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
2© 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.
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
3© 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.
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!
1
2
3
4
5
4© 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.
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.
5© 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.
M2 taxed at 35%
• M2 distributes dividends. • Shareholder gets tax refund. • Effective tax: 0% - 6.25% (commonly 5%)
No WHT
1
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
6© 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.
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
7© 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.
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.
8© 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 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
1
3
2
4
Jurisdiction: Source BasisPE/Branch Structure
Parent CoParent CoFor Cos
For Co
Malta PE1
2
Parent Co
3
4
9© 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.
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
1
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
1
2
22
10© 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.
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
11© 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.
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
12© 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.
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
13© 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.
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
14© 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.
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.
15© 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.
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
16© 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.
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
18© 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.
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
19© 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.
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).