Home Country Tax Authorities and Malta: How International Agencies Assess Maltese Companies – Tax Authority Perspectives

Malta and Your Home Tax Authority: Why the Relationship Is Complicated

Let me be clear from the start: If you set up a Malta company or are even considering it, sooner or later your home tax authority will find out. Not because Malta is a tax haven—those days are gone—but because international transparency is now the norm.

The days when Malta was seen as a mysterious offshore destination are long over— since 2018, that’s history. The reason is the Common Reporting Standard (CRS): an automatic exchange of information between 100+ countries. Malta reports your company data automatically to your home country, and vice versa.

Why Tax Authorities Eye Malta Companies Suspiciously

From your home tax authority’s point of view, Malta is still that country with low taxes. The effective corporate tax rate of 5% for certain income sparks immediate audit interest. Many officials overlook that Malta is now fully EU-compliant and meets all OECD standards.

The most common concerns of international authorities:

• Tax Avoidance Suspicion: Every Malta structure is initially treated as potential tax avoidance
• Lack of Substance Concern: Fear of “shell companies” with no genuine business activity
• Automatic Audits: Malta companies land on internal watch lists for closer inspection
• Complexity Aversion: Caseworkers often don’t fully understand the Maltese tax system

The Shift in Authorities’ Perception

Nevertheless, I’m seeing a slow shift. Since Malta tightened its Substance Requirements in 2019 and implemented new EU state-aid law in 2021, informed tax authorities have started to take Malta more seriously—no longer as a “tax haven,” but as a legitimate EU business location with strict compliance requirements.

My tip: Never assume your Malta company will fly under the radar. Plan transparently and with genuine substance from the start—it will save you a lot of trouble down the line.

CRS and Automatic Information Exchange: What Your Tax Authority Knows About Malta

Since 2018, Malta has been a full participant in CRS. This means: every bank, trustee, and management company in Malta automatically reports all relevant financial data of EU citizens and residents of other CRS countries.

This Data Automatically Reaches Your Home Authority

The data sharing is more extensive than most people realize. Every year by September 30, Malta transmits the following information:

The FATCA Component: US-Specific Reports

Alongside CRS, the US Foreign Account Tax Compliance Act (FATCA) runs in parallel. If you are a US person or your Malta company has US links, additional data is submitted to the IRS:

• Detailed transaction statements
• Quarterly balance reports
• Contract partners and business relationships
• All real estate transactions without minimum threshold

Timing and Availability of the Data

This matters in practice: Your home authority doesn’t get the Malta data instantly, but it’s relatively prompt. The typical process:

1. January–March: Maltese banks collect prior-year data
2. April–June: Transfer to Malta Financial Intelligence Analysis Unit (FIAU)
3. July–September: FIAU consolidates and passes to partner countries
4. October–December: Data is available to your home authority

This means: if you set up a Malta company in 2024, your tax authority will know by the end of 2025 at the latest.

What Authorities Do With CRS Data

Most tax authorities now use automated screening systems. These programs look for key patterns:

• Disproportionate Dividends: Large payouts without corresponding business activity
• Round-Trip Payments: Money moves in and quickly out again
• Tax Arbitrage: Timing mismatches between Malta and home country taxation
• Substance Red Flags: High profits with minimal local costs

Reality check: I know of cases where German tax auditors came with printed CRS data to the very first meeting. Transparency is not optional—it’s reality.

Substance Checks for Malta Companies: What International Authorities Look For

You’ll hear the word substance in every discussion about Malta companies. But what does it mean in practice? International tax authorities check whether your Malta company is genuinely engaged in meaningful economic activity—or is just a tax-driven construct.

The OECD Substance Criteria in Detail

Since the OECD BEPS Actions (Base Erosion and Profit Shifting), there are clear substance standards. These apply universally—whether the auditor sitting across from you is German, Austrian, or French:

Malta-Specific Substance Tightening

In 2019, Malta introduced its own substance rules that go beyond the EU minimum. This is a double-edged sword: on one hand, compliance is more complex, but on the other, international authorities now take Malta companies more seriously.

