Holding structures between Germany and Malta

Holding structures between Germany and Malta: Leveraging growth opportunities while avoiding tax risks

When companies think in European terms, structural questions inevitably arise sooner or later: How can shareholdings be organised in a way that facilitates market access, attracts international investors and reduces the tax burden – without compromising legal certainty?

A frequently chosen option is the establishment of a holding structure in an EU Member State with attractive framework conditions. For many years, Malta has been one of the preferred jurisdictions for participation management within the European Union.

However, the path to such a structure is demanding. The combination of a shareholder relocating from Germany, reorganisations in the shareholding structure and the incorporation of a foreign holding company leads into a legal high-risk area. Those who fail to plan with precision risk serious tax consequences.

Exit taxation pursuant to section 6 of the German Foreign Tax Act (Außensteuergesetz – AStG) is one of the key pitfalls. Upon relocation of tax residence, Germany may tax a deemed capital gain – even if no actual sale takes place and the entrepreneur does not receive any liquidity.

Similarly, so-called “Entstrickungsbesteuerung” (taxation upon loss of German taxing rights) may be triggered if Germany loses its right to tax hidden reserves as a consequence of restructuring measures.

In addition, it must be ensured that the foreign holding company is in fact managed from abroad. Otherwise, Germany may retain its taxing rights because the place of effective management is still assumed to be in Germany.

This is precisely where many international structures fail: not at the level of the concept, but at the level of detail. The commercial rationale for the new structure must be robustly documented. Substance requirements in the foreign jurisdiction – such as physical presence, local management and function-related activities – must be strictly complied with. Moreover, the sequence and timing of all measures must be structured in such a way that no taxable events are triggered before the overall structure is fully implemented.

If structured correctly, however, such a European holding structure offers considerable advantages: improved ability to raise capital, favourable taxation of dividends and exits, protection of assets and long-term, predictable growth options for companies whose market is no longer limited to Germany alone.

For entrepreneurs and their advisers, the move towards a European holding design therefore constitutes a strategic milestone – but not one that should be taken without specialised guidance. Those who rely on standardised solutions or only involve an adviser shortly before relocation put their assets at risk. Those who, by contrast, engage in professional planning at an early stage gain a genuine competitive advantage in the European market.

At Kresse International Group, we advise clients who are in the process of making precisely these strategic decisions, and our experience is as follows: the greatest risks – and, in a positive scenario, the greatest opportunities – arise not after the move, but during the preceding conceptual phase.

If, as an adviser, you support clients wishing to expand internationally, or if, as an entrepreneur, you are yourself considering such steps, an early and professional exchange on equal terms is well worthwhile. Please feel free to contact us at [email protected]. We will get back to you and arrange an initial complimentary online consultation.