Table of Contents Malta Trading Company: Turning Trade into Gold Taxation: Decoding Maltas Full Imputation System VAT on Import-Export: Clever Strategies to Avoid VAT Traps Customs Clearance in Malta: Between EU Single Market and Third-Country Chaos Compliance Requirements: Paperwork That Pays Off International Distribution: Leveraging Malta as a Hub From Idea to Trading Company: Your Roadmap The Costliest Beginner Mistakes—and How to Avoid Them Frequently Asked Questions Imagine sitting in your office in Sliema, gazing out at the Mediterranean, closing a deal between a German manufacturer and a North African distributor. Sounds like a dream? For me, it’s everyday business—and has been for three years. Malta has quietly become the secret champion for international trading companies— and for damn good reasons. By now, I know the local scene inside out. From the first consultation at Malta Enterprise all the way to a seven-figure deal—dozens of entrepreneurs in my network have taken the plunge. Some have failed (mostly due to avoidable compliance errors), others have halved their tax burden and doubled their international reach. The kicker? Malta not only offers a 35% corporate tax with possible refunds up to 6/7—but also boasts a strategic location between Europe, Africa, and the Middle East that is pure gold for import-export business. But beware: if you don’t get the tax nuances, or you get sloppy on compliance, you’ll pay a hefty price. Malta Trading Company: Turning Trade into Gold A trading company in Malta is basically a standard Maltese limited (Ltd.), specialized in buying and selling goods. The difference from a holding or consultancy? You’re trading physical products— from Italian leather jackets to German machine parts to Asian electronics. Why is Malta so attractive for trading companies? Here are the key facts: EU member since 2004: Free movement of goods within the single market, no customs between EU countries Strategic location: 93 km from Sicily, 333 km from Libya—ideal for Europe-Africa trade English as an official language: International contracts with no translation costs Legal stability: Common Law system, EU-compliant trade laws Modern infrastructure: Malta Freeport (one of the largest container hubs in the Mediterranean) What does that mean for you? In Germany, a trading GmbH will quickly push your effective total tax burden to 30-32%. In Malta, with smart structuring, you can get down to an effective 5%. Sounds too good? It’s legal—as long as you know the rules. Legal Foundations: Overview of the Malta Companies Act The legal backbone is the Malta Companies Act (Chapter 386). Especially relevant for trading companies: Aspect Requirement Practical Meaning Minimum capital €1,164.69 Symbolic—usually €10,000–50,000 for credibility Directors Minimum 1 Doesn’t have to be Malta-resident Shareholders Minimum 1 Individual or legal entity Registered office Malta address Usually via provider (€500–1,500/year) Trading license For certain products Depends on category The catch? You need Economic Substance—i.e., real business activity in Malta. That means no shell company, but instead an office, local staff, or at least regular presence. More on this later. Malta vs. Other EU Locations: The Honest Comparison I get this a lot: Why not Ireland, the Netherlands or Cyprus? Here’s the real deal: Ireland: 12.5% corporate tax sounds nice, but strict transfer pricing rules and high compliance costs make it unattractive for smaller trading companies. Netherlands: Perfect for holdings, but 25% corporate tax plus complex substance requirements. Cyprus: 12.5% rate, but since the EU Anti-Tax Avoidance Directive, it’s much less flexible. Malta wins with its combination of low effective tax rates, flexible structuring and (still) moderate compliance costs. For trading companies with annual turnover between €500,000 and €50 million, it’s often the best pick. Taxation: Decoding Maltas Full Imputation System This is where it gets interesting—and complex. Malta’s tax system is like Swiss clockwork: intricate, but brilliant once you grasp it. I’ll explain it as I learned it—real numbers, no tax jargon. The 35%-6/7 Rule: Malta’s Tax Secret Malta imposes a standard 35% corporate tax on all profits. Nothing exciting yet. The magic comes in the refund system. Depending on the income type, shareholders get part of the paid taxes refunded upon dividend distribution: Income Type Refund Effective Tax Rate Typical for Trading Foreign sourced income 6/7 (85.7%) 5% Import from non-EU countries