How to Set Up a Malta Limited: Complete 2026 Guide (5% Tax)

Welcome to my deep dive on forming a Malta Limited.

Because there are enough "cowboys" and salespeople out there, I want to start by clarifying what you'd probably read between the lines sooner or later anyway.

I'm going to give you the unvarnished truth here. No doom-and-gloom scaremongering from a conservative tax advisor, but no over-the-top hymns of praise for Malta either.

Consider this a practical gauge you can use for yourself.

How do you set up a company in Malta? What are the taxes really like? What's the catch? What does HMRC say about it? These are the questions I want to answer.

Important upfront: This article is about the "Royal Path" — you set up a Malta Limited and move to Malta yourself. This is the setup I've lived for over ten years and built for hundreds of clients. If, however, you intend to remain resident in the UK (or elsewhere) and still run a Malta Limited, then please read my article on the 10 Rules for Malta Limited Shareholders with UK Residence. That is a completely different ball game with completely different rules.

Ready? Let's go.

Yours, Philipp M. Sauerborn

Last updated: February 2026

When I moved from the financial metropolis of London to Malta in 2011, people were astonished.

"Really? What do you want to do there? Where is Malta anyway?"

What many didn't know: I had been looking into Malta for quite some time and knew the advantages. And here's the thing: It was exactly the right decision. Malta is flourishing and booming. In my role at the law firm DW&P Dr. Werner & Partners, the conditions couldn't have been better. The reason lies in the following advantages that Malta offers for entrepreneurs and companies:

Malta's Low Taxes as an Incentive: Politics Promoting Cross-Border Business

You have to picture this:

Malta is a small island, lots of sandstone, very rocky farmland. Agriculture was never profitable here. Shipping kept the country afloat for a long time. Fishing still plays a major role in Malta's economy today, even if it no longer holds the leading role—that belongs to tourism today.

But that wasn't exactly the jackpot. Malta wanted to play in the big leagues, wanted to be modern and become an attractive location for businesses. Every wheel was set in motion, Malta opened up and has been a proud EU member since 2004 (I'll explain the relevant advantages of this further down).

The focus of the government in Malta has always been on promoting companies in Malta, especially those led by foreign investors.

When Joseph Muscat became Prime Minister in 2013, this course was reinforced even further. The government in Malta continues to create new incentives for entrepreneurs to set up a company in Malta or move their corporate headquarters there.

Even though Muscat has since been succeeded, the course of his party colleagues remains the same:

Convince entrepreneurs of Malta.

This is evident not only in tax policy, which I will go into in a moment, but also, for example, in the promotion of infrastructure expansion or the iGaming sector.

Speaking of which: Malta was one of the first countries to issue a real, robust, and sustainable regulation for the online gambling sector. This regulation has become the most important and well-known of its kind. A good 20 years before other countries managed to do the same. Today, the iGaming sector accounts for around 8% of Malta's GDP.

In Malta: The biggest and most well-known players are at home in Malta, including Tipico, Bet365, Pokerstars, Betsson, and many more. Even though many other countries, presumably riding on the coattails of Malta's success, now present their own regulations.

But: Malta, and at the forefront the MGA, the Malta Gaming Authority, remain the trendsetters and are always a step ahead of the "competition".

That's just for starters.

You might smile that I'm bringing up this point. But I know it was significant for many founders in Malta:

In Malta, there is sun aplenty — over 3,000 hours of sunshine per year and around 300 sunny days.

In summer, it practically never rains, making family trips to the sea all the more worthwhile. For me, that's a good chunk of quality of life.

Or take winter. I was at our favourite beach in Malta with my daughter in early December, enjoying the sun.

In December!

At the same time, I have to add a caveat here:

If the sun isn't for you, then Malta might not be the best place for you to start a company.

Why is English an Official Language in Malta?

What many don't know: The official language in Malta is English.

You read that right!

Not Maltese (or Malti, as the language is called here), but English determines the channels of communication in Malta. This is a huge advantage for foreign company founders.

But why?

Quite simply: Living in a country whose language you don't speak is one thing. Getting bureaucratic work done there? Impossible. You don't have this problem in Malta.

Although the locals speak the national language Malti (an interesting mix of Italian and Arabic) amongst themselves, the vast majority also speak English, and certainly in all public institutions.

The fact that English is spoken here is a remnant of British colonisation, which lasted until the 60s (!).

Other remnants: Driving on the left, red telephone boxes and, very importantly, a madness for football.

The short version: With a Malta Limited, you pay an effective 5% tax on corporate profits — legal, EU-compliant, and proven for over 20 years.

Now comes the info you've surely been waiting for. Taxes in Malta.

Malta's tax advantages.

I deliberately don't mention taxes in Malta first because I believe one should be convinced of Malta for other reasons too. The tax advantages in Malta should then just be the icing on the cake.

That you only pay 5% tax in Malta is probably known to most by now. But how this is achieved, and above all how it was achieved, is something I need to go into in more detail. Because indeed, there was an important development here.

Back in the days: The Tax Refund, the 6/7 Reimbursement On paper, Malta has one of the highest corporate tax rates in the world, namely 35%. But as a "foreigner" who is a shareholder in such a Malta company, you are entitled to a refund of 6/7 of the taxes.

It's a simple calculation: 35 divided by 7 is 5. One-seventh tax, six-sevenths no tax (refund), makes exactly 5%.

I can tell you upfront: Today you pay 5%. Full stop.

No refund. No cash flow problem, but you need the right setup.

I'm coming to that now:

In this article, I focus on the setup that makes the most sense from a tax perspective: You move to Malta and use the double holding structure. In the tab area below, you can also see the variant with residence abroad, but the text here focuses on the "Royal Path". Because if you move to Malta, you end up paying 5% and not a penny more.

Whenever you look closer into the topic of founding a LTD in Malta, you arrive at the point of the Holding Company.

Why do I need a Holding for the Malta Limited?

Anyone founding in Malta must also found at least one holding company.

But why is this recommended at all?

Is it just so the lawyer or advisor you're dealing with can sell you two companies?

The answer is: No. The Malta Holding Model has an effective tax background, which I would like to explain below.

I just explained the Tax Refund, which was common practice in Malta for a long time. This was always due to the SHAREHOLDER and not the tax-paying company.

What does the Malta Holding protect against tax-wise?