Economic Substance Test (EST) in Malta:

• Minimum Staff: Depending on activity, 1–3 qualified full-time employees
• CIGA Activities: Core Income Generating Activities must demonstrably take place in Malta
• Expenditure Ratio: Local expenses must be at least 10% of relevant income
• Board Meetings: At least 50% of board meetings physically held in Malta

Practical Substance Assessment by Authorities

When a German auditor scrutinizes your Malta structure, he follows a systematic approach. I’ve accompanied such audits and know the typical process:

1. Document Analysis (Phase 1):
   • Articles of association and amendments
   • Trade register extracts for the past 3 years
   • Auditor reports and management letters
   • Lease agreements and insurance policies
2. Personnel Review (Phase 2):
   • Employment contracts and payslips
   • CVs and proof of qualifications of senior staff
   • Organigrams and delegation of authority
   • Attendance records and travel reimbursements
3. Business Activity Analysis (Phase 3):
   • Contracts with customers and suppliers
   • Email correspondence on key business decisions
   • Invoices and payment processing
   • Marketing activities and market presence

Red Flags That Auditors Spot Instantly

Certain situations immediately set off alarm bells for seasoned tax auditors. You should absolutely avoid these:

• The Nominee Director: Local director without real decision-making authority
• Copy-Paste Contracts: Identical contract wording across multiple Malta companies
• Excessive Margins: Profit margins of 90%+ with no clear value creation
• Circular Transactions: Deals mainly within the same group
• Timing Optimization: Transactions timed solely to minimize tax

Positive Substance Indicators

On the other hand, these factors make auditors more confident and increase your credibility:

• Local Customer Relationships: Genuine Maltese or Mediterranean business partners
• Multi-Year Continuity: Stable staff and business model over years
• Proportional Infrastructure: Office equipment and personnel align with business size
• Independent Validation: External confirmation of business activities
• Regulatory Compliance: Full observance of Maltese industry regulations

My experience: Substance is not binary—it’s a spectrum. Moderate substance with clear business rationale often convinces auditors more than an over-engineered structure that just reeks of optimization.

Germany and Malta Companies: BZSt Perspective and Practice

The Federal Central Tax Office (BZSt) has significantly expanded its expertise on Malta in recent years. As the coordinating authority for international tax matters, BZSt sees Malta structures daily and has developed clear assessment patterns.

BZSt Audit Routine for Malta Companies

When your Malta company first appears on the German authorities’ radar, theres a standardized process. The BZSt operates a risk assessment system that classifies Malta companies according to various criteria:

German AO and Malta Companies

German tax inspectors work primarily with the Fiscal Code (AO), especially sections 42 and 43. These anti-abuse rules are strict, but not Malta-specific by default:

§ 42 AO (Abuse of Legal Arrangements): Applies only if the Malta structure’s main or sole purpose is a tax benefit and the structure is unreasonable.

§ 43 AO (Hidden Profit Distribution): Relevant for intra-group services between German parent and Malta subsidiary.

Typical German Audit Focus Areas

From my advisory experience, I know the standard questions German inspectors ask. These almost always come up:

1. Management and Control:
   • Where are key business decisions actually made?
   • Who can actually instruct the Malta management?
   • Are there regular reporting lines back to Germany?
2. Transfer Pricing:
   • Are transfer prices at arms length?
   • Is there local TP documentation in Malta?
   • Were comparable market prices achieved with unrelated third parties?
3. Function and Risk Analysis:
   • Which functions are actually performed in Malta?
   • Who bears the main business risks?
   • Are there documented risk management processes?

Germany-Malta DTA: Opportunities and Pitfalls

The Double Taxation Treaty (DTA) between Germany and Malta from 2001 generally protects against double taxation. But it also contains tough anti-abuse clauses:

• Principal Purpose Test (PPT): DTA benefits are denied if obtaining the tax advantage was the main purpose
• Beneficial Owner Clause: Exemptions for dividends, interest, and royalties only for true beneficial owners
• Subject-to-Tax Clause: Certain benefits only if actual taxation occurs in Malta

BZSt Cooperation Processes with Malta

The BZSt works closely with the Maltese Inland Revenue Department. This cooperation now runs very smoothly—sometimes too smoothly, from taxpayers’ perspective:

• Mutual Agreement Procedures (MAP): Joint clarification of facts within 6–12 months
• Spontaneous Information Exchange: Suspicious transactions are exchanged proactively
• Joint Audits: German and Maltese auditors work together on-site
• Advanced Pricing Agreements (APA): Upfront agreements on transfer pricing

Successful Arguments in German Audits

If you’re in a German audit with Malta reference, these arguments tend to be effective:

• EU Freedom of Establishment: Cite Article 49 TFEU—Malta is a fully-fledged EU location
• Business Rationale: Show non-tax reasons for choosing Malta (market entry, regulation, etc.)
• Principle of Proportionality: Argue that alternative structures would be disproportionately burdensome
• OECD Compliance: Prove your structure meets all BEPS standards

Practice Tip: German auditors appreciate preparation and willingness to cooperate. If you act transparently from the start and have all documentation ready, you’ll often avoid a deeper investigation.