Malta-sourced income 2/3 (66.7%) 11.7% Local suppliers Passive income 5/7 (71.4%) 10% Interest/royalties Non-refundable 0% 35% Certain real estate income So, what does this mean? Let’s say your trading company makes €100,000 profit from importing Chinese electronics and exporting to Germany: Corporate tax: €35,000 (35% of €100,000) Dividend payout: €65,000 to you as shareholder Refund: €30,000 (6/7 of €35,000) Your effective tax burden: €5,000 (5% of €100,000) Sounds too good? It’s true—if you meet certain requirements. Economic Substance: The Real Business Activity Factor Since 2019, Malta (and all of the EU) has implemented the Economic Substance Requirement. In short: you must prove your company doesn’t just exist on paper, but conducts real business. What this means for trading companies: Core activities in Malta: Purchasing, sales, and risk management must be steered locally Qualified Employees: At least 1–2 full-time staff with relevant qualifications Adequate expenditure: Sufficient operating costs (office, staff, etc.) Physical presence: Real office, not just a mailing address In practice, budget €50,000–80,000 per year operating costs in Malta. That includes a small office (€800–1,500/month), a local employee (€25,000–35,000/year), and compliance costs. The Hidden Tax Benefits for International Traders Here’s what sets Malta apart: 1. Participating Holdings Exemption Dividends from holdings in other EU companies are completely tax free. Perfect if you operate multiple trading branches across the EU. 2. Royalty Optimization License fees for trademarks or patents can be run through Malta at just a 10% effective tax rate. Attractive if you manage your own brands. 3. Treaty Shopping Malta has double taxation treaties with over 70 countries. Used wisely, you can minimize or avoid withholding taxes in third countries. Example from my advisory practice: a German entrepreneur imports machinery from China, reselling to North Africa. Using Maltese structure, he saves not just on German corporate tax, but also cuts Chinese withholding tax from 10% to 5% via the Malta-China tax treaty. VAT on Import-Export: Clever Strategies to Avoid VAT Traps For trading companies, VAT is the number one headache—even for experienced business owners. Over three years, I’ve played through every scenario imaginable—from simple B2B sales to complex triangulation and chain transactions. VAT Fundamentals for Malta Trading Companies Malta follows the EU VAT Directive, but with its own particularities: VAT Rate Application Relevance for Trading 18% (Standard) Most goods and services Standard for trading 7% (Reduced) Books, medicines, certain foods Niche markets 5% (Reduced) Hotel stays, electricity Mainly irrelevant 0% (Zero-rated) Exports to non-EU countries, financial services Crucial for export business The Three Key VAT Scenarios for Trading Companies Scenario 1: Import from Third Country, Sale into EU The classic trading model: you import goods from China, India, or the US and sell to EU clients. Example: Import €10,000 worth of smartphones from China, sell for €15,000 to a German retailer Import to Malta: €1,800 VAT due (18% of €10,000) at customs Sale to Germany: 0% VAT (intra-community supply) VAT return: €1,800 input VAT refundable, €0 output VAT = €1,800 VAT refund The result? You fully recover the import VAT. Important: the German customer must handle the reverse charge VAT. Scenario 2: EU Import, Export to Third Country You buy in Germany or Italy and sell to Africa or Asia. Purchase in Germany: 0% VAT (intra-community acquisition) Malta VAT return: 18% on purchase price via VAT return Export to third country: 0% VAT (export) VAT refund: Paid VAT is refunded as input VAT Again, the system is net-neutral—but only with proper documentation! Scenario 3: Drop-Shipping Without Material Touch The pinnacle: selling goods you never physically touch. Legal, but VAT-wise a challenge. Principle: the place of actual delivery determines VAT treatment. If you, as a Maltese company, ship Chinese goods direct to a French customer, it counts as a French supply with French VAT. VAT Registration and Management: Practical Steps VAT registration in Malta is mandatory once annual turnover exceeds €35,000 or you’re trading cross-border. Practically: register for VAT immediately upon incorporation. Registration time: 2–4 weeks Cost: No registration fee Returns: Monthly by the 15th of the following month Annual return: By January 31 of the following year My tip: Use the MOSS system (Mini One Stop Shop) for cross-EU B2C