INTERNATIONAL TRADING COMPANIES


Introduction
An International Trading Company (ITC) is defined in section 2 of the Income Tax Act, as a company registered in Malta which is engaged solely in carrying on trading activities, from Malta but not in Malta, with persons who are not resident in Malta and which has its objects expressly limited to such trading activities as well as to such acts and activities as are necessary for the conduct of its operations from Malta. This type of company may also engage in:

  • purchases for export of goods manufactured, assembled or processed in Malta provided that such purchases are not made from a person who owns directly or indirectly more than 15% of the ordinary share capital of the said International Trading Company;

  • trading with offshore companies registered in Malta under the Malta Financial Services Centre Act, 1994; and

  • trading with other International Trading Companies.


    There are special provisions in the Act that apply to this type of company, the most important of which are:

  • a company may request the Inland Revenue to confirm by means of an advance revenue ruling its status as an ITC;

  • an ITC cannot operate a 'Foreign Income Account'.

    An ITC is therefore a normal onshore Maltese company having its status recognised only for tax purposes.

    • Taxation
    Malta's wide network of double taxation agreements as well as other methods for relieving double taxation on cross border transactions provide an excellent basis for establishing tax efficient structures including International Trading and Holding companies.

    Malta's full imputation system of taxation and the refund of tax provisions contained in the legislation make the ITC a very tax efficient vehicle for non-resident shareholders.

    An ITC is taxed at the normal company rate of tax, which is currently 35%. However, upon a receipt of a dividend from an ITC, non-resident shareholders are:

  • taxed at a flat rate of 27.5% on the gross amount of the dividend and are credited with the amount of tax paid by the company on the profits out of which the dividend was paid;

  • entitled to a refund under the provisions of the Income Tax Management Act of two-thirds of the Malta tax paid by the company on the same profits which ultimately works out to an effective tax rate of 4.17%. This refund is payable by the Inland Revenue not later than the fourteenth day following the end of the month in which the refund becomes due.

    • International Trading companies may request an advance ruling on their taxable status. Such a ruling guarantees the tax position of the company for a minimum period of five years and may be renewed for a further period of five years. Any changes in the tax legislation during these periods will not become operative before the lapse of two years from the coming into force of the new law.

    For other Offshore jurisdictions including BVI, Belize, Cyprus, Gibraltar, Liechtenstein, Panama and UK click here.


    Typical Structures

    Patent, Copyright, Design & Royalty Companies
    Malta International Trading Companies can be used to acquire patents, copyrights, designs and trademarks. Typically, the intellectual property right is assigned to a Malta Company which then licenses the product to a third party and receives royalties. Often, the intellectual property right will be assigned when it has first been created or in the initial stages that is when the value in its original jurisdiction is still low and in that case will lead to minimum capital gains tax. The Malta Company can then sell the intellectual property right to a third party for a payment which represents the bulk of the capital gain and which will only be subject to a 4.17% in taxes. Great caution should be observed when royalties are being paid to an offshore company due to the likely imposition of withholding taxes. It is often suitable to re-structure the type of payment made so that it does not constitute a payment falling within the terms of a withholding tax or to impose an intermediate holding company, which has a tax treaty with the jurisdiction in which the royalty is earned.

    Example - Mr X a resident in jurisdiction Y publishes a book in his jurisdiction. All royalties paid to Mr X personally will suffer income tax according to his jurisdiction. If Mr X assigns his copyright to his Malta company which in turn grants a licence to his publisher in his jurisdiction to publish and distribute the book, then all profits paid by the Malta Company to Mr X will only be subject to a 4.17% Malta Tax.

    Professional Service Companies
    For individuals who earn substantial fees from consultancy or service activities, a Malta company can be used to invoice for those services. Some jurisdictions maintain fiscal regimes, which inhibit such activities, examples being France, Spain and Italy whereby withholding taxes can be imposed upon the provision of such services and caution should therefore be exercised.

