Like in most reputable jurisdictions in today’s age of transparency, economic substance is a highly important issue in Malta.  Those looking to conduct business and investment on the island should take the time and consideration to plan accordingly.  Companies operating their business functions overseas can undoubtedly benefit from the tax incentives that the jurisdiction offers.  However, it is crucial to ensure that the necessary requirements for sufficient local presence are met in order to avoid challenges by foreign tax authorities.

Although there are no specific parameters set out in Malta for substance compliance the general concept of local management and control should be applied for companies that wish to be tax residents in Malta and therefore the following criteria should always be considered during company set up:

• The structure of the board of directors must comprise of at least 50% of Maltese nationals or those who have a permanent place of residence on the island.  The Directors appointed must be qualified and experienced in the field of your business activity
• The company should have local office premises with sufficient expenditure, locally sourced services and locally based employees that will carry out the daily business activities of the company from within the country.
• The decisions made by the board of directors are taken in Malta.  It is important to maintain regular board meetings, for example, one meeting per quarter as a required minimum. Ensure that each meeting is recorded by properly executed Minutes and safeguarded should their occurrence ever come into question.

If you already have an existing company in Malta and it lacks the appropriate substance set up, meeting such requirements might not only be challenging but also quite costly especially when considering the small population size of the island.  However, it is important to note that failure to comply may result in hefty fines, company and bank account closure as well as automatic exchange of tax information with the beneficial owner’s country of tax residency.

If you are unsure of what steps you need to take to optimize your expenses without compromising on compliance and legality, we highly advise you to obtain a professional tax opinion before company set up or prior to engaging in a transaction that you are unsure of.  This will provide the necessary assurance that each transaction has been properly executed from an international perspective and therefore in line with economic substance requirements should any intentions or actions be questioned. 

At Arnos, we understand that complying with the complex substance requirements can be both difficult and expensive which is why we have developed a variety of packages and alternative cost-effective solutions at very competitive prices to suit various business models.  Contact us today for a professional consultation or tax opinion from one of our knowledgeable and experienced corporate lawyers.