sales. That lets you handle all EU VAT via Malta—a huge administrative lead. Costly VAT Compliance Traps These are the mistakes that regularly cost trading companies five-figure sums: Missing export proof: Without proper export records, a 0% export becomes an 18% local supply Incorrect EU VAT numbers: Invalid customer VAT numbers void intra-EU VAT exemption Late returns: €200–500 fine per late VAT return Forgetting Intrastat filings: Required for goods over €150,000/year, fines up to €2,500 What does this mean for you? Right from the start, invest in good VAT software and a local tax advisor familiar with trading. €200–300 a month is cheap compared to the fines for mistakes. Customs Clearance in Malta: Between EU Single Market and Third-Country Chaos When it comes to customs, this is where the winners and losers separate. I’ve seen trading companies wait months for their goods because they underestimated Maltese customs rules. Others use the exact same rules to optimize customs procedures and improve cash flow. Malta Freeport: Your Gateway to the World Handling 2.3 million TEU per year, Malta Freeport is one of the largest Mediterranean container hubs. For trading companies, it offers unique options: Customs Procedure Benefit Cost Typical Use Customs Warehousing Deferred duties until resale €50–200/container/month Large quantities Free zone Processing without customs burden €100–500/m²/year Value-adding, repackaging Transit procedure Transit without customs clearance Bond 3–7% of value Onward EU transit ATA Carnet Temporary import 0.5–3% of value Fairs, repairs Tariffs and Preferences: Saving Money with Every Import Malta applies the EU tariff, but by using trade agreements, you can reduce or skip duties completely. Key customs benefits: GSP+ for Pakistan, Sri Lanka: 0% duty on many textiles and electronics CETA agreement: Reduced duties on Canadian goods EPA agreement: Preferences for African partner countries Turkey Customs Union: 0% on industrial goods (with exceptions) Example: Instead of 12% duty on Chinese shoes, you pay only 4.2% for Vietnamese ones—thanks to the EU-Vietnam free trade agreement. On a €50,000 container, that’s a €3,900 saving. Step-by-Step Customs Clearance Here’s how customs clearance works in practice for trading companies: Pre-arrival notification: At least 24h pre-arrival via EMCS system Customs declaration: Electronic submission via Malta Customs or broker Document check: Invoice, packing list, certificate of origin, licenses Physical inspection: 5–15% of shipments, depending on risk profile Payment processing: Duty and VAT before release Goods release: Usually within 2–6 hours if documents are correct Note: Malta Customs operates fully digital. Paper documents automatically cause delays. EORI Number and AEO Status: Your Customs Identity You can’t do anything without an EORI number (Economic Operators Registration and Identification). It takes 1–2 weeks to obtain, free of charge. Format: MT[company number] The AEO status (Authorised Economic Operator) is voluntary but extremely valuable: AEO-C (Customs): Simplified procedures, fewer checks AEO-S (Security): Reduced security checks AEO-F (Full): Both benefits combined Requirements: 3 years trading history, clean compliance record, €500,000+ annual turnover. Processing time: 4–6 months. But it’s worth it: 50–70% fewer inspections means faster clearance and lower storage costs. Prohibited and Restricted Goods: Where It Gets Risky Malta has strict rules for certain goods. Common pitfalls include: Category Restriction Required License Lead Time Food Health certificate Food Safety Commission 2–4 weeks Medicines Marketing authorization Medicines Authority 6–12 months Chemicals REACH registration Environment Protection Agency 4–8 weeks Textiles (certain) CE marking Malta Competition Authority 1–3 weeks Electronics EMC compliance Malta Resources Authority 2–6 weeks My advice: Check licensing requirements before your first import. A breach can cost you €10,000–50,000—and your goods could be seized. Compliance Requirements: Paperwork That Pays Off Compliance in Malta is like brushing your teeth: boring but necessary. I’ve seen too many trading companies cut corners and pay for it later with fines and frozen accounts. The good news: if you have a system, it’s manageable and not prohibitively costly. Company Law Compliance: Getting the Basics Right Every Maltese trading company must fulfill fundamental corporate law obligations: Annual Obligations (Company Law) Obligation Deadline Cost Penalty for Default Annual