Malta Taxes - Risk Management

1. Is tax optimization via Malta within the European internal market still entirely legal?

Answer: Yes, absolutely. Malta has been a member of the European Union since 2004. The Maltese tax system and the refund mechanism (Tax Refund) have been explicitly reviewed and fully recognized by the European Commission and under the EU Code of Conduct Group on Business Taxation. Today, the key to legality lies in demonstrating genuine local economic substance (Substance Over Form). Mere letterbox companies are illegal; however, an operationally robust corporate setup is protected under EU law.

What exactly is "controlled foreign company (CFC) taxation" (Hinzurechnungsbesteuerung) under the German Foreign Tax Act (AStG), and how do I defend against it?

Answer: The German Foreign Tax Act (AStG) applies when a German taxpayer controls a foreign company that generates passive income and is subject to low taxation abroad (below 15% within the meaning of the AStG). In this case, the profits of the Maltese company are directly attributed to the German shareholder and taxed accordingly.

We mitigate this risk on two levels:

1. By generating exclusively active income (e.g., through genuine e-commerce, active consulting, or iGaming activities).

2. By providing seamless evidence of the actual place of effective management in Malta by means of local directors, genuine office premises, and recognized physical substance.

3. What happens to my company in my home country if I establish a holding company in Malta?

Answer: When a Maltese holding company acquires shares in an existing German or Austrian corporation (e.g., a GmbH), this can be structured on a tax-neutral basis under certain conditions (e.g., by way of a contribution or share-for-share exchange). Profit distributions from the operating GmbH to the Maltese holding company are then frequently subject to drastically reduced or zero withholding tax in the home jurisdiction under the EU Parent-Subsidiary Directive, provided that anti-abuse rules (such as Section 50d (3) of the German Income Tax Act [EStG]) are satisfied through sufficient substance in Malta.

4. Can I continue to reside in my home country while my company saves taxes in Malta?

Answer: Yes, it is possible via so called Holding- or Operating Structures albeit subject to the most stringent legal requirements. If you remain resident in your home country, the Maltese company must under no circumstances be directed from your desk there (risk of creating a domestic permanent establishment or domestic place of effective management). The operational management of the Maltese company must demonstrably be carried out by qualified directors on-site in Malta. We comprehensively analyze and structure this sophisticated setup as part of our tax assessment.

How does the Maltese tax system with the 6/7 refund work in practice?

Answer: Malta applies the so-called full imputation system. A Maltese limited company initially taxes its profits at the standard corporate tax rate of 35%. When the company distributes these profits to its foreign shareholder, the shareholder is entitled by law to a refund of generally 6/7 of the Maltese tax paid.

This mathematically results in an effective tax burden of only 5 % at the operational level. We coordinate the processing of this refund for you effectively and punctually through our firm's administration.

6. What is meant by a "tax analysis" prior to the actual firm setup?

Answer: Tax reality tolerates no templates. Before incorporating a company in Malta, we carry out an in-depth tax analysis of your status quo. We examine exit tax risks, existing contracts, your IP assets, and the requirements of CFC rules in your country of residence. Only when this tax opinion provides an absolutely watertight and risk-free result do we give the green light for the actual company formation.