Participation Exemption Rules

Holding Assets through Malta – Participation Exemption Explained

A Malta Holding Company is a company incorporated in Malta with the object of holding shares in other subsidiary companies or, of holding any other assets including movable and immovable property, financial assets or intellectual property both in and outside Malta.  Malta companies benefit from a participation exemption based on the participating holding rules on dividends received from such holdings and gains arising on the disposal of such holdings.  Malta’s participation exemption also extends to domestic holdings of shares.  Capital gains arising from the transfer of a participating holding in a Malta company are also eligible for the participation exemption.

Participation Exemption summary:A legal entity that holds qualifying investments such as shares in a subsidiary is exempt from tax liability on the receipt of dividends or gains on the disposal of that investment. 
Main advantage:Offers a tax neutral means to hold qualifying assets
Applies to:Malta companies that hold qualifying investments
Is it Mandatory?Applies automatically

Malta Participating Holdings

Malta holding companies may hold shares in other companies, and such participations will qualify as participating holdings if they meet either of the following conditions:

  1. The holding is at least 5% of the equity shares of a company, whose capital is wholly or partially divided into shares and such, holding gives right to at least 5% of 2 of the following:
    1. Rights to vote
    2. Right to profits upon distribution
    3. Rights to assets available for distribution on winding up
  2. ​The holding is an equity holding and the equity shareholder, has the right to buy the remaining share capital of the company.
  3. The holding, is an equity shareholding, giving the equity shareholder the right of first refusal in the event of disposal, cancellation, or redemption of the remaining shares of the company.
  4. The holding is an equity shareholding and the equity shareholder, is entitled to either sit on the board of the company or, appoint a director on the board of the company.
  5. The holding is an equity shareholder with and investment value of at least €1,164,000 for a period of not less than 183 days.
  6. The holding is an equity shareholding and the holding of such shares is for the furtherance of the business of the holding company but not held for trading purposes.

Qualifying Investments for Malta Participating Holdings

Investments held by a Malta Holding Company that qualify as Participating Holdings include shares in companies, limited partnerships and collective investment vehicles that satisfy the necessary conditions as outlined above.

 

Participation Exemption Rules

Any dividends received by a Malta holding company from a participating holding, are exempt from Malta tax if they satisfy one of the following:

  1. The holding is in an undertaking resident or incorporated in a country within the EU
  2. The dividend has been subject to foreign tax of at least 15%
  3. The holding is not in a body of persons which derives more than 50% of its income from passive interest of royalties
  4. The holding in a body or persons not resident in Malta, is not a portfolio investment and the body of persons not resident in Malta has been subject to tax of at least 5%
  5. The profit or gain from the disposal of a participating holding in company resident or not resident in Malta is also exempt from Malta Tax.
  6. The equity holding by the company registered in Malta in the body of persons not resident in Malta, is not a portfolio investment, and for this purpose the holding of shares by a company registered in Malta in a body of persons not resident in Malta which derives more than 50% of its income from portfolio investments shall be deemed to be a portfolio investment; and
  7. The body of persons not resident in Malta or its passive interest or royalties has been subject to any foreign tax at a rate of not less than 5%.

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