accounts 10 months after fiscal year-end €500–2,000 €233 + €6 per day Annual return January 31 €245 €100 + €20 per month Shareholders meeting No later than 15 months after the last one €0 (just minutes) €1,165 BOI update On changes, max 14 days €100 €200–1,000 BOI stands for Beneficial Ownership Information—a register where all beneficial owners must be listed. Sounds bureaucratic, but it’s important for the banks. Tax Compliance: Dates You Can’t Afford to Miss Malta’s tax year matches the calendar year. Here are your key dates: Ongoing Tax Obligations Monthly VAT return: By the 15th of the following month Provisional tax: Advance payments by April 30 and October 31 Final settlement: Annual reconciliation by June 30 of the following year Withholding tax: Monthly for outbound payments Social security: Monthly for local staff Provisional tax is a common pitfall: by April 30 you must prepay at least 90% of expected annual tax. Underestimate profits and you’ll pay 8% interest. Banking Compliance: KYC and CDD in Practice Maltese banks have become incredibly cautious since the Panama Papers. Opening an account for a trading company is a real challenge now. What banks expect from trading companies: Business plan: Detailed, with market analysis and financial plan (10–20 pages) Source of funds: Proof of capital origins via bank statements Customer due diligence: About your key clients and suppliers Transaction monitoring: Expected revenues and cash flows Economic substance: Proof of real business activity in Malta Typical documents for account opening: Document Requirement Validity Certificate of Incorporation Certified copy Current Memorandum & Articles Notarized Current Board resolution Authorization for account opening Max 3 months old Business license If required Valid Financial projections 3-year plan Current Processing time: 6–12 weeks with local banks, 2–4 weeks with international providers. Minimum deposit: €10,000–50,000 depending on the bank. Anti-Money Laundering: AML/CFT for Trading Companies Malta takes AML extremely seriously. As a trading company, you’re under particular scrutiny because international flows are classic money-laundering vehicles. Your AML obligations at a glance: Customer due diligence: ID check on all partners Enhanced due diligence: Extra checks for high-risk countries Transaction monitoring: Watch for unusual activity Record keeping: Keep all documents for 5 years Suspicious activity reports: Report suspicious transactions Red Flags that must be reported immediately: Cash payments over €10,000 Dealings with sanctioned countries (Iran, North Korea, etc.) Clients trying to conceal their identity Goods delivered to alternate addresses Payments from unrelated third parties Violations can cost you dearly: €5,000–€50,000 in fines plus possible license loss. Economic Substance: The Real-World Test Since 2019, economic substance requirements have become the make-or-break for Maltese trading companies. This is where your tax set-up will stand or fall. What adequate means (Minimum requirements): Criterion Minimum Typical Cost Proof Qualified employees 1–2 full-time €25,000–50,000/year Employment contracts, payslips Physical presence Real office €10,000–20,000/year Lease, utility bills Operating expenditure Adequate running costs €50,000–100,000/year Accounts, receipts Core income-generating activity Main business in Malta Not quantifiable Contracts, board minutes The Malta Business Registry conducts annual audits. Breaches mean €5,000–10,000 fine plus reporting to shareholder-country tax authorities. What does this mean for you? Plan for real presence in Malta from day one. A remote business with a Maltese shell hasn’t worked legally since 2019. International Distribution: Leveraging Malta as a Hub This is the centerpiece of successful Maltese trading structures. Using Malta as a distribution hub is not just a tax gimmick—it’s a real strategic decision that delivers major operational and fiscal benefits when implemented correctly. The Malta Hub Strategy: Why It Works Malta’s central role on key trading routes isn’t a coincidence. Its geographic and regulatory advantages complement each other perfectly: 5-day shipping to 90% of EU ports 3-day shipping to North Africa Direct flights to all major business hubs EU market access without extra customs Stable political environment A real-life example from my network: a German entrepreneur sells Korean electronics across Europe and Africa. Instead of three separate distribution contracts (Europe, North Africa, Middle East), he