Malta: Do you have any other alternative for near-shoring?...If foreign taxes ≥ Malta tax charge (35%), Malta tax is NIL • Flat Rate Foreign Tax Credit • Foreign income deemed

Malta:

Do you have any

other alternative

for near-shoring?

Juanita Brockdorff

Partner

1© 2014 KPMG in Malta, a Maltese Civil Partnership and a member firm of the KPMG network

of independent member firms affiliated with KPMG International, Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

Malta – a snapshot

Tax rate 35%

Effective Tax: 0% -6.25%

Broad Participation Exemption

Stable democracy

Beneficial Expatriate Taxation

English official & business

Re-domiciliation in/out

IFRS Functional Currency

Tax system:Agreed to by EU upon

accession

GDP: Industry 17%; Services: 81% of which Tourism 33%; Financial Services 15%

Highly skilled and educated work force



We don’t like blowing our own trumpet, but …

The 8th best country to retire

Forbes 2014

14th soundest Banking Sector.

World Economic Forum's Global Competitiveness Report 2013 – 2014

• 1st in the ‘User Centricity’ indicator.• Leads in other indicators such as

‘Transparency’ and ‘Key Enablers’.

European Commission's eGovernment Benchmark Report 2014

Achieved a 0.1 % transposition deficit for the 5th consecutive time - one of the best performers in Europe.

Internal Market Scoreboard 2013

• 2nd top-performing country out of Euro area countries.

• 6th top-performing country out of all EU states.

European Commission2014

The 6th safest country in the world to settle in

Lifestyle9.com 2014

We don’t like blowing our own trumpet, so this is what others say



As of 2007 onwards: International Group Structuring

Finance Companies: Interest deduction - planning around thin cap, earnings stripping, debt cap – Not necessary

Avoid (outgoing) WHT on interest, royalties, dividends – Not necessary and on inbound – tax treaties

Focus on maintaining beneficial ownership and substance – possible via equity, no need of debt to extract profits out

Transfer Pricing – focus only on the rules of the other country

DT Relief: Branches PEX! And DT relief!

… where can invoke EU Freedoms and defences - Malta fits the bill!

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4

5



Jurisdiction

Worldwide Basis Of Taxation Source & Remittance Basis of Taxation Source Basis of Taxation

Persons that are ordinarily resident and domiciled in Malta are subject to tax on their worldwide income and capital gains.

Persons resident but not domiciled in Malta are subject to tax on:‒Income arising and gains derived from/in Malta, whether received in Malta or otherwise; and‒Income arising outside Malta which is received in Malta.Capital gains arising outside Malta, whether received in Malta or not, are outside the scope of Malta taxation.

Non-resident persons are subject to tax on income and capital gains arising in Malta.



M2 taxed at 35%

• M2 distributes dividends. • Shareholder gets tax refund. • Effective tax: 0% - 6.25% (commonly 5%)

No WHT

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2

3

Swiss Co

Tax Refund Collector (M1)

Malta Co 2 (M2)1

2

3

Profits of 100

Tax of 35

Dividend of 65%

Tax Authorities

Tax Refund of 30

Total Income received of 95

Refund is paid within 14 days

JurisdictionWorldwide Basis of Taxation



General Principles

• Normal refund is 6/7ths of the 35% Malta tax charge – before deducting DTR

No DTR

Revenue 1000

Operating Expenses (200)

Tax Depreciation including intangibles (200)

Royalty Expenses (200)

Interest Expense (300)

Taxable Profit 100

Tax at 35% 35

Relief for foreign tax

35

6/7ths tax refund (30)

Tax suffered in Malta 5

% Tax suffered in Malta 5.0%

With DTR

1000

(200)

(200)

(200)

(300)

100

35

(5)

30

(30)

0

0.0%

Jurisdiction Detail of application of 6/7ths refund



Jurisdiction: Source and Remittance Basis Resident Non-Dom Cos

Foreign Co

2

Not taxed in Malta

Taxed in Malta

1

2

Malta Source Income & Foreign Income received

in Malta

Foreign Income not received in Malta

1

MT Non-Dom

Anti-avoidance in certain treaties

Anti-remittance clause in some of Malta’s Treaties requires income arising in certain countries to be taxed in Malta.