This is important because the Holding protects you from two things:

1. Immediate taxation of dividends – See below "The thing about dividends"
2. Full taxation of the refund – See below "The thing about the refund"

Because for many Malta LTDs, the refund and the dividend are rightly just a bookkeeping transaction. Or a purely legal mechanic.

Often the money doesn't flow monetarily or fiscally.

Meaning: You only pay the 5%, while in your books the full 35% is shown as an expense, and the 6/7 refund as income.

Rightly, one could ask: Why? Nothing is flowing.

And that's exactly what it does: Tax-wise.

Malta Company Formation: The Thing About Dividends

As mentioned, only the shareholder who actually draws their dividend is entitled to the Tax Refund.

You don't always want to do that, in order to protect the company's cash flow.

Therefore, there is a more or less virtual dividend payment, with immediate repayment.

So purely accounting-wise. This is, by the way, common practice and transparently viewable in the published financial statements certified by auditors.

By definition, a dividend flows – which usually triggers taxation for the recipient. And that's where the question comes into play whether the shareholder is abroad (i.e., not in Malta) or not. Logically, for example, capital gains tax or income tax would then be due – in full.

But to prevent exactly that from happening, you use the Holding – analogous to how it is possible in the UK or elsewhere.

Difference in Malta: While in some countries even with a holding company a portion of income might be taxed, the dividend in a Maltese holding is tax-free – supported by the EU Parent-Subsidiary Directive (2011/96/EU).

Why?

Because the money has already been taxed. Remember?

The books show a 35% tax burden on the profit.

And how must the refund be taxed, which actually isn't one? Remember again – this is about a purely accounting transaction without real cash flow.

I'm coming to the refund now.

Ltd Formation Malta: The Thing About the Refund

Per se, the refund is also subject to taxes. In Malta, even the personal income tax rate, if you don't have a holding.

So up to 35%!

This is because the refund is not classified as capital gains, but is a hybrid.

And this refund is therefore not taxed with the more favourable tax on capital gains, but fully with income tax.

But here's the kicker:

For corporations, the refund is also tax-free.

Which explains why the Maltese holding is placed in between.

Malta Holding: Receives Dividend and Refund in Your Place

So the Holding receives the dividend AND the Holding receives the Tax Refund.

What happens then. From the Malta Holding, you then distribute a dividend at a time of your free choosing. After all, you want to get something out of your company making profits.

Namely consisting of the dividend from the operating company and the refund. And with that, you have taxed a dividend at effectively 5%.

And then? You then tax the difference with the tax rate on dividend income in your country of residence.

So if you live in the UK as a shareholder of the Malta Holding: Dividend Tax (up to ~39.35%).

It gets even cheaper if you live in Malta yourself as a shareholder. I'll explain why.

How does the Double Holding Structure work?

Moving to Malta and then founding the Malta company there is, in my view, the "Royal Path" from a tax perspective, and just the same for many hundreds of clients.

Why that is, there are many other articles here on my blog.

In this case, the Malta Holding Model looks a little different, extended by another holding company.

You read that right. Another holding is placed on top of the holding, so a double holding.

The difference:

Here, no Maltese company is used anymore, but a company outside Malta.

The idea behind it:

The distribution of the dividend and the refund is tax-free in Malta if it flows to a foreign shareholder.

With a foreign company, you use exactly this vehicle – a foreign shareholder.

And here there are now some advantageous countries in the EU where such distributions are then tax-free. And here one must clearly watch out what one triggers by the choice.

This 3-tier structure or the third tier is only needed if one lives in Malta.

The mechanics of the Tax Refund claim and the dividends are exactly the same as with the 2-tier model.

Well, with one difference:

Whoever lives in Malta pays absolutely no taxes apart from 5% with this structure.

5% in total.

Practical, isn't it?

Summary

• Malta's government is committed to entrepreneurship in Malta
• Malta is a place to feel good: The sun shines all year round and winters are mild
• The official language in Malta is English – bureaucratic matters and everyday things are easy to master
• Malta offers legal tax advantages, which are however linked to fulfilling important requirements
• With the formation of two holdings, the tax burden can be further reduced

Now it gets serious. And I'll tell you right now: This chapter is the reason why you can sleep soundly at night.

If you live in Malta and operate your Limited there, then your company is a purely Maltese affair. HMRC simply has no say in it anymore. Sounds too simple? But it is.

The Residency Principle: Why Malta Works

The principle is simple: Where you live is where you are taxed. This is called the residency principle, and it applies throughout the EU and usually in Double Tax Treaties.

If you move your tax residence to Malta — meaning you actually live there, not just have an address — then you are subject to Maltese tax law. Full stop.

The UK can then no longer treat you as a tax resident (provided you break UK tax residence properly). Your Malta Limited is no longer a UK tax issue.

EU Freedom of Establishment: Your Right, Not Your Privilege

Malta has been an EU member since 2004. And the EU Freedom of Establishment (Article 49 TFEU) gives you the right to settle in any EU country and be entrepreneurially active there.

This is not a loophole. This is applicable European law.

The Single Market also allows you to do business throughout the EU from Malta — without bureaucratic hurdles.

The combination of residence in Malta + EU Freedom of Establishment + Maltese tax system = 5% taxes. Legal. Transparent. EU-compliant.

There are no tax havens in the EU. Our tax system is the same as before our EU accession. The EU Commission accepted it, Brussels did not demand a single change. We adhere to EU rules.

But Beware: If You Are Still Entangled in the UK

And here comes the warning I give every client along the way:

If you still have business connections to the UK, it gets complicated.

A shareholding in a UK Ltd. An office you still use. Clients where you work on-site regularly. These are all attack surfaces for HMRC.

Does that mean it's impossible? No. It means you have to do it right.

Whoever separates cleanly has no problem. But whoever still has one foot in the UK must expect HMRC to look closer. And honestly: The enquiry alone is annoying enough — even if everything is correct in the end.

My recommendation: Cut all business ties to the UK. Sell shareholdings, dissolve UK structures, make a clean cut. That is the Royal Path within the Royal Path.

Exceptions You Still Need to Know

Even if the residency principle is clearly on your side — there are exceptions where the UK still grabs a share. You should know these:

Unattributed Income / CFC Rules: A classic that many underestimate. If you generate profits that are artificially diverted from the UK, Controlled Foreign Company (CFC) rules might apply. The good news: This usually applies if you are UK resident. If you move to Malta and have genuine substance there, these rules generally don't apply to you personally as a non-UK resident, provided you are not "temporarily non-resident" (see below).

