Company Formations: A jurisdictional guide to setting up a business

Published 08 July 2019 by WDM International

QUESTION ONE - What are the most common structures used when international clients want to form a company in your jurisdiction? Any examples?

Maltese law provides for the formation of a number of structures, the most common of which comprise the following:

Limited Liability Companies

The limited liability company is by far the most commonly used business entity in Malta and is regulated by the Companies Act. Maltese law provides for the registra­tion of public and private companies – the primary difference between the two are the limitations to the number of shareholders and the restrictions applicable to the ownership in shares of private companies. Private companies are more suitable for small and medium-sized businesses. This is, therefore, the primary business entity opted for in Malta.

Maltese law also provides for the possibility of re-domiciling a company that has been registered and incorporated under a regime of a foreign country to Malta. Re-domiciliation allows companies to maintain their legal personality while being regulated in a separate jurisdiction. All rights and obligations in existence in the previous jurisdiction will continue to exist once the company is continued in Malta. This provides the advantage of not having to renegotiate vital contracts or liquidate an existing company only to setup a new company carrying out the same business.

Commercial Partnerships

Commercial partnerships, like companies, are also regulated by the Companies Act which provides for two types of commercial partnerships - the partnership ‘en nom collectif’ and the partnership ‘en commandite’. Commercial partnerships are entities with different features from those of companies and may be used in different situations.

Branches of Foreign Companies

Certain business operators may prefer to carry out business in different jurisdic­tions through the same legal entity. This may be done by setting up a branch of the operating company in more than one jurisdiction. Maltese law also allows for the registration of branches of foreign companies in Malta. This concept structure is known as an overseas company in terms of Maltese law.

The foreign company would have to appoint a local representative who will be vested with the representation of the branch in Malta together with an office or place of business situated in Malta. Branches are treated the same as companies registered in Malta for tax purposes while branches of foreign companies would have to prepare audited financial statements with respect to their activities carried out in Malta. Branches of foreign companies may also benefit from the advanta­geous refund system that Malta offers while foreign companies may transfer their fiscal residency to Malta through their place of management and control benefiting from specific advantages that Malta has to offer.

QUESTION TWO - Please detail some of the favourable and unfavourable legislation that businesses considering establishing a presence in your jurisdiction should be aware of? How can you help them to streamline the process?

As a small island nation, Malta has refused to let geographical restraints hinder its potential. Over the years, Malta has managed to smartly invest in its resources to hone a competitive edge on different fronts. Behind Malta’s ascent as a jurisdiction of choice is a combination of sound policymaking and a pro-business environment, and its development has largely been attributed to its focus on knowledge and val­ue-added industries. Generally speaking, our regulatory environment is considered to be robust, geared to protect the interests of entrepreneurs and consumers alike.

While foreign companies may not be accustomed to setting up operations in Malta, the procedure itself is swift and straight-forward. Various government incentives are also available to encourage the proliferation and success of start-ups, research, innovation, and healthy competition. Entrepreneurs wishing to safeguard their intel­lectual property rights can find security in Maltese legislation and regulations and a number of international conventions and treaties for which Malta is a party to. Trusts and Foundations are also an integral part of Maltese legislation.

The island has managed to carve out interesting initiatives within its tax legislation framework. Thus for example, Malta does not levy withholding tax on dividends, interest and royalties paid to non-residents, subject to certain criteria being met. Upon receipt of a dividend, shareholders of a Malta company may claim a refund of all or part of the Malta tax paid at the level of the company on such income. Qualifying investments may also have related income or gains exempt from tax in Malta under the Participation Exemption regime. With more than 70 double taxation agreements with countries around the world, mean that Malta may in certain cases also offer relief on foreign source income or gains. Nevertheless, caution must be exercised when considering the impact, or for example, the OECD’s BEPS initiative and the EU’s Directives on Anti-Tax Avoidance and Tax Intermediaries, on business planning.

QUESTION THREE - What due diligence is required to be undertaken by company formations agents under anti-money laundering laws in your jurisdiction?

The requirement to launder the proceeds of crime through the financial system and through other means is vital for the success of criminal operations. Those involved, seek to exploit the facilities of the world’s financial institutions if they are to benefit from the proceeds of their criminal activities. The increased integration of the world’s financial systems, the removal of barriers to the free movement of cap­ital and technological developments have enhanced the ease with which criminal money can be laundered, thereby complicating the tracing process.

Under Maltese anti-money laundering legislation, the client due diligence measures that subject persons (such as company formation agents) are required to carry out are the following:

  1. identification and verification of the applicant for business;
  2. identification and verification of the beneficial owner, where applicable;
  3. identification and verification when the applicant for business does not act as principal;
  4. obtaining information on the purpose and intended nature of the business relationship;
  5. conducting ongoing monitoring of the business relationship;
  6. establishing the source of wealth and source of funds;
  7. setting up a customer acceptance policy and ensuring that the applicant for business meets the requirements set out in such policy.

Depending on the overall risk posed by the client in terms of customer risk, prod­uct/service risk, interface risk and geographical risk, the subject person would either seek to carry out the standard due diligence or the enhanced due diligence on the applicant for business and/or the ultimate beneficial owner.

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