Malta PE will be taxed at 35% on Malta source income - no branch profits tax

For Co benefits from a credit/exemption so is not taxed on profits derived by Malta PE

Upon a distribution of dividends by For Co, Parent Co may benefit from Malta’s tax refund system – reducing ETR on Malta PE profits to between 0% and 6.25% (commonly 5%)

No WHT

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3

2

4

Jurisdiction: Source BasisPE/Branch Structure

Parent CoParent CoFor Cos

For Co

Malta PE1

2

Parent Co

3

4



Economic Relief: 100% Imputation systemDealing with beneficial ownership and conduit issues

ForeignCo

Equity

& Debt

Equity

Target

Malta Co 1 (M1)

Malta Co 2 (M2)

Equity

& Debt

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General Information

Loan Amount 100,000,000

Interest rate payable by Malta Co1 5.0%

Interest rate receivable by Malta Co2 5.1%

Foreign withholding tax 0.0%

Malta Co 2

Interest income 5,100,000

Interest expense 0

5,100,000

Taxed at 35% 1,785,000

Malta Co 1/Foreign Company

Gross dividend form Malta Co2 5,100,000

Less: Interest income (5,000,000)

Taxable Income 100,000

Taxed at 35% 35,000

Less: underlying tax credit (1,785,000)

Refund of Malta tax (1,750,000)

Tax suffered in Malta 35,000

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General Principles

• Ordinary Credit for foreign taxes suffered on foreign income – for resident

companies and registered branches

• Credit for withholding and underlying tax (for dividends) of direct

subsidiaries and 10% sub-subsidiaries to all tiers

If foreign taxes ≥ Malta tax charge (35%), Malta tax is NIL

• Flat Rate Foreign Tax Credit

• Foreign income deemed to have suffered foreign tax of 25% of foreign

income received

Reduces tax suffered to between 2.5% and 6.25% after tax refunds

May be claimed on income allocable to the foreign income account (FIA

income) if company empowered to receive FIA income

Juridical Double Taxation ReliefUnilateral Relief



Almost 70 treaties – and growing...

Albania Estonia Italy Morocco Slovenia

Australia Finland Jersey Netherlands South Africa

Austria France Jordan Norway Spain

Bahrain Georgia South Korea Pakistan Sweden

Barbados Germany Kuwait Poland Switzerland

Belgium Greece Latvia Portugal Syria

Bulgaria Guernsey Lebanon Qatar Tunisia

Canada Hong Kong Libya Romania Turkey

China Hungary Liechtenstein* Russia* UAE

Croatia Iceland Lithuania San Marino Uruguay

Cyprus India Luxembourg Saudi Arabia UK

Czech Rep. Ireland Malaysia Serbia US

Denmark Isle of Man Mexico* Singapore

Egypt Israel Montenegro Slovakia

* with effect from 1st January 2015

Double Tax ReliefTax Treaty Network



Double Tax ReliefParticipation Exemption / 100% Tax Refund

General Principles

• Participating holding is an equity holding in another company (or a non-resident body of persons) where Malta Hold Co: Holds > 10% of equity shares conferring entitlement to > 10% of any two of equity holding rights; OR Is equity shareholder in the company and is entitled to purchase balance of the equity shares, OR has the right of first

refusal to purchase such shares, OR is entitled to sit as, or appoint, a director on the Board of that company; OR Holds an investment > €1.164 million (or the equivalent sum in another currency) and such investment is held for an

uninterrupted period of not less than 183 days; OR Holds the shares in the company for the furtherance of its own business and the holding is not held as trading stock for

the purpose of a trade

• Non-resident body of persons must be similar to a partnership en commandite (Limited Partnership) the capital of which is not divided into shares



Double tax reliefParticipation Exemption – equity holding

General Principles

• Participation exemption may be applied to income or gains derived from a participating holding or from the transfer of the participating holding

• Participating holding = Equity holding which satisfies certain conditions

• Equity holding: holding in a company, not being a property company (i.e. a company having, directly or indirectly, any rights over immovable property situated in Malta – subject to some exclusions), that confers any two of the following rights:

A right to votes;

A right to profits available for distribution;

A right to assets available for distribution on a winding up



Double Tax ReliefParticipation Exemption – further conditions

General Principles

• Participation exemption on dividends applies if: For Co is resident / incorporated in EU country or territory; OR For Co is subject to >15% foreign tax; OR >50% of For Co’s income is NOT derived from passive interest or royalties; OR

• Participation exemption on gains derived from transfer of participating holding: Not subject to further conditions applicable to dividends; Also applicable to holdings in Malta Sub Co

• Under Malta’s full imputation tax system dividends paid from a company resident in Malta to another do not suffer any further tax.



Double Tax ReliefParticipation Exemption – Comparative Overview

Holding Period

Holding Requirement

Additional Tests

Limited to EU / treaty countries

Domestic Dividend WHT

Entry / Exit Taxes

Malta Switzerland Netherlands Luxembourg

N/A(183 days if relying to

1,165m test)

N/A N/A 1 year

10% holding of equity shares / 1,165m / 4 other

tests

10% holding or CHF 1m investment

5% holding and not a portfolio investment test

10% holding in equity shares or 1,2m / 6m (capital gains)

Only on dividendsEU: N/A

Non-EU: 3 alternative tests

At least 2/3rds of the assets consist of

investments or 2/3rds of income consist of

dividends and no active trade or business in

Switzerland

Motive test, asset test (<50% as a portfolio

investment), subject to tax test (10%)

Subject to tax test (10,5%)

No Yes No Yes

0% 0 – 35% 0 – 15% 0 – 15%

No No Yes Yes



Simplicity is key“No” has never sounded sweeter

NO

Exit Taxes

Capital Taxes or Wealth Tax

Capital Gains for non-residents

Transfer Taxes – like stamp duty

Withholding taxes on:Liquidation proceeds ...

Dividends, Interest or Royalties

Thin Capitalisation, Transfer Pricing or CFC rules

Applications



EU Holding/Finance Company

Dividends

Application of EU Parent-Subsidiary

Directive

• No Dividend WHT at EU sub level

• Participation exemption in Malta

• No dividend WHT out of Malta

Interest

Application of Interest & Royalties

Directive

• No WHT at EU Sub level

• Malta tax on interest income: 0 - 5%

• Interest on debt financing deductible

Foreign Co

Malta Hold Co / Finance Co

Malta Finance CoLoans

Dividends & Royalties

Interest

NO WHT on Dividend distribution

Tax Refunds

Equity

Direct holding in EU Operating Cos

Royalties

Application of Interest & Royalties

Directive

• No WHT at EU Sub level

• Malta tax on royalties income: 0 -

5%

• Amortisation of IP



Trusts and Foundations

General Principles

• A trust is considered liable for tax if there is at least one Maltese resident trustee

Transparency Model

• Not taxed in Malta to the extent:

1. All the income attributable to a trust consists of:

a) Income arising outside Malta

b) Interest / Royalties / Gains or profits on a disposal of shares or securities in a company which is not a property company (immovable property located in Malta)

2. None of the beneficiaries are persons resident and domiciled in Malta.

Opaque Model

• Trusts may opt to be treated as companies

• Foundations by default are treated as companies, unless they choose to be treated as trusts

Contact details

Juanita Brockdorff B.A., LL.D., LL.M. (Leiden)PartnerTax Services KPMGPortico BuildingMarina StreetPieta' PTA 9044Tel. + 356 2563 1148Fax. + 356 2566 1000Email. [email protected]

© 2014 KPMG, a Maltese civil partnership and a

member firm of the KPMG network of independent

member firms affiliated with KPMG International

Cooperative (“KPMG International”), a Swiss entity. All

rights reserved.

The KPMG name, logo and ‘cutting through

complexity’ are registered trademarks or trademarks

of KPMG International Cooperative (KPMG

International).

mailto:[email protected]

Documents

Malta: Do you have any other alternative for near-shoring?...If foreign taxes ≥ Malta tax charge (35%), Malta tax is NIL • Flat Rate Foreign Tax Credit • Foreign income deemed