Inheritance Tax — The Domicile Trap: Here it gets surprising for many. Unlike most countries that tax based on residence, the UK taxes inheritance based on Domicile. Moving to Malta changes your residence, but not necessarily your domicile. If you are UK domiciled, your worldwide estate remains subject to UK Inheritance Tax (IHT) even if you live in Malta. Shedding UK domicile is a complex legal process involving severing ties permanently. Don't assume moving solves IHT. Plan succession and gifting before the move or consult a specialist on domicile.

Tax Liability on UK Source Income: Even after the cleanest move, certain UK income remains taxable in the UK. This includes: Rental income from UK properties, or certain UK pensions. The Double Tax Treaty between Malta and the UK regulates who gets to tax what — but whoever still holds UK assets cannot avoid limited tax liability there.

My advice: Don't panic. These are all solvable issues if you tackle them before the move. But whoever ignores them experiences nasty surprises. That's exactly why I always tell my clients: Moving to Malta is not just booking a flight. It is a tax project that needs planning.

CRS and BEPS Confirm Malta's Course

When the international financial agreements Common Reporting Standard (CRS) and Base Erosion and Profit Shifting (BEPS) came, there was panic in my industry.

I was relaxed. Because transparency only hurts those who go down an unclean path.

Malta participates in CRS and BEPS — and yet this has no negative consequences for my clients. Because we work cleanly from the start. That pays off.

Even if you move to Malta, you need to know what happens on the UK side. Because HMRC doesn't stop being interested in you just because you moved.

But I'll tell you right now: Someone who really lives and works in Malta has it much easier than someone operating from afar.

Tax Audits: The Difference

In high-tax countries, tax authorities often use audits as a weapon. If you set up a company in a "favourable" location but keep ties home, your local tax office will check you often and thoroughly.

A high frequency of tax audits and a certain pedantry during these audits is one of the administrative protective mechanisms.

By the way, whoever moves to Malta can literally enjoy the good weather.

Because then such audits belong to the past. I have lived in Malta for a long time and shall I tell you how often I have been audited?

Attention tax secret: Zero point zero times. This is of course because an annual audit is mandatory, and thus the tax office is relieved of a lot of work.

This article is about the Royal Path: You move to Malta and found your Limited there. And that's exactly why you can read the following chapter in a relaxed manner.

Because the five prerequisites — Real Business, Risk, Value Creation, Permanent Establishment, and Substance — you fulfill these almost automatically as a Malta resident. Whoever operates from afar has it much harder. I have written a separate article on this: The 10 Rules for Malta Limited Shareholders with UK Residence.

But for you as a Royal Path walker applies: You live there, you work there, the value creation happens there. HMRC has nothing more to say. And that you then only pay 5% in taxes — entrepreneurially as well as privately — that is not a bug, that is a feature.

I can demonstrate fulfilling the requirements below Real Business: You found a company where you live and work almost exclusively from Malta.

Risk: You as an entrepreneur have moved. That is already a big risk. But with you, the entire entrepreneurship has also moved including all risks. You will certainly sweat in Malta. Not just because of the weather. But also whether the next contract with your client comes through.

Value Creation: You live and work in Malta. Values are created here and nowhere else.

Permanent Establishment: Yes, here one has to be a bit careful. I wrote about the software developer who has a desk at the client's office. The topic of Permanent Establishment can also become a problem with a move. But if you are only in Malta or mainly: No problem.

Substance: Whether you work in your Malta office, in a Business Centre, Hubworking, or in the Home Office. You won't have to worry about building substance in Malta if you live in Malta.

How do you build substance for a Malta Limited?

Today the topic of substance doesn't look fundamentally different, but you can be sure:

It hasn't become more difficult. Moving to Malta is in my eyes still the best way, but renting a huge office immediately is no longer a must. Too much has changed in the working world for a private office to continue justifying so much weight.

So can one build sufficient substance exclusively with a Home Office?

That, in turn, is possibly a somewhat too loose interpretation of the changes. Flexible solutions like Serviced Desks and Co-Working Spaces are definitely an option.

The advantage: You save money, still have a decent office, and at the same time build substance for your company in Malta.

Summary Most important prerequisite to profit from Malta: The value creation of your company must mandatorily take place in Malta.

Therefore, it is indispensable that the permanent establishment, i.e., the place of business operation, lies in Malta.

As a shareholder, you should prove substance in Malta. The only sensible way to do this is a move to Malta.

The day will come. For every entrepreneur. Eventually.

The Exit.

The sale of your life's work. Your company. Your baby.

And on this day it is decided whether you become a millionaire or stay a millionaire forever. Because taxes on company sales can be brutal. In the UK, you might pay 20% Capital Gains Tax (or 10% with Business Asset Disposal Relief, capped at £1m lifetime). That's a significant chunk of your sales proceeds going straight to the Treasury.

On a sale of 10 million Euro, that's up to 2 million Euro in taxes. In Malta? The famous 5%.

That is the reality for entrepreneurs who plan smartly.

Malta Exit Optimization: Why Most Entrepreneurs Start Way Too Late

I see it again and again:

A client calls. Excited. The deal is on. An investor wants to buy his company. For many millions.

"Mr. Sauerborn, can we do something quickly? Set up Malta or something?" My answer is always the same: "Too late." Too late to just quickly activate tax optimization. Too late to build the Malta structure. Too late to create substance.

The Exit Case must be planned early. Ideally from Day 1. Why? Because tax authorities are not stupid. They know exactly what you are up to if you quickly found a Malta Limited three months before the sale.

That will not work. That will be classified as tax evasion. And rightly so.

The Malta Advantage in Company Sales: Done Right from the Start

But if you do it right from the start? Then Malta is unbeatable at the Exit.

Here are the numbers: In Malta, you pay 5% tax on the sale of your company shares. Full stop. End of story.

A practical example: One of my clients founded his software company in Malta in 2018. Classic SaaS business. He moved to Malta, built a team there, created real substance.

In 2024 came the exit. An American corporation wanted to buy the company. Purchase price: 15 million Euro. His tax burden in Malta: 750,000 Euro. His tax burden in a high-tax country would have been: millions more. Savings: Massive. That is the difference between "I am rich" and "I am really rich".