Austria, Switzerland and Other EU Countries: Country-Specific Differences

Every country has its own “Malta lens”. What counts as substantial in Germany can look suspicious in Austria. And Switzerland plays by its own rules anyway. Here are the key differences you need to know.

Austria: The Strictest EU Assessment of Malta Companies

The Austrian Federal Ministry of Finance (BMF) has traditionally been skeptical toward Malta structures. This stems from bad experiences with early EU passport setups in the 2000s.

Austrian Peculiarities:

Austrian auditors systematically ask:

• Essential Test: Does the Malta company match its legal substance?
• Arms Length Principle: Would an independent third party choose the same structure?
• Abuse Indicators: Any signs of tax abuse?

Switzerland: Pragmatic with Clear Boundaries

The Federal Tax Administration (ESTV) takes a more pragmatic approach. As long as you’re transparent and comply with Swiss tax law, it accepts Malta as a legitimate EU business location.

Swiss Focus Points:

• Withholding Tax Relief: Malta companies must prove economic activity for DTA benefits
• Disclosure Duty: Swiss individuals must report Malta holdings over 10%
• CRS Implementation: Full automatic information exchange since 2018
• Anti-Treaty-Shopping: Strict scrutiny of conduit structures

France: Bureaucracy Meets Malta Skepticism

France’s Direction Générale des Finances Publiques (DGFiP) combines thorough bureaucracy with fundamental skepticism of optimization structures.

French Specialties:

• Documentation Requirements: Extensive up-front documentation of all Malta structures
• Exit Tax: Strict rules when moving business activity from France to Malta
• CFC Taxation: Aggressive controlled foreign company taxation for Malta subsidiaries
• Treaty Override: National anti-avoidance rules trump DTA provisions

Netherlands: Business-Oriented Evaluation

The Dutch Belastingdienst is the most pragmatic. As a traditional “gateway” country for international structures, Dutch auditors understand complex arrangements.

Dutch Criteria:

1. Business Substance Test: Focus on genuine business activity, not just formal criteria
2. Economic Nexus: Link between profits and economic activity
3. Anti-Hybrid Rules: Strict checks on qualification conflicts
4. Ruling Practice: Possibility of advance binding opinions for Malta setups

Italy: Focus on Form, Realism on Substance

The Agenzia delle Entrate places high value on correct documentation but is cooperative where substance is shown.

• Controlled Foreign Company (CFC) Rules: Detailed substance auditing for Malta subsidiaries
• Transfer Pricing: Extensive TP documentation even for smaller transactions
• EU Directive Implementation: Strict implementation of all EU anti-avoidance directives

Country Comparison: Winning Strategies

From my experience in various tax systems, here are the most promising strategies for each country:

Golden Rule: Know your home tax authority’s mindset. The same Malta structure might be accepted in Germany but rejected in Austria—not because of the facts, but due to different evaluations.

Anti-Avoidance Rules: How Authorities Assess Malta Structures

International anti-avoidance rules are the sharpest tool authorities have against unwanted Malta structures. These rules aren’t Malta-specific, but Malta setups are targeted particularly often.

ATAD I and II: EU-Wide Anti-Avoidance Standards

The EU Anti-Tax Avoidance Directive (ATAD) has fundamentally changed the game since 2019. All EU countries must adopt identical minimum standards against tax avoidance.

Core ATAD Rules and Malta Impact:

GAAR in Practice Against Malta Companies

The General Anti-Avoidance Rule is the most common tool against Malta setups. It applies when:

1. Artificial Arrangement: The structure is mainly tax-driven
2. Tax Advantage: Significant tax saving versus direct setup
3. Purpose Conflict: The structure contradicts the intention of the relevant tax provisions

Typical GAAR Cases for Malta Companies:

• Back-to-Back Licensing: IP is transferred to Malta, then licensed to group entities
• Dividend Stripping: Short-term Malta intermediary for dividend exemptions
• Profit Shifting: Artificial profit transfer without underlying activity
• Treaty Shopping: Malta company set up solely to exploit a DTA

CFC Rules: Attributed Taxation of Malta Subsidiaries

Controlled Foreign Company (CFC) rules mean your Malta company’s passive income is taxed directly to you—as if you had earned it yourself.

