A Maltese Company can be established to function as Group Treasury for related companies whether or not set up in Malta. This enables a group of companies to have the flexibility in their financing processes. A Group Treasury Company is a crucial factor in international tax planning in any group company structure.
The set up of such a company provides numerous advantages:
- Fair tax treatment which results in low effective tax rate on interest income received through the implementation of beneficial Maltese Refund mechanism;
- Non-resident shareholders (or corporate shareholders beneficially owned by non-residents) of the Maltese Treasury Company enjoy a 6/7ths refund;
- Malta does not apply any withholding taxes on dividends distributions out of Malta to non-residents;
- No capital duty, no thin cap/ debt to equity rules, no CFC rules;
- Extensive treaty network;
- Applicability of all EU Directives;
- No thin capitulation rules in Malta;
- No CFC legislation;
- No withholding taxes in Malta on outbound payments of interest to non-residents;
- No need to obtain Advanced Revenue Ruling of Status to benefit from tax refund.
Low Effective Tax Rate
Interest receivable by a Maltese Company acting as Group Treasury is considered as trading income if such interest:
- is derived, directly or indirectly, from trade or business;
- has suffered any foreign tax; or
- has suffered foreign tax, directly, by way of withholding, or otherwise, at a rate of tax which is at least 5%.
Dividend distributed to non-resident shareholders will benefit from a refund of 6/7ths of the ACIT paid on such income; hence the ensuing effective Malta tax rate on interest receivable stands at 5%. The 6/7th Refund mechanism requires that no credit for double taxation relief is used by the Group Treasury Company. If double taxation relief is claimed, the relevant refund would add up to 2/3rds of the Malta tax paid. When the interest income does not meet the above conditions, such income is regarded as passive in nature and the applicable refund of Malta tax paid will amount to 5/7ths of the ACIT.
Financing of Malta Treasury Company
The financing of the Maltese Group Treasury Company may or may not rely on the ownership structure acquired for the Group Treasury Company. Some options include:
- Funds from each shareholder directly to the Group Treasury Company;
- From each shareholder personally to their personal holding company which will progress loans to the Group Treasury Company;
- From profits of other related companies or subsidiaries eventually being owned by the same structures;
- Through third party loans.