Table of Contents Why Malta is the Game-Changer for Your E-Commerce Business Dropshipping from Malta: How to Start Legally and Profitably VAT Compliance for Cross-Border Trade: The Reality Check Malta E-Commerce Setup: Your Roadmap Through the Bureaucracy Jungle Costs and Reality: What Malta E-Commerce Really Costs Common Mistakes and How to Avoid Them Frequently Asked Questions Malta as an E-Commerce hub? That might sound crazy at first. How is a small rock in the Mediterranean with 500,000 inhabitants your ticket into the EU market? After two years of living here, I can tell you: it’s less crazy than it seems. But it’s also less easy than the consultants promise. I made the switch myself—from being a German sole proprietor to running a Maltese e-commerce business. Spoiler: it wasn’t the smooth tax-optimization machine you see in YouTube videos. But it worked. Today, I sell to 27 EU countries through my Maltese company, pay 5% corporate tax, and still sleep soundly at night—because it’s all legal. In this article I’ll lay out the unfiltered reality: where Malta truly shines, the hurdles you’ll face, and why VAT compliance is the make-or-break point where many fail. Plus: real numbers, actual costs, and a step-by-step roadmap so you won’t get lost in the bureaucratic maze. Why Malta is the Game-Changer for Your E-Commerce Business Malta plays in the same league as Ireland and the Netherlands when it comes to e-commerce friendly regulations. But unlike those giants, Malta is still small enough that you won’t get lost in the crowd. So what does this mean for your business in concrete terms? The Numbers Speak for Themselves: Malta’s E-Commerce Advantages Let’s start with what probably brought you here: taxes. Malta has a corporate tax system that, if set up wisely, enables effective rates as low as 5%. This isn’t tax evasion; it’s an official EU refund system known as the 6/7 Refund. How does it work? You initially pay 35% corporate tax. Sounds steep? As a Non-Resident Shareholder (living outside Malta), you receive 6/7 of the tax paid as a refund. The math: 35% minus 30% (that’s 6/7 of 35%) = 5% effective tax rate. Profit Tax (35%) Refund (6/7) Effective Tax €100,000 €35,000 €30,000 €5,000 (5%) €500,000 €175,000 €150,000 €25,000 (5%) €1,000,000 €350,000 €300,000 €50,000 (5%) But beware: you receive the refund only upon dividend distribution. This means you have to front the full 35% first, so liquidity planning is essential. EU Passporting: Set Up in Malta, Sell Across Europe With a Maltese e-commerce license, you can sell in all 27 EU member states. It’s like having a master key to the entire European market. This becomes particularly important with VAT registration. Through the EU-OSS system (One Stop Shop), you report all your EU sales centrally in Malta. There’s no longer a need to acquire separate VAT numbers in Germany, France, or Italy. So what does this mean for you? Rather than juggling 27 different tax advisors and compliance systems, you can manage everything from Malta. The time savings are significant—as are the cost savings. What the Competition Doesn’t Tell You: The Real Hurdles Now for the part the consultants love to skip. Malta isn’t the plug-and-play solution they promise. Here’s your reality check: Substance requirements: You must prove genuine economic activity in Malta. A mailbox company is no longer enough. This means: local director, a Maltese office, regular board meetings. Language barrier: Government offices often operate in Maltese/English. Sounds simple? Try explaining why your dropshipping model isn’t just a front. Banking: Maltese banks have become cautious about e-commerce. Opening an account takes 3–6 months—not weeks. Minimum capital: To set up a Maltese Limited (Ltd.), you’ll need at least €1,165 in share capital. Sounds low, but there are additional security requirements. Still, if you overcome these hurdles, you’ll have a structure that’s legally compliant and tax-optimized. That’s worth its weight in gold in today’s environment. Dropshipping from Malta: How to Start Legally and Profitably Dropshipping from Malta isn’t just possible—it can actually be brilliant under certain circumstances. Why? Malta recognized early on that e-commerce is the future and created flexible regulations to match. Step 1: Choosing the Right Corporate Structure For dropshipping in Malta, there are three types of companies to consider: Malta Limited (Ltd.): The standard option for 99% of cases. Minimum capital €1,165, one director required, and 5% effective tax possible. Partnership: Only sensible if there are several partners involved. More complicated to manage. Sole Trader: Equivalent of a German sole proprietorship. Recommended only for very low turnover. I recommend the Malta Limited. Why? It offers the best balance of flexibility, tax advantage, and international credibility. Amazon, eBay, and the like prefer to work with corporations rather than sole traders. The formation process goes through the Registry of Companies and officially takes 5–10 working days. Realistically, allow 3–4 weeks—there’s always one more document to submit. Step 2: VAT Registration — The Bureaucratic Marathon This is where things get interesting. In Malta you must register for VAT from the very first euro of B2C sales. That’s different than in Germany, where the “small business” exemption applies up to €22,000. The registration with the VAT Department works like this: Submit application: Online via the Malta VAT Department portal Collect documents: Company registration certificate, office lease, business plan Attend interview: Yes, you must show up in person and explain your business Wait: 4–8 weeks processing time is normal Pro tip: Bring a Maltese accountant to the interview. They speak the officials’ language and know what answers are expected. Step 3: Understanding and Using the EU-OSS System The EU-OSS system (One Stop Shop) is your best friend in cross-border trade. Since July 2021, you can handle all your EU VAT filings centrally through Malta. How does it work in practice? You sell an item for €100 to Germany: The German customer pays €119 (including 19% German VAT) You keep €100 and report €19 VAT to Malta Malta forwards the €19 to Germany You only file one report per quarter in Malta This saves you from having to register for VAT in each individual EU country. With 27 countries, that’s a massive simplification. But: The OSS system has its limits. If your sales in one EU country exceed €10,000 per year, you must still register there directly. More on this later. VAT Compliance for Cross-Border Trade: The Reality Check VAT compliance is where most e-commerce dreams die—not due to complexity, but due to underestimating the workload. Let me show you where the real pitfalls are. EU-OSS vs. National Registration: Which Costs You Less Headache? The EU-OSS system sounds like the perfect solution, but has some pitfalls. You save yourself individual registrations, but you still need to apply the correct VAT rates for each country. Example: You sell the same product into different EU countries: Country Standard VAT Rate Reduced Rate Example Categories Germany 19% 7% Books, Food France 20% 5.5% Books, Medicines Italy 22% 10% Hotels, Food Spain 21% 10% Food, Medicine Your shop system must apply these rates automatically. This works with Shopify or WooCommerce using the right plugins. With custom-built systems, things can get expensive. The alternative: National registration in your key markets. More paperwork, but more control. My rule of thumb: up to €100,000 annual turnover, use OSS; above that, register nationally in your top three markets. The €10,000 Threshold: When Does It Get Complicated? The €10,000 distance selling threshold is one of the most important numbers in EU e-commerce. Once you exceed €10,000 sales in any EU country in a calendar year, you must register for VAT there directly. Sounds like a high hurdle? It’s not. With an average cart of €50, that’s just 200 orders per country, per year. You’ll get there faster than you think. What happens if you go over? Obligation to register: You must register for VAT in that country Double bookkeeping: OSS and national declarations in parallel Local representatives: Some countries require a local tax representative Costs: Extra accountants, software, compliance My advice: monitor your country thresholds monthly. Act early, rather than pay fines later. Case Study: German Dropshipper Sells to France Here’s a real-world example. Max, a German dropshipper, relocated his company to Malta. He sells fitness equipment—annual turnover: €80,000, of which €25,000 is in France. Situation: Max exceeds the €10,000 threshold for France by March. Solution: VAT registration in France, in addition to Maltese OSS. This requires: Apply for a French VAT number (estimated €200 legal fees) Appoint a French tax representative (€150/month) Monthly French VAT returns (on top of Maltese returns) Shop system adjustment: French customers receive a French VAT number Cost: Additional €2,500/year just for France compliance. Lessons learned: Max could have acted sooner and capped his French sales, or simply set up a French subsidiary from the start. Malta E-Commerce Setup: Your Roadmap Through the Bureaucracy Jungle Let’s get practical. Here’s what setting up in Malta really looks like: all the required paperwork, waiting times, and cost traps that await you along the way. Registry of Companies: Where the Paper Trail Begins The Registry of Companies is your first stop. This is where you register your Malta Limited. The process is more digital these days—but still laidback and typically Maltese. Required documents: Memorandum and Articles of Association (company statutes) Form A (registration form) Proof of share capital (minimum €1,165) Copies of all directors’ and shareholders’ IDs Certificate of Good Standing (if you already own other companies) Costs in detail: Item Cost Notes Registration fee €245 State fee Lawyer/Notary €800–1,200 Depending on complexity Registered Office €300–500/year Mandatory in Malta Company Secretary €600–800/year Mandatory by law Timeline: Officially 5–10 business days, realistically 3–4 weeks. Why the delay? The registry triple-checks every company name and queries anything unusual. So allow extra time. Pro tip: Hire a local lawyer to handle the process. You’ll save the €800 through avoiding errors and unnecessary delays. VAT Department: Where Your Fate Is Decided The VAT Department is your most important authority. No VAT number, no legal e-commerce business. The application process is thorough—and sometimes frustrating. Preparation is everything: Prepare a business plan: Not just a PDF—a detailed document with sales forecasts, target audience, and competitor analysis Rent office space: A virtual office isn’t sufficient. You need real premises and a real lease. Banking arrangements: The VAT Department wants to see you have, or at least have applied for, a Maltese business bank account Staff planning: Substance requirements also mean personnel. At least one local employee or freelancer is advisable The interview: You have to attend in person and explain your business. Typical questions: Why Malta and not Germany/Austria/Switzerland? How do you ensure local substance? Where are your suppliers and customers located? How do you handle returns and customer service? Be honest, but professional. Officials know you’re attracted by the tax advantages. That’s fine—as long as you’re running a real business. MFSA License: When Do You Really Need One? The MFSA (Malta Financial Services Authority) regulates financial services. For standard e-commerce, you don’t need an MFSA license. But there are borderline cases: License required for: Payment processing for third parties Marketplaces with escrow services Subscription models with prepaid credits Cryptocurrency integration License NOT required for: Classic e-commerce (selling your own/third-party goods) Dropshipping Affiliate marketing SaaS (Software as a Service) The MFSA license costs €25,000–50,000 and takes 6–12 months to obtain. Only apply if you genuinely need it. Costs and Reality: What Malta E-Commerce Really Costs Let’s cut to the chase: what does a Maltese e-commerce structure actually cost? Here’s an honest breakdown based on my own experience and that of my network. Startup Costs in Detail The formation costs are only the tip of the iceberg. Here’s the full breakdown for your first year: Item One-off Annual Note Company Registration €245 – State fee Lawyer Setup €1,200 – One-time service VAT Registration €0 – Free, but time-consuming Registered Office – €400 Legally required Company Secretary – €720 Compliance service Office premises €1,500 €6,000 Deposit + rent Banking Setup €500 €240 Account opening + fees Accounting/Tax Advisory – €3,600 ~€300/month realistic Insurance – €800 Professional indemnity, etc. Total Year 1 €3,445 €11,760 Total: €15,205 Those are the minimum costs with efficient management. In reality, expect around €20,000 for the first year—there’s always something unexpected. Ongoing Costs: Accounting, VAT, Compliance Ongoing costs are the real deal-breaker. This is what determines whether Malta pays off long-term: Monthly fixed costs: Office: €500 (Malta has gotten expensive) Accountant: €300 (for VAT filings and compliance) Company Secretary: €60 (annual divided by 12) Banking: €50 (account maintenance and transactions) Insurance: €70 (professional indemnity, public liability) Other: €100 (phone, internet, small expenses) Total per month: €1,080 Plus variable costs: VAT compliance: €50–200/month depending on the number of EU countries Legal updates: €100–300/quarter for regulatory changes Audit: €2,000–5,000/year, depending on turnover Break-Even Analysis: At What Revenue Level Is Malta Worthwhile? The million-euro question: from what level does the Maltese structure actually pay off? Here’s my calculation for different revenue scenarios: Scenario 1: €200,000 annual revenue Profit before tax: €50,000 (25% margin) Malta tax (5%): €2,500 German tax (30% corp. and income tax): €15,000 Tax savings: €12,500 Malta extra costs: €15,000 (Year 1) Conclusion: Negative Scenario 2: €500,000 annual revenue Profit before tax: €125,000 (25% margin) Malta tax (5%): €6,250 German tax (30%): €37,500 Tax savings: €31,250 Malta extra costs: €15,000 Conclusion: +€16,250 advantage Scenario 3: €1,000,000 annual revenue Profit before tax: €250,000 (25% margin) Malta tax (5%): €12,500 German tax (30%): €75,000 Tax savings: €62,500 Malta extra costs: €15,000 Conclusion: +€47,500 advantage My rule of thumb: Malta makes sense starting at around €400,000 in annual turnover with a net margin of 20% or higher. Below that, compliance costs outweigh the tax savings. Common Mistakes and How to Avoid Them After two years in Malta and countless chats with fellow e-commerce founders, I know the classic pitfalls. Here are the top 5 mistakes—and how to avoid them: Mistake 1: Underestimating Substance Requirements Many think a Maltese company is just another mailbox entity. Wrong. Malta demands real economic substance: Local director or at least one employee Real office premises (not virtual only) Regular board meetings in Malta Local business activities Solution: Plan for actual local presence from the beginning. A Maltese freelancer for customer support costs ~€1,500/month and fulfills substance requirements. Mistake 2: Ignoring VAT Thresholds The €10,000 threshold per EU country is often overlooked. Suddenly you need VAT registrations in five countries—and compliance explodes. Solution: Monitor your country thresholds monthly. Use tools such as TaxJar or Avalara to track automatically. Mistake 3: Underestimating Banking Challenges Maltese banks have become very cautious with e-commerce. Opening an account takes months, not weeks. Solution: Start the banking process in parallel with company setup. Allow 6 months to get the account. Alternative: EMI license via Revolut Business or Wise. Mistake 4: Overdoing Tax Optimization The 5% tax is tempting, but not automatic. You need to meet all the criteria—and avoid crossing into tax evasion. Solution: Work with a qualified Maltese accountant. The €300/month is money well spent. Mistake 5: Forgetting an Exit Strategy What if Malta doesn’t work out? Many forget about the costs and timing of winding down. Solution: Plan an exit strategy from the start. Company liquidation in Malta takes 6–12 months and costs €2,000–5,000. Frequently Asked Questions Do I need to be resident in Malta to set up an e-commerce company? No, Maltese residency isn’t required. But you do need a local director or verifiable business activity in Malta. Many solve this via a Maltese company secretary or local staff. How long does the complete setup take—from incorporation to first sale? Realistically, 4–6 months: company registration 3–4 weeks, VAT registration 4–8 weeks, banking 2–4 months. Some processes run in parallel, but Malta works to its own tempo. Can I relocate my existing German company to Malta? Technically possible, but complicated and expensive. Usually, it’s easier to set up a new Maltese company and formally liquidate the German one. What happens if I exceed the €10,000 VAT threshold in an EU country? You must register for VAT in that country. This means extra compliance costs and often a local tax representative. Expect €150–300/month per country. Is Malta also suitable for Amazon FBA? Yes, Malta works well for Amazon FBA. You can sell across Europe with a Maltese VAT number. The EU-OSS system greatly simplifies VAT handling. Which industries are particularly welcomed in Malta? Malta especially fosters: Gaming/iGaming, Fintech, Blockchain/Crypto, E-Commerce, and digital services. There are sometimes special incentives and streamlined permits for these sectors. Do I have to be physically present in Malta for company formation? Not strictly for the company setup, but for VAT registration usually yes. The VAT Department often conducts face-to-face interviews. Plan at least 1–2 trips to Malta. How does the 6/7 tax refund work in practice? You first pay 35% corporate tax. Upon dividend distribution, you apply for a refund of 6/7 of the tax paid. The process takes 2–6 months and requires proper bookkeeping. Is Malta worthwhile for small e-commerce businesses under €100,000 in turnover? Usually not. Compliance costs of €15,000+ in the first year only pay off from around €400,000 in revenue with decent margins. For smaller businesses, Malta is often oversized. What are the biggest legal risks in Malta e-commerce? Major risks: VAT compliance breaches (heavy fines), insufficient substance (company recognition at risk), and banking compliance (account closures). With professional advice, these risks can be managed.