set up a Maltese master distribution. Result: 30% lower logistics costs, 50% less compliance, 15% tax savings. Tax Optimization through Smart Structuring Here are the three tried-and-tested structures for international distribution via Malta: Structure 1: Single Trading Entity The simplest setup: one Maltese Ltd. buys from the manufacturer and sells to clients or distributors. Pros: Simple structure, low compliance, fast roll-out Cons: Limited optimization options, all risk in one company Ideal for: Annual turnover €500,000–€5,000,000 Structure 2: Principal + Distribution Model A Maltese holding owns the rights and sells to a Maltese trading company that handles physical trade. Company Role Tax Risk Malta Holding Ltd. IP ownership, brands 5% (with the right set-up) Low Malta Trading Ltd. Physical trading 5–11.7% Medium Local partners End customer contact Local taxes High Structure 3: Multi-Jurisdiction Hub Malta as master distributor with local subsidiaries in target markets. This is for the pros: Malta buys from manufacturer and sells to its subsidiaries in Germany, France, Poland. Subsidiaries have minimal margin (3–5%), Malta keeps the lion’s share at low tax. Transfer Pricing: The Art of Setting the Right Prices Transfer Pricing is key to compliant international structures. Since OECD-BEPS rules, it’s trickier, but not impossible. Main transfer pricing methods: Comparable Uncontrolled Price (CUP): Based on market rates in similar trades Resale Price Method: Discount off resale price for a fair margin Cost Plus Method: Mark-up on cost for appropriate profit Profit Split Method: Sharing profit by value contribution In practice: Purchase from China: €100,000 Sale Malta → Germany: €120,000 (20% margin for trading) Resale Germany: €125,000 (4% margin for distribution) End customer price: €140,000 Margins must be documented and benchmarked. Expect €5,000–15,000 a year for transfer pricing documentation—essential from €5 million turnover upwards. Logistics and Fulfillment: From Theory to Practice Even a tax-optimized structure is useless with bad logistics. Malta offers some impressive options: Option 1: Malta Freeport as Logistics Base Warehouse cost: €2–5 per m²/month Handling: €15–25 per ton Customs clearance: €50–200 per shipment Connectivity: Direct links to 100+ global ports Option 2: Third-Party Logistics (3PL) Partner Local fulfillment partners handle warehousing, picking and shipping. Typical cost: €3–8 per parcel plus storage. Option 3: Hybrid Model with EU Satellites Malta is the import gateway, with satellite warehouses in Germany/Poland for EU delivery. Reduces costs and delivery times. Risk Management for International Distributors With Malta as your hub, complexity goes up. You need to manage these risks: Currency risk Buy in USD/RMB, sell in EUR/GBP—rate swings can eat your profits. Solution: forward contracts or natural hedging through diversification. Political risk Trade embargoes, tariff wars, Brexit after-effects—international politics directly affect your business. Solution: diversified suppliers and flexible routes to market. Compliance risk Every country has its own product standards, import rules, tax requirements. Solution: local compliance partners and robust documentation. Credit risk International customers mean higher default risk. Solution: trade credit insurance, letters of credit, factoring. What does this mean for you? Malta as a distribution hub is not plug-and-play—you need professional preparation and hands-on management. Done right, it’s a massive competitive edge. From Idea to Trading Company: Your Roadmap Now it gets practical. Here’s the step-by-step founding process—as I’ve guided dozens through it. From initial idea to first deal. No sugarcoating, just every pitfall you can avoid. Phase 1: Preparation & Planning (4–6 weeks) Build your business case Before you put in a single euro, lay out the hard numbers: Market analysis: Which products, which markets, what margins? Competition analysis: Who’s already doing it? What’s your unique selling point? Financial planning: Start-up capital, costs, break-even Risk analysis: What can go wrong? What’s your backup? Rule of thumb: you’ll need at least €100,000–200,000 in start-up capital for a serious trading company. Around 30% goes to setup and initial costs; the rest is working capital for inventory. Tax pre-planning This decides your structure’s fate: Question Options Tax Impact Shareholding Direct vs. holding 5% vs. 11.7% effective tax Business model Principal vs. agent Different VAT treatments