Malta and Tax

One of the most important thing about running a business is tax. For a lot of internet businesses, tax is the number 1 expense. It pays to get yourself a good accountant. Problem is, “in the land of the blind, the one eyed man is king”. You really need to have a rough idea of what you need before you get some quotes. Accountants sometimes miss things, especially if its really specialist.

As I run an internet company which is fairly footloose, I do have a choice of where to incorporate. Within the EU there are different tax rates. The UK is not a bad country to do business in. Corporation tax is 20% which is quite reasonable and will be 18% by 2020. Its just when you want to withdraw it in to your personal bank account, it can hurt if you pay yourself over £43k (ish). With the recent budget changes, the effective marginal rate of tax for a owner managed company is 46%.


source Tax-efficient-ways-to-withdraw-value-from-your-company-July-2015.pdf from BDO Accountants

I think thats too high. The government are talking almost half my hard earned money. So I started looking at where to base myself. Ideas include, Isle of Man, Malta and Ireland. I decided I’d look at Malta as I met some guy from Sweden that said he was living in London but his company was based in Malta and his tax rate was effectively 5%.

I approached the Malta branch of UHY and got a helpful response.

Gist of my email.

I run an internet company too which I want to relocate to Malta (either that or start a company over there). I heard I can get the tax rate down to 5% if I do that. Something like, set up 2 companies, 1 in Malta, one in the British Virgin Islands. Pay 35% corp tax from company in Malta but get a rebate worth 30% to the company in the British Virgin Islands?

Answer from UHY Malta.

  1. To maximize your tax efficiency here, you do need two companies, but they both must reside in Malta. One will act as the trading company and will typically be the subsidiary. The second will be the holding company… [the exact details are a it complex, best get in touch with UHY Malta for an explanation.]

  2. On top of this structure, and usually out of the Maltese jurisdiction, you need another entity or person. Nowadays, the inclusion of a BVI anywhere in the structure is conducive to problems, with the Banks in particular, and eventually if you need to repatriate business profits a connection with a BVI is not healthy. We have used these structures in the (recent) past, but as things stand today, we are seeing more and more barriers coming up on offshore centres.

  3. Other issue upon which a lot of pressure is being placed by tax authorities within the EU is (i) effective management and control (EMC) and (ii) substance over form. The reason is simple and legitimate. You might be familiar with the term “letter box company” or “shell companies”. This is exactly what the Maltese FSA do not want and what the EU tax authorities look for. Whilst there is Freedom of movement and establishment in the EU, nobody likes tax leakage. So establishing a company here one would ideally need to have the works, office, dedicated line, etc. In the case of EMC one would need to have sound corporate governance with board meetings conducted every so often apart from the AGM. The inconvenience of having to travel frequently to Malta may be mitigated by appointing a Maltese director/co-director.

    * This was written 18th September 2015. This is not professional advice. Please seek proper professional advice before doing something so drastic.

In the end I decided not to pursue this. In Ireland, they tax you on your world wide income so no point in setting up something like this isn’t worth it. If you are truly footloose though, setting up in Malta might be a worthwhile idea. Contact UHY Malta for more information.

Tax in Ireland is another matter. The headline rate of 12.5% for companies is misleading in a way. When you want to pay yourself, you get stung by 40% tax after just €33,800 in income. Plus you have to pay Universal Social Charge (USC) and Social insurance (PRSI). I’ll leave the explanation for another time.

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