Malta branches of foreign companies and transfer of management and control of foreign companies to Malta
In terms of the Maltese Companies Act [CAP. 386] an overseas company is a body corporate which is constituted or incorporated outside Malta. When such a foreign company establishes a branch or place of business in Malta, that company must register that branch or place of business with the Registry of Companies within one month. Articles 385 to 389 of the Act provide all the necessary regulations that a branch must adhere to in order to be registered and start to perform business in Malta. Unlike the establishment of a subsidiary, there is no minimum share capital requirement for opening a branch in Malta.
Documents and information that must be delivered to the Registrar include; authentic copies of the charter, statutes or memorandum and articles of the overseas company or other instrument constituting the overseas company, the list of directors and company secretary or of the persons vested with the administration of the overseas company, the name of the branch and its address, the activities which will be performed by the branch, and the name and address of at least one individual resident in Malta authorized to represent the overseas company for the activities of the branch. The foreign company must also register the balance sheet of the company, a profit and loss account and the audited statements. Moreover, any alterations to the memorandum and articles of association or to the directors and/or company secretary of the overseas company, or to the names and addresses of the individuals authorized to represent the overseas company, must be notified to the Registrar within one month for registration.
Branches of overseas companies are included in the definition of a ‘company registered in Malta’ for taxation purposes. The definition includes a company that is resident in Malta as well as a company that, although not resident in Malta, carries on any activity in Malta. Branches of overseas companies which have their place of effective management outside of Malta are only taxable in Malta on income arising in Malta and on foreign-source income which is remitted to Malta. Other than this, branches are subject to the same tax rules as companies established in Malta, and taxed at the rate of 35%.
As with any Malta company, branches also enjoy Malta’s full imputation system, whereby the tax suffered by the branch is imputed to the shareholders who suffer no taxes on any dividends they receive. Moreover, upon a distribution of dividends by the overseas company, the shareholders of the company may apply for a refund which may reduce the effective tax rate of the branch’s profits to 5%. Therefore, both Malta registered companies and branches of foreign companies are treated exactly the same for taxation purposes.
The Maltese Income Tax Act [CAP. 123] establishes that a company incorporated abroad shall also be considered to be a tax resident of Malta (but not domiciled) if its place of management and control is in Malta. As a general rule, ‘the place of effective management’ is the place where the key management and commercial decisions that are necessary for the conduct of the company’s business are in substance made. This is generally, though not necessarily, the place where the board of directors meet and resolve business.
A company registered abroad may establish a branch in Malta and shift its place of management and control to Malta. Such a company would be able to reap the fiscal advantages available to Malta resident companies. Companies which are resident but not domiciled in Malta are subject to tax in Malta on all income and chargeable gains arising in Malta, and on income arising outside Malta which is remitted back to Malta. No tax is payable on capital gains arising outside Malta to a company which is not ordinarily resident or domiciled in Malta, even if remitted to Malta. On the other hand, companies which are neither incorporated nor resident in Malta are only chargeable on income and capital gains arising in Malta.
Maltese branches of foreign companies may also register for VAT purposes in Malta and benefit from obtaining an-EU widely recognized VAT number. Furthermore, Malta has developed an extensive double tax treaty network with numerous countries. Malta’s company laws, therefore, allow foreign companies to set up branches in Malta and take advantage of Malta’s taxation system, without the necessity of incorporating new companies or re-domiciling established ones. All these factors make Malta an attractive destination where overseas companies can establish a branch or place of business.