CFC Triggers for Malta Companies:

• Control Threshold: You directly or indirectly hold >50% of the Malta company
• Tax Rate Test: Malta tax is <50% of your home country
• Passive Income: >30% of income is passive (interest, dividends, royalties)

CFC Escape Routes:

Principal Purpose Test (PPT): The DTA Killer

The Principal Purpose Test from the OECD MLI (Multilateral Instrument) is the modern treaty shopping defense. It asks: Was the main purpose of your Malta structure access to DTA benefits?

PPT Indicators Against Malta Structures:

• Timing: Malta company founded just before profit realization
• Conduit Character: Conduit company with no own value creation
• Tax Engineering: Complex structure purely for tax savings
• Short-Term Setup: Structure dissolved after tax benefit realized

BEPS Action 5: Harmful Tax Practices

Malta is under ongoing OECD scrutiny for its IP box and refund systems—important because the assessment could change.

BEPS Action 5 Monitoring:

• Nexus Approach: IP advantages only with substantial R&D activity in Malta
• Transparency: All IP box users are automatically reported
• Ring-fencing Ban: Tax benefits not just for foreign investors
• Grandfathering: Old structures must be adapted by 2025

Practical Anti-Avoidance Defense

If you’re building or operating a Malta structure, you should proactively minimize anti-avoidance risks:

1. Substance First: Build real business activity before profiting from tax benefits
2. Documentation: Log all non-tax reasons for Malta choice
3. Timing: Avoid suspicious timing coinciding with tax optimization
4. Proportionality: Ensure Malta costs match your tax benefits
5. Expert Advice: Regularly audit your setup for anti-avoidance risks

Reality check: Anti-avoidance rules are tough, but not arbitrary. If you have real business reasons for Malta and build proportionate substance, you’re usually safe. The problems start with setups driven solely by tax motives.

Practical Tips: How to Prepare for Contact With Tax Authorities

Sooner or later you’ll have to discuss your Malta structure with your home tax office. Whether it’s your annual return, a routine audit, or a specific information request—proper preparation makes all the difference.

The Perfect Documentation Strategy

Successful Malta structures share one thing: complete, comprehensible documentation from day one. Here’s my proven documentation checklist:

Incorporation Documentation (Year 1):

• Business Case: Written justification for choosing Malta emphasizing non-tax factors
• Market Analysis: Why Malta is a logical business location
• Substance Planning: How staff, offices, and business operations will be built
• Financial Planning: Realistic budgets for local expenses and profit projections
• Compliance Concept: How all tax and regulatory obligations will be met

Ongoing Documentation (annually):

Communication Strategy With Auditors

The way you communicate with tax auditors has a big impact on their assessment of your Malta structure. Here are the most successful communication tactics:

Do’s in Communication:

• Proactive Transparency: Share relevant information before it’s requested
• Structured Presentation: Explain your Malta structure logically and chronologically
• Business Focus: Always emphasize commercial reasons for Malta first
• Willingness to Cooperate: Show you want a fair solution
• Demonstrate Competence: Show you know and follow the rules

Don’ts in Communication:

• Defensive Attitude: Don’t jump into justification mode immediately
• Tax Arguments: Never argue “But this is legal!” or “Others do it too”
• Hiding Complexity: Don’t try to obscure complicated structures
• Creating Time Pressure: Auditors need time to understand—don’t rush them
• Lecturing: Never tell the auditor what they can or cannot do

Preparing for Typical Auditor Questions

Based on hundreds of Malta-related audits, I know the standard questions. Be ready for these:

1. Why Malta, of all places?
   • Good answer: EU membership, English-speaking, regulatory regime for our sector, Mediterranean market entry
   • Poor answer: Low taxes, advisor recommended it, just cheaper overall
2. Who makes the business decisions?
   • Good answer: Malta management has documented authority; board minutes prove local decisions
   • Poor answer: Everything runs via Germany; Malta director only does what we say
3. Isn’t this purely tax-motivated?
   • Good answer: Tax was ONE factor among many, main reason was [business reason]
   • Poor answer: Of course, that’s the point—saving taxes is legal

The Ideal Audit Process

A well-prepared audit meeting unfolds in standard phases. If you understand this structure, you can use it to your advantage:

Phase 1: Understanding the Structure (30 minutes)

• Present a clear organisational chart
• Explain business model and value chain
• Show timeline of the structure’s development
• Name all advisors and service providers involved

Phase 2: Substance Check (45 minutes)

• Give a virtual office tour (videos/photos)
• Introduce Malta personnel with CVs and job descriptions
• Show local customer relationships and contracts
• Explain decision processes with concrete examples

Phase 3: Transfer Pricing (60 minutes)

• Present TP documentation with benchmarking
• Explain function and risk allocation
• Show third-party comparables
• Discuss alternative pricing methods

Phase 4: Compliance & Outlook (15 minutes)

• Confirm full tax compliance in both countries
• Show proactive adaptations to new regulations
• Offer additional info or follow-up
• Agree timetable for any open points

Emergency Strategies for Critical Situations

Sometimes, despite the best preparation, things go wrong. Here’s how to deal with emergencies:

Golden Rule: Never enter a Malta-related tax audit unprepared. The first 30 minutes often determine the entire course. Competence and openness open doors—secrecy closes them.

Common Myths and Realities: What Malta Companies Really Mean

After years of advising on Malta, I know the most persistent myths about Malta companies and how authorities evaluate them. Time to bust some myths and lay out the facts.

Myth 1: Malta is a tax haven – that’s why authorities are always suspicious

Reality: Malta has been an EU member since 2004 and fulfills all OECD standards. The myth comes from the 1990s and is long out of date.

What authorities really think:

• Informed auditors: Acknowledge Malta as a normal EU business location
• Uninformed auditors: Still think “offshore company”
• Experienced auditors: Know Malta setups often have stricter compliance than domestic companies

Myth 2: 5% tax in Malta is always suspicious

Reality: The 5% applies only to certain types of income and only if strict substance requirements are met. Most Malta companies pay much more in practice.

Actual Malta tax rates in practice:

Myth 3: CRS makes Malta companies transparent – so they’re useless

Reality: Transparency isn’t a drawback. Many Malta structures remain beneficial both operationally and for tax purposes, even with full transparency.

Advantages despite CRS transparency:

• Access to EU directives: Parent–subsidiary, merger, and interest–royalty directives
• Regulatory gateway: EU passport for financial services
• DTA network: Over 70 double taxation treaties
• Business environment: English-speaking, common law, stable legal system
• Geographic positioning: Bridge to Europe, Africa, and Middle East

Myth 4: German/Austrian auditors always reject Malta structures

Reality: Modern tax authorities assess Malta setups by the same substance and business criteria as other international arrangements.

Myth 5: Malta companies are only for big corporates

Reality: Malta structures work from annual revenues of around €500,000 upwards—if the business model fits.

Successful Malta structures by company size:

Myth 6: Anti-avoidance rules make Malta companies impossible

Reality: Anti-avoidance rules only hit artificial, substance-less setups. Real business with adequate substance remains fully legal and recognized.

ATAD-compliant Malta structures:

• EU trading businesses with local staff and warehousing
• Software development centers with R&D teams in Malta
• Financial services providers with MiFID license and local infrastructure
• IP holding companies with Nexus-compliant R&D in Malta

Myth 7: Malta substance is expensive and complicated

Reality: Modern Malta substance is planned, scalable, and often cheaper than similar setups in Germany or Austria.

Typical Malta substance costs (annual):

• Basic substance: €45,000–65,000 (1 manager, office, compliance)
• Enhanced substance: €85,000–120,000 (2–3 staff, extended infrastructure)
• High substance: €180,000–250,000 (full local team)

The New Reality: Malta as a Normal EU Business Location

The key insight: In 2025, Malta is a regular EU business location with specialist advantages—nothing more, nothing less. International tax authorities assess Malta structures by the same standards as Dutch holdings or Irish IP companies.

Success factors for modern Malta structures:

1. Business-first approach: Genuine commercial reasons for choosing Malta
2. Appropriate substance: Staff and infrastructure proportionate to business size
3. Proactive compliance: Meet all local and international requirements from day one
4. Transparent communication: Open dialogue with all relevant tax authorities
5. Continuous adjustment: Regularly adapt structure to new rules

Bottom line: Most “Malta problems” stem from outdated thinking—by advisors AND clients. If you still treat Malta as a “tax haven” in 2025, you’ll fail. If you use it as a specialized EU business hub, you can unlock significant advantages.

Frequently Asked Questions