Supplier countries EU vs. non-EU Tariffs & preferences Target countries B2B vs. B2C VAT registration obligations Malta field trip A 3–4 day trip to Malta is mandatory. Not for a holiday—this is for a real business reality check: Day 1: Office tours in Sliema, St. Julian’s, Valletta Day 2: Meetings with 2–3 corporate service providers Day 3: Bank appointments (schedule in advance!) Day 4: Malta Freeport tour, logistics partners Budget: €2,000–3,000. But it’s priceless to get a feel for the business environment. Phase 2: Company Formation (2–4 weeks) Step-by-step company set-up Name reservation (1–2 days): Name check via Malta Business Registry Reserved for 30 days (€35) Tip: pick a neutral name, not Trading or Import-Export Memorandum & articles (2–3 days): Keep objects clause broad Authorised share capital: €50,000–100,000 (only €1,165 paid-in minimum) Organize registered office address Submission to Malta Business Registry (5–10 business days): Form A (company registration) Memorandum & articles Directors’ declaration Registry fee: €245 Certificate of Incorporation: Issued automatically after approval Your company is now legally valid Optimizing shareholding structure Basic formation is just the start. For tax optimization, you’ll usually set up a holding structure: Example structure: You (Germany) → Malta Holding Ltd. → Malta Trading Ltd. Benefit: Dividends from trading to holding are tax-free in Malta, dividends from holding to you face just 5% withholding under the Germany-Malta tax treaty Phase 3: Operational Setup (4–8 weeks) Banking setup: The toughest part Opening accounts for trading companies has become an art form. My practical experience by bank: Bank Success rate Minimum deposit Processing time Notes Bank of Valletta 60% €25,000 8–12 weeks Strictest KYC, but stable relationship HSBC Malta 40% €50,000 6–10 weeks International focus, high deposit APS Bank 70% €10,000 4–8 weeks Trading-friendly, local service Citadel Commerce Bank 80% €15,000 2–4 weeks Business banking specialist Licenses and registrations Not all trading activities require special licenses, but some do: General trading: No special license Food import: Health certificate (Food Safety Commission) Pharmaceuticals: Marketing authorization (Medicines Authority) Financial instruments: MFSA license (Malta Financial Services Authority) Telecoms equipment: Type approval (Malta Communications Authority) VAT and EORI registration VAT registration (2–3 weeks): Online via CFR portal No fees Apply immediately upon formation EORI number (1–2 weeks): Via Malta Customs portal Free of charge Required for import/export Intrastat registration: Automatic on VAT registration Required above €150,000/year in goods Phase 4: Team and Infrastructure (2–6 weeks) Build your Economic Substance Team No real team in Malta, no deal. Here are your options: Position Full-time Part-time Outsourced Typical Cost Managing Director €35,000–50,000 €15,000–25,000 €8,000–15,000 Depends on experience Operations Manager €25,000–35,000 €12,000–18,000 €6,000–12,000 Core for trading Accountant/Bookkeeper €20,000–30,000 €8,000–15,000 €3,000–8,000 Crucial for compliance Admin Assistant €18,000–25,000 €8,000–12,000 €2,000–5,000 Support function My recommendation: start with 1 full-time operations manager + 1 part-time accountant. Total: €35,000–45,000/year. Enough for economic substance and day-to-day business. Office and IT infrastructure Serviced offices are usually the best starting solution: Sliema business centers: €600–1,200/month for 2–3 person office Co-working spaces: €200–400/month per desk Dedicated office Valletta: €400–800/month, less flexible IT setup budget: €5,000–10,000 for professional equipment (server, network, software licenses). Phase 5: Go-Live & First Deals (2–4 weeks) Supplier onboarding Your suppliers need to understand (and accept) the Maltese structure: Credit application: 30–60 day terms needed for cash flow Delivery terms: FOB, CIF or DAP? Who covers transport and insurance? Quality assurance: Inspection rights, claims process Force majeure: Especially crucial with Asian vendors Customer acquisition B2B clients want security and transparency: Company profile: Professional brochure with Malta background Financial standing: Bank reference and company registration Insurance coverage: PI and product liability Compliance certificates: ISO, if relevant to your industry First deal checklist The first transaction determines if your structure really works: Purchase order: Malta Trading Company to supplier Sales contract: Malta