Two types of offshore companies may be registered in terms of the Malta Financial Services Centre Act, 1988:

(i) The trading offshore company, and

(ii) The non-trading offshore company.

1. MAIN FEATURES

Reference is made to Section 9 of the Article "Malta - An International Financial Services Centre" for some general comments as to these two types of offshore companies. As may be viewed therein, the main features of the offshore company are the following:

(i) It must be owned by persons not resident in Malta. A nominee company may act as nominee shareholder in order to afford anonymity to the beneficial owners of the shares. Incidentally, a nominee company is a company holding a warrant from the MFSC. All offshore companies must be registered through the agency of a nominee company, which has the ongoing obligation to ensure the observance of the law on the offshore companies' part.

(ii) Its objects must be expressly limited to offshore activities i.e. any business or other activity carried on from Malta in a foreign currency by non-residents with other non-residents.

(iii) It must have a nominee company as its sole director or company secretary.

(iv) It may not own property in Malta except for leased office premises, bank accounts and other movables as may be necessary for its operations.

Special or different requirements will apply in the case of banking, insurance and insurance broking companies.

Anonymity of the shareholders may be achieved, where desired, through the use of a nominee company, or a non-trading offshore company as a shareholder, or a combination of both. A trust (the Trusts Act, 1988 recognises both Maltese and foreign trusts) may also be used for this purpose.

2. TRADING OFFSHORE COMPANY

2.1 FORMS AND OBJECTS

The trading offshore company may take one of the following forms:

(1) General trading offshore company (its objects being any trade or business, other than the business of banking, insurance or insurance broking);

(2) Banking offshore company;

(3) Insurance offshore company;

(4) Insurance broking offshore company;

Our comments will refer particularly to the general trading offshore company.

2.2 USES

Some examples of trading for which a general trading offshore company may be utilised include:

- barter and counter trade operations;

- reinvoicing or transfer pricing centre;

- employment centre;

- a base for the Mediterranean, Middle East or North African areas;

- leasing;

- international construction company;

- administration centre.

3. NON-TRADING OFFSHORE COMPANY

3.1 OBJECTS

The non-trading offshore company is one whose objects are restricted to the ownership, management or administration of property and to matters ancillary thereto.

Subject to the restrictions imposed by law on the property it may hold as an offshore company (vide 1(iv) above), a non-trading offshore company may hold property of any kind, including patents, copyrights, trademarks and similar property.

It is moreover particularly interesting to note that a non-trading offshore company may expressly limit its objects, or include therein, the management, administration and operation (especially attractive) of a ship or ships, whether belonging to it or not. The law specifically provides that a non-trading offshore company, although active in the shipping business, shall not be considered, as a result thereof, to be a trading company - it will therefore be able to benefit from the tax and other incentives available to the non-trading offshore company (vide 4 below).

Besides being allowed to hold shares in other offshore companies, a non-trading offshore company may also hold shares in or debentures of a Maltese company (if wholly owned by non-residents) which has as its main objects:

(a) The manufacture or processing of goods in Malta (a typical case would be a 'qualifying company' under the Industrial Development Act, 1988 - 'IDA'); or

(b) The cultivation of agricultural or horticultural products in Malta; or

(c) Fish farming in Malta; or

(d) The ownership, management, administration or operation of ships.

3.2 USES

A non-trading offshore company may be used for a multitude of purposes, including:

- Ownership of shares and securities, patents, copyrights, and similar property;

- Ownership of immovable property situated outside Malta;

- Vehicle for take over bids;

- Investment vehicles;

- Ship and yacht management or operation;

- Intermediate holding company (including holdings in trading offshore companies, or 'qualifying companies' under the IDA, or local 'onshore' shipping companies).

- Vehicle for accumulation of capital gains.

- Vehicle for quasi-testamentary provisions. The articles of association of the company may provide for the transfer of shares or debentures of the company, upon the death of a share or debenture holder, to take place under specified terms and conditions.

4. TAXATION

(i) Tax is charged on a trading offshore company's income, as declared, at a FLAT RATE OF 5%. The tax so payable is non refundable and it may not be reduced (i.e. by way of double tax relief, etc.).

(ii) The income of a non-trading offshore company is EXEMPT FROM TAX. It is not required to prepare audited accounts.

(iii) NO TAX is chargeable on any dividend paid by an offshore company (trading or non-trading) or on any interest or other income paid by the company to non-residents.

(iv) Non-trading offshore companies are not required to file a tax return; nor are the shareholders or the debenture holders of either type of offshore company required to do so in respect thereof.

(v) Transfers of shares or debentures in an offshore company are EXEMPT FROM TRANSFER DUTY, both 'inter vivos' and 'causa mortis'.

(vi) Officers or employees of an offshore company may import their personal belongings into Malta FREE FROM CUSTOMS DUTY (WHERE APPLICABLE) AND VAT, within six months of taking up residence in Malta.

(vii) Officers or employees of an offshore company may opt NOT to pay social security contributions in Malta.

(viii) Directors or employees of an offshore company who are not domiciled or not ordinarily resident in Malta may opt to be taxed at a maximum tax rate of 30%, subject to a minimum (pro rated) annual tax charge of Lm1,000.

(ix) A trading offshore company is entitled to employ an individual indicated by it and to obtain the relevant work permit under the Immigration Act, 1970.

5. REGISTRATION

The 1994 'Financial Services' Package introduced a new onshore regime which marked the end of the offshore regime, so to say. Indeed, offshore companies have been replaced by the international holding company or the trust (in the case of the non-trading offshore company) and by the international trading company (in the case of the trading offshore company).

Accordingly, offshore companies may continue to be registered until 31 December 1996. The tax and other incentives available to these offshore companies will be guaranteed against clawback up to September 2004.

Offshore companies must go through established procedures to be converted into onshore companies within the year 2003. In default, the offshore company in question will cease to be an offshore company and will automatically be dissolved.

THE CONTENTS OF THIS ARTICLE ARE INTENDED TO PROVIDE GENERAL INFORMATION ON THE SUBJECT MATTER. IT IS THEREFORE NOT A SUBSTITUTE OF PROFESSIONAL ADVICE AND IS NOT TO BE ACTED UPON WITHOUT PRIOR CONSULTATION WITH SPECIALISED CONSULTANTS.