Malta Company Sale: Why the 5% Also Applies to the Exit

Many ask me: "Does the 5% rule also apply when selling the company?"

Yes. Definitely. If you are properly resident in Malta and your company is based in Malta, then the sales proceeds are also subject to Maltese taxation.

And here the same setup comes into play as described before. But – and this is important – only if the requirements are met here too:

• Real residency in Malta (not just on paper)
• Substance in Malta (real office, real employees)
• Value creation in Malta (the business really runs from Malta)

If you fulfill these points, then the Exit is a tax dream.

Late Stage Malta: If You Weren't There from the Start

"But Mr. Sauerborn, my company has been running for 10 years in the UK. Is it too late?" Not necessarily. But it gets more complicated.

You can relocate your business to Malta. But it must be real. And it takes time.

Here is my rule of thumb: At least 2-3 years before the planned Exit, you should carry out the Malta relocation. And do it properly:

• You move personally to Malta
• You build real substance (office, team, processes)
• You shift value creation to Malta
• You comply with all compliance requirements

Does it work? Yes, but only with professional advice and clean implementation.

The Biggest Traps in the Malta Exit

Let me be honest: There are many ways this can go wrong.

Trap Number 1: No Substance You found a Malta company, but the real business continues to run in the UK. HMRC will say: "That is just a letterbox. Taxed normally here."

Trap Number 2: Relocation Too Late You relocate 6 months before the sale. The tax office will say: "That is abuse of law."

Trap Number 3: No Real Residency You have a Malta company but continue to live in the UK. That does not work. At least not for the 5%.

Trap Number 4: Forgetting Transfer Pricing You relocate your company to Malta but forget the exit charges on transfer of functions. Ouch. That can be expensive.

Malta Exit Done Right: The Checklist

If you want to do it right, here is the ultimate checklist:

At least 3 years before Exit:

• Found Malta Limited (with Holding structure)
• Move personally to Malta (real residency)
• Rent real office in Malta
• Build team in Malta (at least core functions)
• Open bank account in Malta
• Fulfill all compliance points

2 years before Exit:

• Expand value creation in Malta
• Maintain client relationships from Malta
• Switch contracts to Malta Limited
• Further expand substance

1 year before Exit:

• Prepare Due Diligence
• Complete tax documentation
• Finalize Exit planning

At Exit:

• Pay 5% taxes in Malta
• Keep the rest

The Emotional Aspect: Why Many Entrepreneurs Hesitate

I get it. Really. Moving to Malta means leaving the comfort zone. Leaving family, friends, familiar surroundings behind.

But let's be honest: Millions in tax savings justify quite a bit of discomfort.

And: Malta is not the end of the world. It is an EU member, English-speaking, 3 hours flight from London. Many of my clients love it here.

Plus: After the Exit, you can live anywhere. With millions more in your pocket.

Practical Tips for Exit Preparation

Tip 1: Start Early Do not wait until the investor is at the door. Plan now.

Tip 2: Go All-In Half measures do not work. If Malta, then properly.

Tip 3: Professional Advice This is not the time for DIY. Get real experts.

Tip 4: Documentation

Document everything. Every step. Every reason. HMRC will look closely.

Tip 5: Have Patience

Real substance takes time. Plan for at least 2-3 years.

What Happens After the Exit

Sold. 5% taxes paid. Millions in the account.

What then?

Option 1: Stay in Malta and enjoy life. Sun, sea, low taxes.

Option 2: Move on and start a new adventure. With the financial freedom to choose.

Option 3: Build the next business. This time tax-optimized from the start.

All options are great – if you have optimized the taxes.

Common Misconceptions About the Malta Exit

"I can sell tax-free without a Malta structure"

False. In the UK, you pay Capital Gains Tax. There is practically no way to sell large exits completely tax-free without moving.

"Malta only works for tech companies"

False. Malta works for all types of companies. Trading, services, production – everything is possible.

"That is too complicated for me"

Understandable, but false. With the right advice, it is doable. And the tax savings justify every effort.

"I am too old to move" I often hear this from entrepreneurs 50+. But: Having 10-15 years ahead of you at 55 and millions more – that is worth every move.

Ask yourself:

1. Is my Exit proceed higher than 2 million Euro? → Malta definitely makes sense
2. Do I have at least 2 years until the planned Exit? → Doable
3. Am I ready to move to Malta? → Prerequisite
4. Can I build real substance in Malta? → Mandatory

4x Yes? Then we should talk immediately.

1x No? Then we must find other solutions.

Summary

• Malta offers 5% taxes also on company sales – but only with real substance and residency
• Exit optimization must be planned early – ideally from the start or at least 2-3 years before
• The tax savings can amount to millions and justify practically every effort
• Half measures don't work – whoever does Malta must do it properly with a real move and substance building
• Professional advice is indispensable – too many pitfalls for DIY approaches
• Malta is EU-compliant and legally secure – no dubious offshore constructs

Sometimes I am asked how bureaucracy is in Malta when founding a company. Unfortunately, I have to sigh then.

Because the bureaucratic effort is enormous. There is no other way to say it. The authorities are mainly to blame for this. Those in Malta and those in the EU. Perhaps even authorities worldwide. But one thing after another.

Formation Malta: Why it is bureaucratic – Reason 1: Malta and its Service Providers like us

Yes, I have to admit it:

Advisors like me and service providers like the law firm DW&P Dr. Werner & Partners profit from the quasi legally prescribed bureaucracy.

Because alone, hand on heart, you are lost.

In my opinion, the legislator has set up certain requirements in such a way that as a "stranger" you have to engage a service provider who is usually or ideally local and thus also pays Maltese taxes and has Maltese employees. Because that's how the legislator earns taxes, payroll tax, social security, taxes on the rent of the law firm, and VAT. And with penalties for non-submission, for submitting too late, for submitting documents incorrectly, or interest for not paying taxes or duties.

Therefore, engaging a good service provider with whom you communicate and interact effectively and sustainably is so essential.

Because it's not done with the formation.

Read further down what obligations come your way with and after the formation of the Maltese company.

Company Formation Malta: Why it is bureaucratic – Reason 2: The EU and Anti-Money Laundering Directives

In one chapter I describe bluntly that many countries, especially those with higher taxes, do not like to see a company being opened in Malta.

