International Activities in Various Jurisdictions
We offer to assist national and global clients alike while carefully building our international reach on an extensive network of leading law firms throughout Europe and in the international community with whom we interact closely to provide our clients integrated solutions to multi-jurisdictional matters.
We accompany our clients alike, whether you are an individual, a non-profit organization or company, where the economies blossom and boom and in particular in Eastern Europe, Middle and Far East. We also suggest focused trainings, language lessons, longer and deepened cultural immersions and any other types of accompaniment if we find it useful for the development of your expansion.
Compliant Tax and Social Security Solutions
1. Tax Competition is a good thing for the EU
M. Algirdas Šemeta, Economist and European Commissioner for Taxation and Customs Union, Audit and Anti-Fraud
“Stimulating growth is obviously the most important means of exiting the current financial crisis. And becoming more competitive is essential to sustainable economic recovery. Therefore “developing a tax environment for growth and competitiveness” must be the primary motive for every tax policy and reform, as we strive to return to prosperity and stability. (…)First, smart, pro-growth taxation rests on two key pillars: Competitiveness and Fairness. I have said many times, that I regard tax competition to be a good thing. But only so long as it is fair.
It must therefore exist within a framework of rules. (…) The Code of Conduct on Business Taxation addresses business tax measures which provide for a lower level of taxation than normally applied and which may affect the location of business within the EU.
Since the Code was established, over 400 tax regimes have been assessed within the EU. Around 100 of these were considered harmful, and have been eliminated or changed.” – Conference “Developing a Tax Environment for Growth and Competitiveness“, Vienna, 18 January 2013 and “Making progress on European Tax Policy: towards more Fairness and greater Competitiveness”, Institute of International and European affairs, Dublin, 11 January 2013.
Indeed, The Council of Economics and Finance Ministers (ECOFIN), when adopting the Code of Conduct on 1 December 1997, acknowledged the positive effects of fair competition, which can indeed be beneficial.
2. Why all Tax and Social Security Solutions need to be 100% compliant ?
New EU rules that improve Member States’ ability to assess and collect the taxes have entered into force since 1 January 2013.
The Directive on Administrative Cooperation in the field of Taxation lays the basis for stronger cooperation and greater information exchange between tax authorities in the EU and brings an end to bank secrecy.
The Maltese INCOME TAX ACT and INCOME TAX MANAGEMENT ACT have therefore be amended so that Malta fully cooperates with Other Jurisdictions on Tax Matters.
E.g. as from 1 January 2014, the Maltese Competent Authority will provide automatic exchange of information on a yearly basis on :
- Income from employment;
- director’s fees;
- life insurance products not covered by other EU legal instruments on exchange of information and other similar measures;
- ownership of and income from immovable property.
Commissioner šemeta also presented end of 2012 a EU plan to fight tax evasion and avoidance.
The Convention on Mutual Administrative Assistance in Tax Matters was developed jointly by the Council of Europe and the OECD and opened for signature by the member states of both organisations on 25 January 1988.
In April 2009, the G20 called for action “to make it easier for developing countries to secure the benefits of the new co-operative tax environment, including a multilateral approach for the exchange of information.”
In response the OECD and the Council of Europe developed a Protocol amending the multilateral Convention on Mutual Administrative Assistance in Tax Matters to bring it in line with the international standard on exchange of information for tax purposes and to open it up to all countries.
Article 26 of the OECD Model Tax Convention also relates to exchange of information with an updated commentary dated 17 July 2012.
3. Adoption of a EU accepted Tax Favorable Regime in Malta
On 12th May, 2006, the European Commission has welcomed the notification by the Maltese Government that it has formally accepted the Commission recommendation to gradually abolish the existing aid schemes providing selective fiscal advantages in favour of International Trading Companies (ITC) and Companies with Foreign Income (CFI) by the end of 2010 at the latest.
The agreement came into effect on 1 January 2007 and ensures Malta’s future ability to continue to be an attractive and competitive environment for international business and investment.
Following this agreement, tax refunds were extended to both resident and non-resident shareholders in addition to tax being refunded both on FIA (Foreign Income Accounts) and MTA (Maltese Taxed Account).
The present tax regime has been in place since 2007 and no tax regimes deemed to be harmful were identified by the Code of Conduct which would affect the status of the present tax regime.
Malta does not have any tax pending issues with the EU Group on the Code of Conduct or with the DG Competition or any other DG.
No infringement procedures against Malta or else any ECJ (European Court of Justice) decisions as related to its tax regimes may be found.
No communications or any press releases by the EU has to the Maltese tax regime being harmful have been issued.
3.1. The Maltese Tax System For Dummies
A company incorporated in Malta is considered to be ordinarily resident and domiciled in Malta for Malta tax purposes and is therefore subject to Malta tax on its worldwide income at the standard rate of 35%.
Malta operates a full imputation system of taxation with respect to dividends whereby dividends paid by a company resident in Malta carry a tax credit equivalent to the tax paid by the company on its profits out of which the dividends are distributed.
Since the 35% tax rate applicable to companies is equivalent to the maximum progressive rate of tax
applicable to individuals, a dividend distribution would typically result in no further tax payable at the level of the shareholder. Non-resident shareholders are not taxed in Malta.
A shareholder in receipt of a dividend distributed by a Malta company is entitled to claim a refund of the Malta tax on those profits. In most cases, the tax refund entitlement of a shareholder would be of 6/7th of the Malta tax suffered by the Malta company on the profits out of which the dividend is distributed.
The application of this tax refund provides for an overall Malta effective tax (COMET) between 0% – 10%.
|CALCULATION OF NET TAX||INCOME SUBJECT TO|
FOREIGN TAX RELIEF – (FIA)
|IN THE HANDS OF THE COMPANY|
|Malta Tax at 35 %||350||350|
|Less Foreign Tax Relief||150||–|
|Net Malta Tax||200||350|
|IN THE HANDS OF THE SHAREHOLDER|
|Tax Refund Rate computed on 35% Malta tax||2/3 limited to 200||6/7|
|Net Malta Tax||0||50|
|Combined Malta Effective Tax Rate||0%||5%|
3.2. Malta Tax Exemption on Patent Royalties
Recent amendments to Maltese income tax legislation provide for a tax exemption on royalty income derived from eligible patents, in respect of qualifying inventions.
The tax exemption applies regardless of the place where the patent is registered and of where any relevant research and development resulting in the qualifying patent may have been carried out. Furthermore, the exemption applies both in cases where there is an active trade of licensing of several patents and in the case of passive receipt of royalties from patents
The tax exemption on royalty income derived from patents acts complimentary to the Maltese fiscal regime by providing for tax efficient options to persons involved in intellectual property holding and licensing activities.
Malta imposes no withholding taxes upon the paying out of outbound dividends, interest or royalties.
Moreover, the Interest & Royalties Directive acts in conjunction with the exemption in question present under Maltese law.
Among other considerations, via the domestic implementation of this directive, Malta grants a unilateral exemption on outbound royalties payable to a non-resident, irrespective of whether the recipient of the royalties is resident in an EU Member State or otherwise. Maltese companies also have access to an extensive double tax treaty network with over 60 countries whereby the maximum withholding tax rate is typically 10%.