An international trading company means a company registered in Malta which is engaged in carrying on any business or other activity from Malta with persons not resident in Malta (International Trading Activities) and has its objects expressly limited to such activities and to such other acts only as are necessary for its operations in Malta.
The following activities shall, in so far as they are complementary to the carrying on of the said trading activities, be allowable activities of an International Trading Company:
- Purchases for export of goods manufactured, assembled or processed in Malta provided that such purchases are not made from a person who owns directly or indirectly more than 15% of the ordinary share capital of the said International Trading Company (buyer Company);
- Trading with companies registered in Malta under the Malta Financial Services Centre Act, including offshore companies;
- Trading with International Trading Companies.
The Maltese Inland Revenue (if requested) shall give an Advance Revenue Ruling as to whether a company qualifies as an International Trading Company. The Ruling is given within a period of thirty days from the application made in writing and is valid for a period of five years renewable for a further period of five years.
1.2 TAX IMPLICATIONS
On the Company
An International Trading Company suffers tax at the normal rate of 35% on its chargeable income. This company need not maintain a foreign income account.
On the Shareholder
Dividends distributed by an International Trading Company are liable to tax in the hands of the shareholder at the rate of 27.5% as if the dividend is a separate chargeable income, provided that:
(a) the shareholder is not resident in Malta; or
(b) the shareholder is a company resident in Malta, and wholly owned by persons not resident in Malta.
Consequently the shareholder will be immediately eligible to a tax refund representing the additional tax paid by the company (i.e., 35% less 27.5% = 7.5% of gross income).
In addition, a shareholder satisfying the above conditions will also be entitled to a further refund of two-thirds of the tax paid by the company (i.e., 2/3 of 35% = 23.33% of gross income).
Therefore, the total tax refund to the shareholder amount to:
7.5% + 23.33% = 30.83%, leaving an effective liability of only 4.17%.
1.3 EFFECTIVE REFUND
The 35% tax due by the company, must be paid to the Inland Revenue in the normal way, but the tax refund will be received within 14 days. This means that the maximum time lapse between the payment of tax by the company and the tax refund to the shareholders is 14 days.
To avoid cash flow problems, the tax will only be due when the dividends are effectively distributed or 18 months after the end of the accounting period whichever is the earlier.
The tax implications on the International Trading Company and on its shareholder is illustrated in the following example:
Tax paid(refunded) USD USD International Trading Company Chargeable income 1,000 Company tax @ 35% 350 350 Profit after tax available for distribution 650 Non-resident shareholder Net dividend received 650 Add: Tax paid by company 350 1,000 Shareholder's tax @ 27.5% 275 Tax Paid by company 350 Tax refundable ( 75) Claim for 2/3 of tax paid by company ( 233) Total refund ( 308) ( 308) Net Taxation Cost 42 Effective Tax Rate 4.2%
The beneficial owners of an International Company may choose to remain confidential if they incorporate the company through the services of a licenced nominee company. This confidentiality is maintained as long as the company and its beneficial owners are not involved in any money laundering activity.
The Professional Secrecy Act imposes on the banks and on all their officials and employees, thorough standards of confidentiality with regard to all privileged information by the bank in the course of its activities.
3. MONEY LAUNDERING ACTIVITY
Under Maltese Law, it is a very serious offence to knowingly take part, whether as principal or accomplice, or attempt to take part, in any activity of money laundering. A conviction of such an offence will have the following consequences:
- shedding the veil of confidentiality;
- punishable by very harsh fines and/or imprisonment;
- possible confiscation of the property derived from the money laundering activity.
Money laundering is generally defined as the effort to place into circulation money obtained through criminal activity.
4. TAX TREATIES
The International Trading Companies can avail themselves of the vast network of Double Taxation Agreements existing between Malta and various other countries.
List of Double Taxation Treaties between Malta and other countries which are currently in force:
Australia Finland Netherlands Austria France Norway Belgium Germany Pakistan Bulgaria Hungary Poland Canada India Sweden China Italy Switzerland Czech Rep. Libya United Kingdom Cyprus Luxembourg
In addition treaties have been initialled or signed with the following countries:
Albania - (initialled) Romania - (operative '98) Croatia - (initialled) Slovakia - (initialled) Egypt - (initialled) S. Africa - (signed) Korea - (signed) Thailand - (initialled) Kuwait - (initialled) Tunisia - (initialled) Lebanon - (initialled) Turkey - (initialled) Malaysia - (signed)
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.