Participation Holding

Malta fully implements the provisions Parent Subsidiary Directive allowing for a complete tax exemption on any income and capital gains derived by a Participating Holding of a company registered in Malta and arising from the income of or the disposal of shares in the subsidiaries whether incorporated inside or outside of Malta. This is known as the Participation Exemption. Subject to certain conditions, when such income or gains are received, the Company has an option to completely exempt the same from tax or to have such income taxed at 35% and the shareholder apply for a 100% refund of the tax paid upon the receipt of a dividend.

A participating holding  arises where:

(a) a company holds directly at least ten percent of the equity shares of a company whose capital is wholly or partly divided into shares, which holding confers an entitlement to at least ten percent of any two of the following:

(i) right to vote

(ii) profits available for distribution and

(iii) assets available for distribution on a winding up; or

(b) a company is an equity shareholder in a company and the equity shareholder company is entitled at its option to call for and acquire the entire balance of the equity shares not held by that equity shareholder company to the extent permitted by the law of the country in which the equity shares are held; or

(c) a company is an equity shareholder in a company and the equity shareholder company is entitled to first refusal in the event of the proposed disposal, redemption or cancellation of all of the equity shares of that company not held by that equity shareholder company; or

(d) a company is an equity shareholder in a company and is entitled to either sit on the Board or appoint a person to sit on the Board of that company as a director; or

(e) a company is an equity shareholder which holds an investment representing a total value, as on the date or dates on which it was acquired, of a minimum of one million, one hundred and sixty-four thousand euro (€1,164,000) (or the equivalent sum in a foreign currency) in a company and that holding in the  company is held for an uninterrupted period of not less than 183 days; or

(f) a company is an equity shareholder in a company and where the holding of such shares is for the furtherance of its own business and the holding is not held as trading stock for the purpose of a trade.

Further conditions are imposed with respect to Dividend Income.

Income derived by a participation holding shall be exempt, if the following conditions set out in either para (i) or (ii) are satisfied:

(i) where the body of persons in which the participating holding is held satisfies any one of the following conditions, that is to say:

  1. it is resident or incorporated in a country  or territory which forms part of the     European Union;
  2. it is subject to any foreign tax of at least    fifteen per cent (15%);
  3. it does not have more than fifty per cent    (50%) of its income derived from passive    interest or royalties;

(ii) where none of the conditions set out in paragraph (i) are satisfied then both of the following two conditions must be satisfied:

  1. 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 fifty per cent of its income from portfolio investments shall be deemed to be a portfolio investment; and
  2. the body of persons not resident in Malta or its passive interest or royalties have been subject to any foreign tax at a rate which is not less than five per cent (5%)

 

Following recent amendments, the participation exemption regime has been improved in that the definition of participating holding has been extended. To this end the following will be treated as participating holdings:

  • a partnership en commandite the capital of which is not divided into shares constituted under the Malta Companies Act, not being a property partnership, or
  • a body of persons which is constituted, incorporated or registered outside Malta, not being a property partnership, and is of a nature similar to a partnership en commandite the capital of which is not divided into shares constituted under the Malta Companies Act, or
  • a collective investment vehicle constituted, incorporated or registered outside Malta and which is not resident in Malta, where the liability of investors in such scheme is limited to the amount invested by them, shall be deemed to constitute a participating holding if it satisfies the provisions of any of the scenarios which give rise to a participating holding shall apply mutatis mutandis to such holding.

 

 

 

 



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