Malta company: Perfect substance does not solve everything!

Every prospective client of Dr Werner & Partner receives a great portion of structural advice before actually signing up as a client – free of charge, before the company in Malta is formed. The points where clients start off in terms of knowledge, money and persistence (only to name a few) are not always the same. Some clients get pretty disillusioned when they are faced with the fact that they cannot or should not set up the LTD in Malta or HOW they should set up the Maltese company.

Company Set up in Malta only with a real director

Yes, you need an actual director in Malta and no, a nominee, trustee, corporate director or however you wish to call it will not suffice. Yes, the bank will report you sooner or later under CRS even when you are nowhere publicly listed as director or shareholder. No, the registered address that we can provide is not and cannot be used as an actual physical office. This address is to administrate the company easier and ensures smooth communication with all authorities – but it is nothing more than a mailbox (no, that is not dodgy, suspicious or a grey area, even if some people want to put it that way, but that’s a different story). No, there is no anonymity in any way and yes, we will report you should we suspect any illicit activity, such as (but by no means limited to) money laundering or tax evasion. Yes, if your business requires it, you will have to rent your own office and to hire people in Malta and yes, consulting invoices with two lines over 100’000 EUR are a thing of the past. By no means the above list is meant to be insulting: A lot of things have changed and are changing and we are really happy to bring clients up to speed.

Company Set up in Malta is not cheap

Some clients of course are pretty much updated, some of them even know some things much better than we do. In most of the cases the above will lead to loss of interest of the client however in some cases the client is prepared to setup the limited company in Malta according to standard.  Needless to say that the above means one thing foremost: COSTS. Setting up an operation with director, office, staff etc. will cost the client easily 50’000 EUR plus per year so it’s not a thing “one just does” – it has to be the real deal.

Now comes the downer: Assume an investor sets up a perfect structure in Malta with director in Malta with a salary of 5’000 EUR per month and office for 2’000 EUR a month and 2 administrators, each for 1’500 EUR a month – the latter setup meaning costs of more than 100k EUR per year, and our fees for corporate services and accounting and audit etc. are not even included in that.

BEPS: A threat for companies in Malta?

Assume the investor is only listed as shareholder however he still has unlimited access to the bank account. Assume the investor does all the key negotiations with the customers and sends the contracts over to Malta to have them signed. Assume the shareholder is involved in parts of the management of the company. Now that’s sounds like a doable scenario for you? ALL THE ASSUMPTIONS BEFORE WILL MOST POBABLY MAKE THE WHOLE MALTESE STRUCTURE USESLESS. The whole 100k EUR per annum in vain and for nothing.

Why? Because of BEPS. Not knowingly of course, the investor has

  1. Made the company Resident in his home country (which presumably is a high tax country): His unlimited control over the bank account makes him a director “de facto” and this circumstance alone establishes residency for the company in the country where the “de factor” director is based (in some countries like Switzerland, Ireland, Cyprus it is not so important to regard)
  2. Established an agent permanent establishment – under BEPS whoever has the right to conclude contracts establishes a permanent establishment.
  3. Established a management permanent establishment – even though he is only partly involved in the management (e.g. technically) – he can establish a management PE for this role.

The outcome of the above could in the best case mean a lot of paperwork and arguments with the inland revenue departments, which alone cost money. In the worst case it means the loss of the investment, a tax legal case and no or only a little tax advantage.

Yes, the above might me drastic but I want to highlight the pitfalls – there are plenty. We can guide you on how to structure the company in Malta correctly and how to avoid bad surprises. Kindly note the above does not apply if the client relocates to Malta – as a matter of fact it appears to be the best way for a lot of clients these days. Talk to Dr Werner & Partner about your options.

About Philipp M. Sauerborn

Philipp Maria Sauerborn is a certified tax advisor and expert in International Tax & Blockchain. As CEO of Dr. Werner & Partner in Malta, he has already advised over 3000 clients on their tax situation.

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The above-mentioned article is simply based on independent research carried out by Philipp Sauerborn and cannot constitute any form of legal advice. If you would like to receive further information, please contact us for an appointment.

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