Trading Company to customer Shipping instructions: Clear delivery terms Insurance policy: Marine cargo coverage for transport Import docs: Commercial invoice, packing list, bill of lading Customs clearance: Use EORI number and VAT registration Payment processing: Run via Maltese bank account What does this mean? Plan for at least 3–4 months from first idea to first deal. Budget €150,000–250,000 for setup and first six months’ ops. But once it’s running, you’ll have a structure that can support you for years. The Costliest Beginner Mistakes—and How to Avoid Them In three years, I’ve seen every mistake imaginable—mostly with others, sometimes with myself. These fails don’t just cost money; they can jeopardize your entire structure. Here are the top mistakes and how to sidestep them. Mistake #1: Underestimating Economic Substance The classic: I’ll do a bit of remote work from Germany, that’s enough for economic substance. Why it fails: The Malta Business Registry looks closely now. Companies without real local activity are reported—including to German authorities. The cost: €10,000–50,000 fine plus possible full profit reassessment in Germany. How to avoid it: Hire genuine Maltese staff from day one (not just on paper) Document all major business decisions as made in Malta Spend at least 1–2 days/month physically in Malta Hold and minute board meetings regularly in Malta Mistake #2: Sloppy VAT Compliance The classic: VAT is just a pass-through, nothing can go wrong. Why it fails: Import/export VAT is complex. One wrong VAT rate or missing export proof and your 0% quickly becomes 18%. The cost: With €1 million turnover, VAT mistakes can cost you €50,000–180,000. Real case from practice: Trading company imports €500,000 in textiles from Pakistan, sells them to Germany for €650,000. Export proof incomplete → Malta Customs treats it as a local sale → €90,000 VAT plus €15,000 penalty assessed. How to avoid it: Professional VAT software from day one (€200–500/month) Monthly checks with local VAT advisor Keep all export evidence twice (digital + paper) Regularly check EU VAT numbers on VIES Mistake #3: Ignoring Transfer Pricing The classic: We’re still small, nobody cares about transfer pricing. Why it fails: From €500,000 in turnover, tax offices will check your pricing. Excessive Malta margins stick out like a sore thumb. The cost: Profit adjustment plus 20% penalty plus back-interest—can easily cost €100,000+. How to avoid it: Work with market-based margins from the start (5–15% for pure distribution) From €2 million turnover, get a transfer pricing policy drafted Obtain sector benchmarking studies Document and justify all price adjustments Mistake #4: Neglecting Your Banking Relationship The classic: As long as the account is open, the rest will sort itself out. Why it fails: Maltese banks are extremely watchful of trading companies. Unexpected transactions often trigger account freezes. Real case: Trading company spontaneously switches from electronics to food. Bank freezes account for non-compliance with original business plan. Six weeks without banking = total business standstill. How to avoid it: Cultivate your relationship manager (quarterly updates) Update your business plan for major changes Pre-announce unusual transactions Maintain a backup account at a second bank Mistake #5: Missing Compliance Deadlines The classic: There’s plenty of time, we’ll manage. Why it fails: Maltese authorities are ruthless with deadlines. Missing an annual return can trigger company closure. The costliest missed deadlines: Miss Direct Penalty Secondary Cost Worst Case Late VAT return €200–500 8% p.a. interest €5,000–20,000 Late annual return €100 + €20/month Strike-off process Company deleted Late annual accounts €233 + €6/day Banking problems Account closed Economic Substance Report €5,000–10,000 Reported to home country Tax recognition lost How to avoid it: Maintain a compliance calendar (digital + paper) Automated reminders 4 and 1 week before deadlines Backup contact for emergencies Hire service providers with SLAs Mistake #6: Overlooking Product Liability and Insurance The classic: We’re only selling, not manufacturing—liability risk is minimal. Why it fails: As importer, in the EU you’re often the first address for product liability—especially with Asian electronics. Real worst case: Trading company imports phone chargers from China. One causes an apartment fire in Germany. Loss: €200,000. Manufacturer in China unreachable. Trading company is fully liable. How to protect yourself: Product liability insurance: €1,000–5,000/year for €1–5 million cover Check CE compliance for all relevant products Supplier agreements with recourse clauses Product testing for critical goods (electronics, toys, etc.) Mistake #7: Forgetting Your Exit Strategy The classic: Why think about exit? We’re just getting started. Why it’s important: Business changes, laws change, life changes. Without an exit plan you may end up trapped by your Malta structure. Common exit scenarios: Sale of the trading company to a competitor Moving back to Germany for family reasons Merger with a bigger company Switching to another tax structure What to keep in mind from the start: Clean corporate structure (no hidden dependencies) Transferable contracts (not personal) Documented processes and systems Flexible shareholder agreements What does this mean for you? Most mistakes aren’t due to malice, but ignorance or carelessness. Spend an extra €20,000–30,000 on professional advice and setup, rather than paying €100,000+ for compliance errors later. Frequently Asked Questions Do I have to live in Malta to run a trading company? No, you don’t need to live in Malta. But you do need economic substance—real business activity on-site. That means local employees, regular presence (at least 1–2 days per month), and key business decisions must be made in Malta. Pure remote management from Germany has been illegal since 2019. What are the minimum annual costs for a Maltese trading company? Expect €50,000–80,000 per year in basic costs: €25,000–35,000 for a local staff member, €10,000–15,000 for office, €8,000–12,000 for compliance and accounting, €5,000–10,000 for insurance and other operating costs. There are also variable costs based on business volume. Which goods can I not trade via Malta? You can basically trade anything, but certain categories need special licenses: food (health certificate), pharmaceuticals (marketing authorization), chemicals (REACH registration), weapons (arms license), tobacco and alcohol (excise license). Absolutely forbidden: illegal drugs, stolen artworks, goods from sanctioned countries. Can I benefit from the 5% tax rate from the outset? The 5% rate only applies to foreign-sourced income through the 6/7 refund system. This only works if you distribute profits and meet the substance requirements. In the early years you’ll often be at 11.7% (Malta source) while you build local structures. 5% is the optimization target—not the starting point. How long does it take to open a bank account with a Maltese bank? For trading companies: 6–12 weeks with local banks (Bank of Valletta, APS Bank), 4–8 weeks with business specialist banks (Citadel Commerce Bank). You’ll need a detailed business plan, proof of capital origin, often also a personal interview. Backup: EU banks with Malta IBAN (Revolut Business, Wise Business) as a temporary solution. What happens if EU tax laws change? Malta must implement all EU directives, but the basic principle (35% corporate tax with refunds) has been stable since 1994. The biggest shift was the 2019 economic substance requirements. Future risks: further tightening of the substance rules and possible EU-wide minimum taxation. Malta will always strive to remain competitive, though. Do I need a Maltese director or shareholder? No—neither directors nor shareholders need to be Maltese or EU citizens. As a German national, you can own 100% and serve as director yourself. You only need a Maltese registered office address (usually via provider) and genuine economic substance locally. How does VAT work for drop-shipping via Malta? It’s complex! If you ship goods from China direct to a French customer, without touching Malta, it counts as a French sale with French VAT. You’ll need a French VAT registration. To qualify as Malta drop-shipping, the goods must at least nominally pass through Malta Freeport. Which insurance do I need as a trading company? At minimum: professional indemnity (€1,000–3,000/year), product liability (€2,000–5,000/year), marine cargo insurance (0.1–0.5% of goods value), general third-party liability (€500–1,500/year). If storing goods in Malta: property and stock insurance. Overall budget: €5,000–15,000 annually depending on volume. Can I relocate my existing German GmbH to Malta? Theoretically yes, but in practice it’s very complex. You’d need a cross-border merger under EU law, consent of all shareholders, German tax clearance, and often years of negotiations with German authorities. Usually, a new Maltese company with asset transfer is simpler and faster.