Maltese law does not host a specific ad hoc framework regulating holding companies. Nevertheless, tax-efficient international holding structures may be created through the interactive application of various provisions in the tax legislation.

The objects clause of a company incorporated to act as an international holding company as afore-stated will need to specify that the company will hold assets, shares or other investments in other companies or institutions, but will otherwise not engage in any trading activity in Malta. Companies with these kind of objects are generally referred to as international holding companies (IHCs).

An IHC is taxed in Malta at the normal corporate tax rate, currently set at 35%. Nevertheless, fiscal benefits may arise at both company (see 1 below) and shareholder level.

At Company Level

At company level, an IHC investing in securities and other investment instruments overseas, may invoke the mechanisms for double taxation relief available under Maltese law namely:

Malta has entered into Double Taxation Agreements with forty-one countries including most of the major European states. A further fourteen agreements have been initialled or negotiated and are awaiting ratification. These agreements are mainly based on the Organisation for Economic Cooperation and Development (OECD) model.

Relief from double taxation is also possible on a unilateral basis where tax is suffered overseas on income received from a country which does not have a treaty with Malta, irrespectively of whether that income is remitted to Malta. The overseas tax suffered, limited to the Malta tax charge on the income, is allowed as a credit against tax chargeable in Malta.

Another mechanism is the Flat Rate Foreign Tax Credit which is available to a Malta company that generates income or capital gains overseas. It is generally utilised where the company is not in a position to provide evidence of the overseas tax paid to the satisfaction of the Commissioner of Inland Revenue.

The Flat Rate Foreign Tax Credit is calculated at 25% of the overseas income or gain received in Malta. The income plus the deemed tax is subject to Malta corporate tax with relief given for the deemed credit.

This is illustrated below:

Summary of tax positions at company level

Refunds of tax to non-resident shareholders

At shareholder level, non-resident shareholders may avail themselves of a refund system in relation to tax paid on dividends received from an IHC.

Any dividends distributed out of the profits of an IHC and which represent income from overseas holdings, participations or business activities that are paid out to non-resident shareholders would enable the said non-resident shareholders to claim a refund of twothirds of the Malta tax paid by the company in respect of the said profits.

Moreover, where the profits so distributed are derived from a participating holding or from the disposal of such holding, a claim may be made for a full (100%) refund of all the Malta tax paid in respect of those profits.

In terms of Malta tax laws, a participating holding is deemed to exist where the Malta company satisfies at least one of the following criteria:

Summary of tax positions with respect to dividends distributed to non-resident shareholders: