Table of Contents Understanding Malta Structures: What’s Legal and What’s Problematic? Legitimate Tax Planning vs. Tax Avoidance: The Legal Line International Compliance Standards for Malta Structures Practical Implementation: How to Stay Compliant Common Pitfalls and How to Avoid Them Outlook 2025: What’s Changing for Malta Structures Frequently Asked Questions Im currently sitting in a Valletta café, watching the third German entrepreneur today explaining to his tax advisor via WhatsApp why a Malta structure “must be legal”—after all, that’s what the Internet says. Spoiler: It’s a lot more complicated. After two years on the island and countless conversations with lawyers, advisors, and affected clients, one thing is clear: Malta structures operate in a legal grey area that’s always shifting. What worked without issue three years ago could be borderline today. That’s why I’m explaining today exactly where the boundary lies between legitimate tax planning and risky tax avoidance. No sales pitch—just the real compliance requirements that will actually apply in 2025. Understanding Malta Structures: What’s Legal and What’s Problematic? The Most Common Malta Company Types at a Glance Malta offers a variety of company types for international tax planning. Here are the key ones in brief: Company Type Tax Treatment Compliance Level Typical Use Private Limited Company 35% corporate tax with refund system High EU Holding, Trading Trading Company 5% on foreign income possible Very high Active trading, services Overseas Company 0% on foreign income Critical Often problematic Important: The Maltese refund system is the core of most structures. In short, your company pays 35% corporate tax, but can refund up to 6/7 of that (about 30%) to shareholders. Effective tax burden: 5%. Malta Tax Benefits: The 6/7ths Rule and EU Compliance The famous 6/7ths rule works like this: Out of the 35% corporate tax, you as a shareholder can get 30% refunded if certain criteria are met. Sounds fantastic at first. The reality behind it: – You have to prove the income was already taxed abroad – The company needs real economic substance in Malta – At least one director must be resident in Malta – Regular board meetings in Malta are mandatory I know a Berlin IT entrepreneur who thought opening a Maltese bank account and setting up a maildrop company was enough. The cost after the first compliance check: €25,000 in additional taxes plus legal fees. Legitimate Tax Planning vs. Tax Avoidance: The Legal Line OECD Standards and Malta: What Will Apply in 2025? The OECD (Organisation for Economic Co-operation and Development) has tightened its BEPS (Base Erosion and Profit Shifting) rules. Malta must comply to avoid ending up on the grey list. What this means for you: – At least one full-time employee based in Malta – Genuine business activity on-site (not just on paper) – Documentation of all business decisions – Proof of economic substance The old era of “laptop companies” is over. If you want a Malta structure in 2025, you’ll need a real presence. Period. Substance Requirements: More Than Just a Letterbox Company Real substance specifically means: Qualified staff: At least one person with the right credentials for the core activities Appropriate operating expenses: The EU Commission checks if costs make sense compared to profit Office space: Virtual offices are no longer sufficient Decision-making: Key business decisions must be made in Malta A Frankfurt asset manager told me last month: “I thought four meetings a year in Valletta would do it. Wrong! Now I’m here every other month.” The days when Malta structures worked as pure tax-saving models with no business justification are definitely over. Today, you need genuine business activity. The Crucial Difference: The Business Purpose Test This is where the wheat is separated from the chaff. Legitimate tax planning always has a genuine business purpose. Tax avoidance is purely about savings, without real economic activity. Tax planning is legitimate if: – You’re transacting real business in Malta – The structure makes business sense even without tax benefits – You’re investing in Malta for the long term – Tax savings are a side effect, not the main goal Risky tax avoidance shows up as: – Structures designed solely for tax savings – Artificial setups with no business substance – Lack of substance in Malta – Short-term “hit-and-run” strategies International Compliance Standards for Malta Structures CRS and Automatic Exchange of Information Since 2017, Malta automatically exchanges account information with other EU countries. The Common Reporting Standard (CRS) means: Your German tax office finds out about your Maltese accounts. Automatically. What gets reported: – Year-end balance – Interest and dividends – Proceeds from disposals – Other income I recall a businesswoman from Munich who was very surprised in 2019 when her tax advisor called: “The tax office is asking about your Malta account.” She had forgotten to declare the income. BEPS Rules and Their Impact on Malta The BEPS minimum tax of 15% became reality in 2024. Malta must ensure multinational companies pay at least this minimum. Impact on Malta structures: Company Size Turnover (€) BEPS Requirement Effective Minimum Tax Small Companies Under 750 mil. No Malta system applies Mid-sized Companies 750 mil. – 1 bn. Partially Case-by-case review Large Corporates Over 750 mil. Yes At least 15% Most mid-sized companies aren’t affected yet. But the direction is clear: More transparency, less room to maneuver. Country-by-Country Reporting: Full Transparency Since 2016, large companies must provide detailed reports on where their profits are earned and taxed. Country-by-Country Reporting has made aggressive tax planning nearly impossible. The following must be reported: – Revenue per country – Pre-tax profit – Taxes paid – Number of employees – Equity – Intangible assets A Munich family business (turnover €900 million) now has to disclose that 80% of profits flow through Malta, but only 2% of staff are there. That raises tough questions. Practical Implementation: How to Stay Compliant Due Diligence Checklist for Malta Structures Before setting up a Malta structure, work through this checklist: Define your business purpose: What real activities will you carry out in Malta? Check substance requirements: Do you need staff, office, equipment? Clarify tax residency: Where will your company be tax resident? Review double taxation agreements: What benefits can you leverage? Calculate compliance costs: Annually €15,000–30,000 for professional support Plan your exit strategy: How can you unwind the structure if laws change? My practical tip: Expect much higher costs than originally planned. A sound Malta structure will cost at least €20,000 in year one, then €15,000 per year for ongoing compliance. Ongoing Compliance Duties and Documentation Malta structures require constant upkeep. You must meet these duties regularly: Monthly: – Prepare management accounts – Submit VAT filings (if relevant) – Monitor bank accounts for CRS Quarterly: – Hold board meetings in Malta – Document business decisions – Review substance requirements Annually: – Prepare year-end accounts and tax returns – Apply for a compliance certificate – Carry out economic substance test – Update the Beneficial Ownership Register I know a Berlin tech entrepreneur who underestimated the time commitment. He now employs a part-timer just for Malta compliance. The Role of Local Advisors: Essential You’ll need at least three local partners: Lawyer: For company formation and compliance structure Tax advisor: For ongoing tax duties and optimisation Company Secretary: For admin tasks and notifications Annual cost: €12,000–25,000 depending on complexity. It’s tempting to cut corners on advisor costs. Don’t. A poorly structured Malta company can cost you hundreds of thousands in back taxes. Common Pitfalls and How to Avoid Them The “Letterbox Trap”: When Substance Is Missing The most frequent mistake: You set up a company in Malta but run everything from Germany. That’s a recipe for trouble. Practical example: A Hamburg e-commerce entrepreneur moved his holding to Malta, but managed everything from his home office in Blankenese. Post tax audit: €180,000 in back taxes plus interest. How to avoid the trap: – Carry out at least 25% of core activities physically in Malta – Make key decisions on-site – Hire local staff for operational work – Document all Malta activities Tax Residency: The Underestimated Risk Just because your company is incorporated in Malta doesn’t mean it’s tax resident there. Germany can still claim taxing rights. High risk if: – Management and control are exercised from Germany – Management lives in Germany – Key decisions made in Germany – No real business activity in Malta A Munich businesswoman had to learn the hard way: Her Maltese company was classified as a German corporation because she ran everything from her Schwabing office. The Time Trap: Underestimating Travel Time Malta is small, but it’s still far away. Many underestimate the time needed for regular Malta visits: – Flight Munich–Malta: 2.5 hours plus airport time – At least monthly presence is recommended – Quarterly board meetings are mandatory – Spontaneous meetings are hard to arrange A Frankfurt advisor counts: “I spend 40 days a year in Malta or en route. I hadn’t factored that in before.” Outlook 2025: What’s Changing for Malta Structures Tighter EU Controls from 2025 Onwards The EU Commission has announced plans for even stricter controls. What’s coming: Automated compliance checks: AI-driven scrutiny of Malta structures Expanded substance requirements: Higher demands for local presence Digital surveillance: Real-time tracking of business activities Harsher penalties: Greater fines for compliance breaches My Assessment: Is Malta Still Worth It in 2025? After two years of watching the market and many conversations, here’s my nuanced verdict: Yes, Malta is worthwhile for: – Genuine EU holding structures with substance – International trading businesses with Malta operations – Family offices with a long-term perspective – IP holding if real development takes place in Malta No, Malta is not worthwhile for: – Pure tax savings with no business purpose – Small companies with limited compliance budgets – Short-term tax-saving models – “Set-and-forget” structures Alternative Jurisdictions Compared If Malta isn’t a fit, here are the key alternatives: Jurisdiction Tax Rate EU Access Compliance Level Annual Costs Ireland 12.5% Yes High €25,000–40,000 Estonia 0% (retained profits) Yes Medium €15,000–25,000 Cyprus 12.5% Yes High €20,000–30,000 Switzerland 14–24% No Very high €30,000–50,000 Frequently Asked Questions about Malta Structures Are Malta structures legal? Yes, Malta structures are fundamentally legal, provided they meet the current compliance requirements. The key factors are real economic substance in Malta and a legitimate business purpose beyond pure tax savings. What are the minimum costs for a compliant Malta structure? Expect at least €20,000 in the first year for setup and incorporation, then €15,000–25,000 annually for ongoing compliance, advice, and administration. Do I need to be personally resident in Malta? No, personal residency is not required. However, you do need at least one Malta-resident director and real business substance on the ground. What corporate tax rates actually apply in Malta? Malta levies 35% corporate tax but can refund up to 30% (6/7ths rule). The effective rate can be as low as 5%, but only if all conditions are fulfilled. How often do I need to travel to Malta? Monthly visits for key business decisions are recommended. Board meetings every quarter are the minimum requirement. Plan for at least 20–30 days in Malta per year. What happens if I breach compliance rules? Breaches can result in steep back taxes, interest, and fines. In the worst case, you lose the tax benefits retroactively and have to pay German tax rates instead. Are Malta structures future-proof? The requirements keep tightening. Malta structures remain legal but require ever more substance and compliance effort. Without genuine business activity, it’s becoming much harder. Is Malta worthwhile for small businesses? Due to high compliance costs, Malta only tends to pay off from annual profits of €100,000–150,000 upwards. Smaller companies should consider alternative optimization strategies. What documentation is required for Malta structures? You need detailed records of all business activities, board meeting minutes, substance evidence, management accounts, and economic substance reports. Can I still save existing Malta structures? Yes, existing structures can often be salvaged through building up substance and strengthening compliance. The sooner you act, the better. A professional review is the best first step.