That is, as said, not meant personally, it's just business, it's about taxes.

And if some entrepreneurs found in Malta, then it should please happen with as much effort as possible, so that one has no fun with it from the beginning.

From the beginning, that hits the nail on the head.

Because at the beginning stands the large work block "ANTI MONEY LAUNDERING COMPLIANCE" – an effort that was virtually dictated to Malta, and which every client of mine must now endure before he can become a client.

Not because I want to, but because I have to. Because the Maltese state has imposed it on me, just as it was imposed on it by all other states.

Our "Onboarding Officer" will attend an appointment with you and screen the Business Case from front to back.

He will ask questions, some of which are admittedly quite personal.

For example, how you earn and have earned your money. He wants to see contracts and ID documents, wants documents like bank statements. He wants references. All in all, it can feel as if you are not really being welcomed.

See? Does the big picture emerge? That is exactly what the EU wants to achieve. Make the start as unpleasant as possible.

But rest assured, you are welcome and the bureaucratic effort of onboarding is a necessary evil, which you and we will treat sportingly but above all professionally and discreetly.

So that you can quickly enjoy the advantages of Malta.

Take that, EU!

What is behind the Anti-Money Laundering requirements?

But how did it come to this?

In 2017, the EU established new guidelines on the subject of money laundering. For this purpose, laws implementing the Fourth EU Money Laundering Directive were put into force.

The law affects banking houses in particular measure, as they are the ones carrying out the transactions that are to be better controlled.

Therefore, with every account opening, especially with internationally active companies, a great effort must be made, otherwise the banks could be held accountable. Surely you know this from your own bank account opening.

The purpose of the 4th Anti-Money Laundering Directive is to tighten the reins on combating money laundering. Comprehensive risk analyses and additional requirements mean additional effort.

That means in plain text: If you want to open an account for your company in Malta, you must convince the banks of yourself! The financial institutions take their obligation very seriously.

As a study by LexisNexis Risk Solutions revealed, the costs for Anti-Money Laundering Compliance sum up to billions worldwide.

And also with the successor of the 4th Anti-Money Laundering Directive, the 5th Anti-Money Laundering Directive (AMLD5), the regulations were further tightened.

Here too, therefore, my advice is:

Full transparency and correctness help everyone!

We know it from some movies or series: The paradox of time travel. The protagonist tries to change something in the past through time travel and is then the reason why it happens in the first place.

In Malta, there is the paradox of account opening. In a country that lives on making it as easy as possible for entrepreneurs because exactly these entrepreneurs mean its own survival.

And it seems paradoxically difficult specifically in Malta to obtain a business account.

Difficult. And bureaucratic. And expensive. And time-consuming. But as always, I have a way out for you.

Let's start from the beginning. Why is it so difficult at all?

When I came to Malta over 14 years ago, you could go into almost any bank branch, without an appointment, and have the account after 30 minutes. The reality of the present could not be further from that.

This is why: This has mainly to do, once again, with the requirements of the banks. Especially with the meanwhile extreme penalties for violations of these requirements (as explained above).

And it also has to do with the fact that banks in Malta are rather traditional, not to say old-fashioned.

I reported above that the Anti-Money Laundering requirements for service providers like law firms have already been increased enormously.

Not significantly due to Maltese initiative, but mainly due to international pressure, on the part of the EU.

Law firms like ours spend approx. 50% of their internal costs just on Anti-Money Laundering. Imagine that! Banks probably even more.

Today it is as follows: Meanwhile, you can't even get an appointment at a bank in Malta without having an "Introducer", i.e., a law firm or an advisor like DW&P Dr. Werner & Partners by your side.

Why an Introducer: The banks demand this so that the mountain of documents and information, the process that the bank imposes on every applicant, is followed correctly. The banks thus shift the responsibility at least administratively.

Nevertheless, you will have to pay a fee to both the bank for processing the application (without guarantee of success) and service providers so that the account application is properly prepared and submitted.

And above all for communication and interaction with the bank.

Which banks are suitable for a Malta Limited?

As far as the topic of account opening is concerned, I am not always a local patriot. I always recommend my clients to proceed on two tracks or two stages.

Namely:

1. After formation, first opening a business account with one of the Neo or Internet banks: Revolut, Wise, Bunq, Monzo, Monese and whatever they are all called.
2. With some time and experience behind you, then opening an account in Malta (which certainly brings advantages).

But: I appeal already at this point to your sense of responsibility, your entrepreneurial initiative, and above all to your foresight.

Be attentive whenever you get to know a new bank somewhere, read about it, or otherwise get wind that you might be able to open an account at a bank that your advisors or your law firm do not yet know.

Because banks block and close accounts. If something does not seem clean to a bank, and that does not have to mean that it is not clean, then a transaction is quickly blocked, the account frozen, or even completely closed.

Please understand that even internally at banks, rules sometimes apply completely anew or are changed for existing customers.

That means: Better one account too many than too few. Because the most important thing is and will be that you can continue to work. Continue to pay bills and continue to receive funds. The process of bank account opening will never leave you together with a constant bureaucratic interaction with the banks.

Be prepared herewith that this will not get better, but worse.

But: Also be assured that the setups can be built in such a way that the circus with the banks causes a bit of headache and will cost something. But that you will ultimately constantly have a healthy and sustainable multi-track account structure.

And so that your business will work reasonably and successfully.

Yes, high-tax countries have protective mechanisms against moving away — but none of them make the Royal Path impossible. You just have to know them and plan for them.

If you move from the UK to Malta, UK tax law won't just roll out the red carpet. There are protective mechanisms that make moving away more expensive and complicated. They are not an obstacle, but you must know them, plan for them, and price them in.

Exit Tax for Companies – Protection Mechanism 1 (Corporate Exit Charges)

I mentioned risk above. If you simply funnel a contract to the Malta company. This contract has a value and in a normal context, the Malta company would have paid something for it.

And whether that is paid or not, the transferring company, for example a UK Ltd, must book income in the amount of the value and pay taxes on it in the UK.

This is made more difficult by the fact that the transfer of such a value is not just about contracts.

Those are quite easy to quantify.

But don't rejoice too soon: It can also be about non-material values, such as a profit opportunity, or the use of the CRM or other system of the foreign company, the participation of personnel, the use of know-how, networks, and resources.

I'll get to the point: Everything that makes it easier for the company in Malta and is made available or received from your or a related company abroad must be invoiced at market prices. As if the foreign company were completely independent and you were ceding the opportunities.

Malta Company Formation Protection Mechanism 2: Exit Tax for Individuals

Unlike Germany, the UK does not currently have a general "Exit Tax" on shares for individuals leaving the country, provided they become non-UK resident.

However, there is a trap: The Temporary Non-Residence rules.

If you leave the UK and return within 5 years, gains realized on assets (like shares) you owned before leaving might be taxed in the UK upon your return. This is to prevent people from moving to Malta just to sell their company tax-free and then moving back immediately.

So: If you move, you must move properly and permanently (at least for more than 5 years) to ensure you break the UK tax net completely.

Note: Tax laws change. With new governments, an Exit Tax similar to other European countries is always a possibility. Always check the current status before moving.

Protection Mechanism 4: Withholding Tax in the EU

The EU prescribes:

Dividends between a company in EU Country A to EU Country B must not be burdened with withholding tax in Country A upon distribution – regulated in the EU Parent-Subsidiary Directive (2011/96/EU).

While the UK is no longer in the EU, it generally does not levy withholding tax on dividends paid to non-residents anyway. So, 0%.

However, if you are moving from another EU country (like Germany or France), this Directive is crucial. Malta has over 80 Double Taxation Agreements with states worldwide — one of the broadest DTT networks in Europe.

Protection Mechanism 5: Transfer of Functions

If you do exactly what some laws require of you, namely create real function in Malta, have real value creation in Malta, a real office etc.:

Watch out that you do not transfer a function to Malta in the process, because then you must also tax this transfer in the country from which this function originally comes.

Complicated? Slightly paradoxical? Yup, 100%.

Better is: Duplicate the function. That means:

Let the UK company exist for the time being, as it is. Possibly with a different director.

Then build an additional instance abroad, with additional employees.

Is that expensive? Yes.

Does it avoid taxation due to a transfer of functions? Also yes.

Better you invest the money in your own company than hand it over as tax.

Protection Mechanism 6: Permanent Establishment outside Malta A fictional conversation between tax officials:

"Helmut, Mr. Smith's company in Malta is real. I checked it up and down, it is legitimately resident there."

"Wait a minute, if we can't tax everything from this Malta LTD here, then let's try to tax at least a part of the profit here."

"A part?"

"Yes! Let's check if they don't have a permanent establishment here."

"How so, they don't have business premises or even a warehouse here."

"Doesn't matter. Maybe a senior employee, a manager lives in our country. That can also just be the IT manager or the head of accounting."

"No, that's all in Malta. Only the director comes here now and then. But he doesn't live here."

"Now and then?"

"Yes. But not more than 183 days or not even close to 183 days."

"How many days is it per year?"

"It's just over 3 months per year."

"That works out well. Because with that, this Malta Limited has a permanent establishment here and we get a share of the profit. At least the part we can attribute to this 'representative permanent establishment'."

"Great, thanks for the info, Helmut."

All facts, dear reader, all facts. But also in this and for this case there is advice so that Helmut gets nothing.

What the conversation is meant to show:

Even if everything is set up cleanly in Malta, it must be ensured that too frequent visits to the UK (or your former home country) by the director do not lead to a permanent establishment being triggered.

Otherwise, the described case occurs and the representative permanent establishment leads to a tax liability abroad.

Therefore, in this context, the often quoted 183-day rule does not apply if you are the director yourself! I have to correct this very, very often.

183-Day Rule: Applies to you personally and your private income.

60-Day Rule (approx.): Applies to you in your function as director and the income of your company.

And if you suddenly feel caught: It might not be too late to straighten out the problem. But: Now it means making no more mistakes and taking the right steps!

Therefore: If you do not want to become taxable in the UK, then watch your stays on site.

I already touched on it in the chapter on good old theory. The Malta authorities also demand a successful ride on the paper tiger from you. But which authorities are these and what do they demand from one?

Forming a Limited in Malta: Only with MBR – The Malta Business Registry

The Maltese Commercial Register is now its own authority and no longer subordinate to the MFSA, the Malta Financial Services Authority (the counterpart to the FCA).

What does the MBR do in Malta?

New Malta companies to be founded are registered and administered in the MBR. Here is the register of directors, the company secretary, and the shareholders.

In addition, the MBR also holds and manages the important transparency register if a company is not held by a natural person, but e.g. via a holding company, a trust, a trustee, or a foundation.

Fully transparent The commercial register is publicly viewable, and any changes within a LTD in Malta are recorded here. For example, change of company name, change of address, or change of director.

Once a year, a LTD in Malta must submit the "Annual Return". This is a notification or rather a confirmation of the address and organs of the company. In addition, the MBR requires the financial statements of the company in Malta once a year.

Any change within the LTD must be registered within 14 days, otherwise a penalty is due per day. Likewise, a penalty is due if you fail to

• Submit the annual financial statements
• Submit the Annual Return
• Submit the entry for the transparency register. This is particularly hefty. Actually, there is a penalty for everything that is not done properly.

These requirements are set by the MBR for a formation Not only visits to authorities have to be done. The fulfillment of some basic requirements also has to be mastered for company formation.

And in Malta, they are thorough: These 8 requirements must be met.

The Maltese financial supervisory authority, or simply the Maltese tax office, expects a lot from companies to maintain the title Malta Limited.

Because: The list of requirements a company in Malta must fulfill at all times comprises seven points.

Therefore applies now:

Read carefully!

1. Be able to show office space

Every company in Malta must be able to show office space. It is not enough to give your own private address in Malta or that of an acquaintance. Instead, a proper office should be rented sooner or later. For pure postal traffic, the address of the tax advisor on site can usually be chosen, even if this should also be changed at the latest 6 months after formation.

Furthermore, the rules, especially since the Corona pandemic, are somewhat looser. It is simply no longer contemporary to expect every entrepreneur to have their own office. Service Desks and Co-Working Spaces are therefore an ideal alternative in my eyes.

2. Define goals of the company

You must state which goals you pursue with the company to be founded. The activity must be described as concisely as possible. It is recommended to really call a spade a spade here – evasive information is detected and the formation then rejected.

3. Minimum capital for Malta Limited formation

Similar to a GmbH in Germany or other continental structures, formation capital must also be available for a Malta Limited. However, according to the Malta Companies Act (Cap. 386), this is significantly lower: 1,165 Euro in equity is a prerequisite for formation, of which 20% (approx. 233 Euro) must be paid in upon formation — for comparison: A German GmbH requires 25,000 Euro.

4. At least two shareholders, maximum 50

For a Malta Limited applies: It must be able to show at least two shareholders, but a maximum of 50 (even if I have never seen that myself). The possibility to use only one shareholder exists, but then it must be clearly evident from the Memorandum of Association and justified how this affects the trading intentions of the company – but it is possible.

5. Director and Company Secretary

A company must appoint at least one Director and one Company Secretary for formation. The role of the Director is equivalent to that of the managing director. The Company Secretary, in contrast, is not to be understood as a classic secretary, but rather as an additional control and information organ within the company, which must ensure that everyone is informed about formal processes.

6. Company meeting or Annual General Meeting

Every company must conduct at least one meeting every year in which fundamental issues are discussed. Minutes must be kept here.

7. Tax return

Of course, like any other legal form, a Malta Limited is also subject to the obligation to submit a tax return annually.

8. Annual Audit

The annual audit.

In Malta, the guild of auditors is significantly larger than e.g. in Germany, because:

Every Limited (so also Holdings) in Malta must undergo the procedure. It is checked exactly what was booked how and whether the information in the tax return is correct.

My assumption: The requirements are also so high here because Malta no longer wants to accept that funds are transferred via the island that actually have no business here.

The audit usually costs some nerves and time, but whoever has found a good auditor who pursues his processes in an orderly manner is spared a lot of work.

First registration after formation in Malta: Inland Revenue / Commissioner for Revenue

The Maltese tax office assigns the Maltese tax number for "Income Tax" at the beginning of the curriculum vitae of a company in Malta.

Not to be confused with the VAT Number or the MBR number.

Important: You have to answer to the tax office in case of need, but actually you don't have much to do with the tax office. This is not because there is nothing to do. But because the tax office usually only communicates with representatives, e.g. the lawyer, auditor, Corporate Service Provider, or the Accountant.

Once a year, one has to submit the balance sheet certified by a local auditor and also the tax return of the Malta LTD to the tax office.

Of course, the tax office in Malta also imposes penalties for non-submission or interest is charged for unpaid taxes.

Important Number 2: The tax office is ultimately responsible for the Tax Refund and thus for achieving the 5% tax. That means: Everything must run properly and on time here.

Second registration after formation of the company in Malta: JobsPlus / Employment Agency

JobsPlus is the employment agency.

But also the authority where every employment relationship is registered. Or every change or every termination of an employment relationship. If you want to employ someone in Malta, even if it is only yourself, then you will have to receive a JobsPlus number.

Third registration after formation of the company in Malta: VAT Department / VAT Authority

The VAT authority and in my opinion the strictest authority in Malta. Every Malta LTD must or wants to apply for a VAT Number. This number is essential for cross-border business, which is almost all transactions with a Malta LTD.

So:

With the registrations under Article 10 of the "VAT ACTS", i.e., the Malta VAT Law, there is a quarterly obligation for a VAT return.

This is called VAT Return in Malta. In addition, there is the obligation to submit so-called "RECAP STATEMENTS" to the authority. A Recap Statement records EU internal traffic. That means, on it you declare with which other EU VAT number you have interacted commercially.

Besides interest and late payment surcharges, the VAT authority often and gladly issues "Assessments" if VAT Returns are not submitted.

The Assessment is an estimate of the VAT owed and this estimate usually turns out much higher than the actually owed VAT amount is. But the estimate applies until the VAT Return is successfully submitted. And interest also accrues on the estimate.

A lot of theory helps nothing if there is no practical reference.

Therefore: Some practical experiences from everyday life with a Malta Limited. Unvarnished and direct. As I know most entrepreneurs, the anticipation is great at the beginning:

When can I finally start earning money with my Malta Limited?

Is a very frequently asked question.

And I understand the question – I am no different.

Depending on whether you get advice, the company in Malta is usually founded after 10 days. With Holding correspondingly a little longer, since first the parent holding must be founded before the subsidiary companies can be founded.

What can take time: What then takes a little more time is usually the VAT number. And yes, unfortunately, it is very important.

After all, as an entrepreneur from Malta, you also want to do business outside Malta.

And zap: The VAT number is missing for invoicing. Some of my clients solve the problem with Pro-Forma invoices, which is certainly valid.

It is certain: You cannot issue a formally correct invoice within the EU if you do not have an EU VAT number.

Second point that could drag on a bit (but depends entirely on the bank; usually the banks we work with at DW&P are a bit faster): Opening a bank account. I had already described that.

The process drags on mainly because the banks screen you so thoroughly. It doesn't matter whether Challenger Bank or traditional banking house.

How high is the Director's salary and Social Security?

Also a question I hear frequently: If I am Director of my Malta Limited, do I get a salary?

Just as you wish, I always say. But the following practice is recommended:

To be fully socially insured – i.e., also health insured – you must earn minimum wage in Malta. I always recommend fully utilizing the tax-free allowances. These are around €1,000 a month in Malta.

Meaning: You receive just under €1,000 salary as Director in Malta, fully tax-free, and pay about €180-200 in social security contributions.

With that, you are fully insured and provided for in an emergency.

You pay out the salary to yourself monthly quite normally.

Fun Fact: In Malta, you can pay all levies with credit cards, whether VAT or social contributions.

I have heard from one or the other client that miles can be collected vigorously with this – assuming a corresponding credit card.

Is invoicing with a Malta Limited reputable?

Many clients are concerned whether potential business partners would be put off by a billing address in Malta.

And I understand the concern! And it may well be that it causes frowns in some industries. I think that depends entirely on your offer.

It is clear:

Invoicing must be the new Limited, otherwise it triggers other problems.

And quite honestly:

Don't try to hide it, but go on the offensive.

Company in Malta? Of course! I live here too.

More and more entrepreneurs of the new era are drawn to Malta, Dubai, or even Cyprus. Internationalization is simply part of it now, even more so in a few years.

So that is not a topic I would seriously worry about.

I have already experienced many a Doomsday.

So the Day of Judgment.

The end of the world.

There was the abolition of Swiss banking secrecy. BEPS. CRS. The Panama Papers. Just to name a few.