    Example - Mr X a highly paid professional person incorporates a Malta Company, which will eventually pay him a yearly salary. In turn the Malta Company will accept contracts of service from non-resident companies for the provision of its professional service, which will be provided by its dependant who will be a salaried professional. The professional person will pay tax on his basic salary in his jurisdiction but will only pay 4.17% Malta Tax on the surplus money paid to Mr X by his own Malta Company

    General Trading Companies
    Malta Companies are commonly used to purchase goods from one country and sell them at a higher price to another country. This process is called "re-invoicing" and profits made by the Malta Company as a result, will be subject to 4.17% Malta Tax. Goods are usually shipped direct from the vendor to the ultimate purchaser. The ultimate purchaser issues a Letter of Credit to the Malta Company, and in turn the Malta Company's bankers transfer to the vendor's bankers. On such transactions no exchange control applies and monies received from the ultimate purchaser will not be subject to any withholding taxes or fiscal penalties.


    Registration & Fees Structure
    The fees payable by a company to the Registrar of Companies upon registration are calculated according to the company's authorised share capital as follows:

    Authorised Share Capital

    Fee Payable

    Up to Lm2,000

    Lm100

    Over Lm2,000 but not exceeding Lm5,000

    Lm100 plus Lm6 for each Lm1,000 or part thereof in excess of Lm2,000

    Over Lm5,000 but not exceeding Lm100,000

    Lm118 plus Lm1 for each Lm1,000 or part thereof in excess of Lm5,000

    Over Lm100,000

    Lm213 plus 40 cents for every Lm1000 or part thereof exceeding Lm100,000 provided that a maximum fee does not exceed Lm573.

    If a company subsequently increases its authorised share capital, the difference in registration fees would be levied.


    Further Information

    Capital Requirements: - The Minimum issued share capital of an International Trading Company is the equivalent of Lm500 expressed in any convertible foreign currency. At least 20% of the issued share capital has to be paid up on incorporation.

    Who May Incorporate: - Non-resident as individuals or corporate bodies may incorporate. Nominee shareholding is also permissible through the services of a local nominee company licensed by the Malta Financial Services Centre.

    Time Required for Incorporation: - The length of time to incorporate depends on the type of company and on whether all information and documentation is available and in order. The process may take from as little as 24 hours.

    Shareholding: - The minimum number of shareholders is normally two, however a "single-member company" may also be registered under the Companies Act, 1995.

    Registered Office: - All companies registered in Malta must have a registered office in Malta and the registered office of a company may be that of a third party.

    Directors and Secretary: - All companies must have at least one director resident or non-resident who may be a person or corporate body. The secretary must be a resident or non-resident person with no specific qualifications other than to be familiar with the Company Act.


    Meetings: - Every Company must hold a yearly general meeting as its annual general meeting in addition to any other meetings in that year.

    Company Returns: - Annual returns are to be filed annually by all onshore companies. Annual returns must be sent to the Registrar of Companies accompanied by a payment depending on the authorised share capital. This varies between Lm 50 - Lm 250.

    The Malta Financial Services Centre (MFSC) is an autonomous body with a distinct legal personality to regulate financial services in Malta and those offered from Malta. As the primary Regulator of the financial services sector, the principal activities of the Centre are:

  • the supervision and monitoring of international commercial and financial activities as well as registration of trusts;

  • the regulation and supervision of banks, insurance and investment services.

    • The Regulatory Unit of the MFSC, is central to the whole set-up and a director heads a specialised unit dealing with each sector. Expert resources providing services of a legal, corporate and investigative nature further support the Unit. The Regulatory Unit issues licences, directives and guidelines as provided for in the relative legislation.

    The International Tax Unit (ITU) draws its staff from the Inland Revenue Department but forms an integral part of the MFSC's overall structure and is housed within its premises. This ensures that all tax related matters with respect to international operations are dealt with efficiently and effectively. The ITU has, as part of its responsibilities, the issuing of Advance Revenue Rulings. These rulings provide certainty on the tax treatment of any international undertaking.

    The MFSC also houses the Registrar of Companies thereby ensuring that the international business community will find within the same set-up all company incorporation services as would be required.