment and Training Services Act and EU Regulations and Directives which apply in virtue of the principle of direct effect. Then there is secondary legislation which includes Wage Regulation Orders which regulate certain conditions of employment for specific sectors. At present, there are 31 different WROs in force. The conditions specified in these Orders include, among other things, maximum hours of work, minimum wages, overtime rates, sick leave and special leave. There is also the Public Service Management Code which is designed for members of the civil service. They have their conditions of employment controlled by way of the Public Service Management Code or “PSMC” which was introduced in 2002. The PSMC brings together all the standing regulations, circulars, policies on HR Management, in the fields of Employee Relations and Resourcing in the Public Service. This code falls within the jurisdiction of the Management and Personnel Office (the former Establishments Division) within the Office of the Prime Minister.
The next important area are collective agreements which account for around a third of those employed in the private sector. These are specific agreements which regulate conditions of employment. Then there would be the other relevant areas of Judicial decisions, arbitration awards and custom and practice which works when the situation is not covered by law. Employment contracts are a vital part of the Maltese system and as long as these don’t contravene the basics set down by law, all other areas can be subject to specific contracts. If the time of employment is in excess of one month and the employee’s working hours are more than eight hours per week, the employer is bound to give the worker, within 8 working days from the commencement of hire, either (i) a written contract of employment, or (ii) a written statement of minimum conditions, which must be furnished to the employee.
Such information is expected to include such rudimentary things as the standard rates of pay, overtime rates, hours of work, place of work and leave entitlement. Wages should be paid at regular intervals not exceeding 4 weeks in arrears. Of course, different periods of pay can be agreed in a collective agreement. It should be noted that once a probation period has finished, normally six months but can be less by agreement, Maltese law is quite strict on dismissal and employers have to follow correct procedure in order to dismiss any staff member.