The development and consequences thereof, or shall I say the presumed consequences thereof in direct reaction were always:

THIS IS THE END OF LOW TAX. But of course it never was. If anyone had wanted to sell you a Malta Holding structure before the abolition of banking secrecy, they would have laughed at you and simply asked:

"Why Malta? I'm going to Switzerland!"

Fact is: Whoever wants to optimize taxes will always choose the best or optimal for themselves, what is currently possible.

And Malta will always belong to optimal countries.

And even after the abolition of banking secrecy, Switzerland still works optimally.

Therefore, it is not of particular importance whether there will be e.g. a minimum tax worldwide.

The responsible persons in Malta know exactly what they are doing in this regard and will always be able to offer you top legislation.

You can also deduce this from the fact that there was a lot of political turbulence in Malta in my time. Even a change of government. But the topics that interest you were not and are not touched, at least not fundamentally.

What that does not mean: That you don't have to adjust to any changes at all. Because as written above, other countries will try to make Malta constantly less attractive. For example, via heavier compliance requirements, i.e., paperwork.

But what it means: In my opinion, more and more clients will choose the move to Malta when looking for a truly optimal solution. And fewer and fewer clients will operate a setup e.g. from the UK or Germany.

So much for theory…

…practice often turns out to be complicated! Through my work at the law firm Dr. Werner & Partner, I experience amazing things again and again.

Therefore: Let me give you some concluding words along the way.

I am glad that you are interested in Malta. And herewith you have already reached a stage that is elementary:

Sufficient information gathering in advance. Everyone has heard the saying: Ignorance does not protect against punishment. And unknowingly committing tax evasion due to uncleanly executed company formation abroad is a fate not to be trifled with.

And: A company formation abroad is in itself a big challenge, especially if it goes hand in hand with a move abroad (which I recommend, as you know). Therefore, in my eyes, it does not happen overnight and not without sufficient legal safeguards. Perhaps you have noticed that one point is particularly important to me:

Do not make any efforts to use Malta for illegal tax avoidance. This is no longer possible! Whoever does not intend that: Good luck with your business in Malta!

Here are some important contributions for further reading if you want to seriously deal with Malta.

Frequently Asked Questions about the Malta Limited

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Sources & Further Links

Maltese Authorities & Official Sources

1. Malta Business Registry (MBR) – Official Website – Commercial Register, Company Formation, Annual Returns, and Transparency Register
2. MBR Online Company Search – Publicly viewable commercial register of all Maltese companies
3. Commissioner for Revenue Malta (Inland Revenue) – Maltese Tax Office, Tax Returns, and Tax Refund System
4. Malta Tax Refund System – Commissioner for Revenue – Official explanation of the 6/7 reimbursement
5. Double Taxation Agreements of Malta – Commissioner for Revenue – Overview of all DTT partners of Malta (80+ states)
6. Malta Gaming Authority (MGA) – Regulatory authority for the gambling sector
7. Malta Gaming Authority – About Us – Background and mission of the MGA
8. Malta Financial Services Authority (MFSA) – Financial Supervisory Authority (Counterpart to the FCA)
9. JobsPlus Malta – Employment Agency and registration of employment relationships
10. Department of Social Security Malta – Social Security, Health Insurance, and Contribution Overview
11. BusinessFirst Malta – State contact point for business start-ups and business support
12. FinanceMalta – Public-private initiative to promote Malta as a financial centre
13. Malta Companies Act (Cap. 386) – Legislation – Full text of Maltese company law

EU Law & European Institutions

14. EU Country Profile Malta – Official profile of Malta as an EU member state (Accession May 1, 2004)
15. EU Enlargement Policy – European Commission – Background on the 2004 EU Eastern Enlargement
16. Article 49 TFEU – Freedom of Establishment – Legal basis of freedom of establishment in the EU
17. Article 56 TFEU – Freedom to provide services – Legal basis of free movement of services
18. Single European Act (1986) – Full Text – Basis of the EU Single Market
19. EU Parent-Subsidiary Directive (2011/96/EU) – Withholding tax exemption for intra-group dividends
20. 4th EU Money Laundering Directive (AMLD4) – Directive 2015/849 – Tightened due diligence and transparency requirements
21. 5th EU Money Laundering Directive (AMLD5) – Directive 2018/843 – Extension to cryptocurrencies and virtual assets
22. 6th EU Money Laundering Directive (AMLD6) – Directive 2018/1673 – Harmonisation of money laundering offences
23. EU Justice Portal – Business Registers Malta – Access to the Maltese commercial register via the European Justice Portal
24. European Parliament – Freedom of establishment and freedom to provide services – Explanation of EU fundamental freedoms

UK Law & Tax References

25. HMRC – Corporate Tax Rates – Current UK Corporation Tax rates
26. HMRC – Capital Gains Tax – UK CGT rules and rates
27. HMRC – Statutory Residence Test (SRT) – Determining UK tax residence
28. HMRC – Temporary Non-Residence – Rules on returning to the UK within 5 years
29. HMRC – Controlled Foreign Companies (CFC) – UK anti-avoidance rules for foreign profits

International Agreements & OECD

30. OECD Common Reporting Standard (CRS) – Automatic exchange of information between tax authorities worldwide
31. OECD BEPS – Base Erosion and Profit Shifting – Measures against profit shifting and base erosion
32. OECD Model Tax Convention – Basis for international tax agreements and the 183-day rule

Tax Advice & Specialist Information

33. PwC Tax Summaries – Malta Corporate Tax – Overview of Malta's corporate tax including Full Imputation System
34. KPMG Malta Tax Facts (PDF) – Compact summary of all relevant tax rates in Malta
35. Chambers Global Practice Guides – Corporate Tax Malta – Detailed analysis of Maltese corporate tax law
36. Wise – Malta Corporate Tax Guide – Understandable presentation of tax rates and holding structures
37. BDO Malta – Audit and Tax Advice – International auditing firm with Malta expertise
38. Taxually – Malta VAT Guide – Overview of the Maltese VAT system (18% standard rate)
39. Avalara – Malta VAT Compliance – VAT registration, reporting obligations, and Recap Statements in Malta
40. ICLG – Malta Gambling Laws & Regulations – Comprehensive presentation of Maltese gambling regulation
41. LexisNexis Study: Cost of Compliance – Empirical survey on compliance costs
42. Panama Papers – Wikipedia – Background on the data leak and its effects on international tax policy