Table of Contents What Economic Substance in Malta Will Really Mean in 2025 The Toughest Requirements from International Tax Authorities Operational Activities in Malta: How to Build Real Substance Employees in Malta: Staff Strategies for Compliance CRS and BEPS: What You Need to Know About the New EU Rules Malta vs. Other EU Jurisdictions: The Honest Comparison Common Pitfalls in Substance Documentation Your Step-by-Step Checklist for 2025 Frequently Asked Questions Im sitting here with my third cappuccino in the Valletta office, staring at three centimeters of paperwork – all substance documentation for a single company. If you thought Malta was all sun, sea, and low taxes, Ive got some bad news for you. The days when you could set up a shell company here and then relax on the beach are definitely over. Since 2019, international tax authorities have been watching very closely what youre actually doing here. And I mean really closely. Dont worry – today, Ill show you how to build genuine economic substance in Malta, so you wont break a sweat during your next CRS report (Common Reporting Standard – the international information exchange system between tax authorities). Malta Substance 2025: What International Tax Authorities Truly Scrutinize Lets start with the harsh reality: in Malta 2025, economic substance isn’t just having an office and occasionally dropping by. The EU’s Anti-Tax Avoidance Directive (ATAD) and the OECD BEPS (Base Erosion and Profit Shifting) rules have completely changed the game. The Three Pillars of Real Substance When German, Austrian, or Swiss tax authorities investigate, they focus on three main areas: People on the Ground: Real employees with real employment contracts, making real decisions Operational Activities: Business activities that genuinely take place in Malta Economic Rationale: Your company must have a defensible reason to be in Malta What Economic Substance Actually Means The Maltese Economic Substance Act of 2019 sets out clear minimum standards. Your business must, in Malta: Employ an adequate number of qualified staff Incur reasonable operational expenses Make key management decisions locally Conduct Core Income Generating Activities (CIGAs) Sounds abstract? It is. That’s why lawyers and tax advisors here rack their brains daily over the question: How much is enough? The Substance Test: Here’s How You’ll Be Assessed Imagine a German tax inspector knocking on your door. Here’s what they want to see: Area of Review What Theyre Looking For Common Pitfalls Employees Employment contracts, payslips, attendance records Nominee directors, remote-only teams Business Activity Business records, meetings, decisions Decisions made abroad Expenses Office costs, IT, travel expenses Unreasonably low costs Premises Lease agreements, actual use of the office Shared offices with no real presence My honest assessment: Ive seen companies think that a €200/month virtual office would be enough. Spoiler alert: it isnt. Not even close. The Toughest Requirements from International Tax Authorities: Malta Under the Microscope Now things get uncomfortable. Here’s what different tax authorities actually expect from your Maltese company. Germany: BZSt and Their Substance Criteria The German Federal Central Tax Office (BZSt) now has clear guidelines. In holding structures, they look particularly at: Minimum Staffing: For a holding with €10 million in assets, they expect at least 2-3 qualified full-time employees Qualification Level: Not just assistants – true professionals with decision-making authority Cost Test: Operational expenses should be at least 0.5-1% of managed assets Austria: BMF and the Look-Through Approach The Austrians are even pickier. The BMF (Ministry of Finance) uses the look-through approach – they look through your Maltese structure and ask: Where is the business really conducted? Switzerland: ESTV’s Substance over Form Review The Swiss Federal Tax Administration (ESTV) applies a substance over form principle. Specifically, this means: Economic Nexus Test: Is there an actual economic link between your activity and Malta? Management Test: Are key business decisions really made in Malta? Control Test: Who truly controls the company, and from where? The New EU Disclosure Obligation: DAC6 and What It Means Since 2020, advisers and lawyers must report aggressive tax arrangements (DAC6 – Directive on Administrative Cooperation). Certain Maltese structures are also covered. Disclosure is triggered by: Structures with minimal substance Automatic tax advantages with no genuine business activity Artificial arrangements aimed at tax avoidance Insider info: I know three companies that got letters from German tax authorities in 2023 – all with insufficient substance in Malta. The back-taxes? Six figures. CRS Reporting: What Gets Automatically Reported Malta automatically exchanges information on: Type of Information Reporting Threshold Reported To Capital gains All amounts Tax residency country of the beneficiary Disposal gains No specific threshold Tax residency country of the beneficiary Account balances Over $1,000 (approx. €900) Tax residency country of the account holder Ultimate Beneficial Owner Over 25% shareholding All relevant jurisdictions What does this mean for you? Transparency is no longer optional. Your home tax office knows – the only question is whether you’re compliant or not. Malta Operational Activities: The Guide to Real Substance Let’s get practical. Here’s which operational activities you can and must locate in Malta so your substance passes even the toughest scrutiny. Core Income Generating Activities (CIGAs): The Essentials Maltese law distinguishes between different business sectors. Here are the key CIGAs for typical Malta structures: Holding Companies Participation Management: Active monitoring and steering of subsidiaries Strategic Decisions: Investment and divestment decisions Financial Management: Cash management, group financing Risk Management: Overseeing and controlling risk Service Companies IT Services: Software development, systems administration Marketing and Sales: Lead generation, client management Administrative Services: HR, bookkeeping, compliance Intellectual Property Management: Developing and exploiting IP Substance Minimum Standards for Different Business Models Based on my experience with more than 50 Malta structures, here are my honest minimum recommendations: Business Model Minimum Staff Minimum Office Space Estimated Annual Cost Pure Holding (<€5m) 2 full-time 50-80 sqm €120,000–180,000 Active Holding (>€5m) 3–4 full-time 80–120 sqm €200,000–300,000 IP Holding 2–3 specialists 60–100 sqm €150,000–250,000 Service Company 5+ full-time 100+ sqm €300,000+ Documenting Your Operational Activities This is where the wheat is separated from the chaff. You need comprehensive documentation: Board Minutes: Records of all management decisions (in English, signed in Malta) Management Reports: Monthly business development reports Time Tracking: Evidence your employees truly work in Malta Expense Reports: Receipts for all operational expenses Contract Management: Proof that contracts are negotiated and signed in Malta IT Infrastructure and Digital Substance In the digital world of 2025, IT substance is part of the package: Server Location: Critical IT systems should be in Malta or the EU Email Domain: .mt or .com.mt domain for official communication Cloud Services: Prefer EU-based cloud providers Backup Systems: Data protection meeting EU GDPR standards Practical Tip: I advise all my clients: hold your most important meetings physically in Malta. Videocalls are fine for operational topics, but strategic decisions belong in the Maltese boardroom. Outsourcing vs. In-House Staff: Getting the Balance Right You cant outsource everything and still claim substance. Here’s my rule of thumb: Area Can Be Outsourced Must Remain In-House Bookkeeping Yes (to a Maltese firm) Controlling and reporting IT Support Yes (Level 1–2) Strategic IT decisions Legal/Compliance Yes (external lawyers) Compliance management Management No All strategic decisions What’s the takeaway? Plan for at least 2–3 full-time staff covering core functions. You can intelligently outsource the rest. Malta Employee Requirements: How to Hire in Compliance Now we get to the human (and expensive) part. Without real people on the ground, your whole substance story is just paperwork. Here’s how you find, hire, and manage staff in Malta without blowing your compliance. The Different Employee Categories for Substance Not every employee counts equally for your substance calculation: Tier 1: Management and Decision Makers Managing Director: Must be Maltese or an EU resident Finance Director: Responsible for all financial decisions Compliance Officer: Oversees all regulatory compliance Tier 2: Specialists Senior Analysts: For investment decisions in holdings IT Specialists: For tech-focused businesses Marketing/Sales Manager: For operational business activities Tier 3: Administrative Support Executive Assistants: For daily operations Bookkeeper: For local accounting Office Manager: For office management Salary Benchmarks for Malta 2025 Here’s the brutal truth about Maltese salaries (gross, including social contributions): Position Junior (0–2 years) Mid-level (3–5 years) Senior (5+ years) Managing Director €60,000–80,000 €80,000–120,000 €120,000–200,000+ Finance Manager €35,000–45,000 €45,000–65,000 €65,000–90,000 Compliance Officer €30,000–40,000 €40,000–55,000 €55,000–75,000 Business Analyst €28,000–35,000 €35,000–50,000 €50,000–70,000 Executive Assistant €22,000–28,000 €28,000–35,000 €35,000–45,000 Recruitment in Malta: Where to Find the Right People Malta’s population is only 500,000 – talent is scarce. Here are my tried-and-tested recruitment channels: Local Recruitment JobsPlus: The government job centre – good for admin positions Malta Independent Jobs: Local job board with broad reach LinkedIn Malta: For specialist roles University of Malta: For graduates and young professionals EU-wide Recruitment Italy: Many Italian professionals move to Malta (language + climate) Germany/Austria: For finance and compliance positions Eastern Europe: Poland, Czech Republic for IT and back-office roles Employment Law and Compliance in Malta Malta has relatively employee-friendly laws. Here are the key points: Employment Contracts Probation: Max. 6 months for new hires Notice Periods: 1 week (probation) up to 8 weeks (after 4 years) Minimum Wage: €195.16 per week (2025) Overtime: 1.5x rate after 40 hours/week Social Security and Tax Employer contributions: 10% of gross salary Employee contributions: 10% of gross salary Income tax: 0% to 35% (progressive) Bonus pay: 13th and 14th salaries are common Remote Work and Substance Compliance This is a tricky one. Remote work is allowed in Malta, but problematic for substance purposes: Important: Employees working more than 50% remotely only count pro rata towards your substance calculation. Full-time remote staff dont count at all. Hybrid Work Models for Substance 3-2 model: 3 days office, 2 days home (counts 100%) 4-1 model: 4 days office, 1 day home (counts 100%) 2-3 model: 2 days office, 3 days home (counts 60%) Employee Development and Retention Malta sees high turnover – especially in finance and tech. My tips for retention: Competitive Benefits: Private health insurance, company car, lunch vouchers Professional Development: Budget for conferences and certifications Flexible Hours: Core hours 10am–3pm, flexible start/end Career Path: Clear advancement options The takeaway: Budget for 15–20% higher staffing costs than you originally thought, but invest in quality and stability. A good Managing Director may cost €100,000/year – a bad one risks your compliance and far more in the long run. CRS and BEPS: What You Need to Know About the New EU Rules This gets technical – but dont worry, Ill break down the complex international tax rules so you can understand and use them. Common Reporting Standard (CRS): The Transparent Taxpayer Since 2017, over 100 countries automatically exchange tax data. Malta is fully on board. What does this mean? What Is Automatically Reported All capital income: Interest, dividends, capital gains Account balances: End-of-year balances of all accounts above $1,000 Insurance products: Cash value of life policies Trust and foundation structures: Beneficial owner information Who Is Notified Maltese banks and authorities automatically report to: Your country of tax residence Your country of citizenship (for US persons) Any country where you are tax-relevant BEPS (Base Erosion and Profit Shifting): The Anti-Tax Avoidance Weapon The OECD has set out 15 action points against tax avoidance. The most relevant for Maltese structures are: Action 5: Harmful Tax Practices Malta had to adjust its tax regimes. Key changes include: Nexus requirement: IP income only favored if real R&D in Malta Substantial activity: Necessary for all preferential regimes Documentation: Extensive evidence is required Action 6: Treaty Shopping Prevention Malta’s double tax treaties now include Principal Purpose Test (PPT) clauses: Structures must have a genuine business purpose Saving tax alone does not suffice Substance must match treaty benefits EU Anti-Tax Avoidance Directive (ATAD): Direct Impact ATAD I and II directly affected Maltese law: Controlled Foreign Company (CFC) Rules Since 2019, stricter CFC rules apply. Your Maltese company can be classified as a CFC if: You hold more than 50% of shares Corporate tax rate is below 13.125% (75% of German rate) Over 30% of income is passive General Anti-Abuse Rule (GAAR) Malta introduced a general anti-abuse clause: Arrangements without genuine substance can be disregarded The main purpose cannot be tax avoidance A valid commercial reason is required Country-by-Country Reporting: Transparency for Groups Companies with turnover above €750 million must prepare detailed country-by-country reports: Indicator What’s Reported Risk if Inconsistent Turnover By country Transfer pricing audits Pre-tax profit By country and company Substance challenge Taxes paid Effective tax burden BEPS investigation Number of employees Full-time equivalents Substance doubts Practical Compliance Steps for 2025 With the new rules, here are your action items: Immediate Steps Substance audit: Review your structure against new standards Update documentation: Ensure all BEPS requirements are met CRS compliance check: Check all reporting duties Tax residency certificate: Get an up-to-date tax residence certificate Ongoing Measures Quarterly substance reviews: Monitor your compliance regularly Transfer pricing documentation: Keep all intercompany transactions up to date Board meeting minutes: Record all key decisions in Malta Employee time tracking: Demonstrate actual work performed in Malta Important note: Rules change quickly. What’s compliant today can be a problem tomorrow. I recommend quarterly compliance reviews with a specialist tax advisor. Malta vs Other EU Jurisdictions: The Honest Comparison 2025 After five years on the island and countless structuring projects, I can tell you honestly: Malta isn’t always the best choice. Sometimes it is, sometimes not. Here’s my unfiltered comparison. Malta vs Netherlands: The Substance Showdown Criterion Malta Netherlands Winner Corporate tax rate 35% (effective 5–10%) 25.8% Malta Substance requirements Medium to high Very high Malta Talent pool Limited (500k population) Large (17m population) Netherlands Office costs €25–40/sqm/month €35–60/sqm/month Malta Reputation with tax authorities Closely scrutinized Accepted Netherlands Quality of life Sun, but limited Infrastructure, but weather Draw Malta vs Ireland: The Celtic Tiger vs Mediterranean Malta Ireland is Malta’s main rival for EU holding structures: Irelands Advantages Tax rate: 12.5% corporate tax on trading profits Reputation: Less problematic for German/Austrian tax offices Talent pool: 5 million citizens and a strong tech scene Infrastructure: Better flight connections, modern IT Maltas Advantages Flexibility: More structuring options in tax law Costs: Lower salaries and office rents Climate: 300 days of sunshine vs. Irish drizzle EU access: Same EU benefits, lower costs Malta vs Luxembourg: David vs Goliath Luxembourg is the established finance hub, Malta the ambitious challenger: When Luxembourg Is the Better Choice Large structures: Volumes above €100 million Institutional investors: Pensions, insurers prefer Luxembourg Regulatory stability: 30 years of finance centre experience Banking: Access to top-tier banks When Malta Is Better Smaller structures: Volumes under €50 million Operating companies: Not just holdings, real operations Cost-benefit: Much lower setup and running costs Flexibility: Faster decisions, less bureaucracy Malta vs Cyprus: Mediterranean Competition Both islands compete for the same clientele – here’s what really differs: Aspect Malta Cyprus EU membership Since 2004, euro since 2008 Since 2004, euro since 2008 Tax regime Imputation system 12.5% flat rate Russia exposure Minimal High (Ukraine war impact) Language Maltese/English Greek/Turkish/English Banking reputation Solid after 2018 clean-up Problematic since 2020 Honest Recommendation: When to Choose Malta – and When Not Malta is ideal if: You’re planning a holding structure in the €5–100 million range You’re prepared to create real substance (2–4 full-time employees) You can relocate operational activities to Malta Low running costs matter more than absolute reputation You and your staff value the Mediterranean climate Malta is NOT ideal if: You only want a shell company without real substance Your structure manages over €100 million You earn only passive income German/Austrian tax authorities are already watching you closely You’re not ready to spend €150,000+ a year on substance costs My honest take: Malta can still work in 2025, but only for those willing to create real substance. The days of quick & dirty structures are definitely over. Malta’s Future: The Next Five Years Based on current EU trends, here’s my forecast for Malta to 2030: Tougher substance rules: Further raising of minimum standards Automated compliance: AI-based substance checks by tax authorities Market consolidation: Fewer, bigger, and more professional structures Specialization: Malta will focus on sectors such as gaming, crypto, and ship registration What does this mean for you? If you choose Malta, plan for the long-term and invest in genuine substance from day one. Half-hearted solutions won’t cut it in 2025 and beyond. Common Pitfalls in Substance Documentation: Avoid These Compliance Traps In the last five years, Ive seen more Malta structures fail due to poor documentation than bad planning. Here are the most common traps and how to avoid them. Mistake #1: Treating Board Minutes as a Formality I see this constantly: companies create board minutes that look like they were drafted by a lawyer, for another lawyer. Typical Problems Template language: The Board resolved to approve the quarterly management report – with no real detail Unrealistic decisions: A two-person board discusses 20 complex investment decisions in 30 minutes Lack of economic substance: Decisions with no sign of local analysis or input Poor timing: Board meeting on Dec 31 at 11:59pm signs off on the business plan How to Get It Right Realistic timing: Board meetings of 2–4 hours for major decisions Local analysis: Show local employees provided input Follow-up actions: Every decision should have clear next steps Supporting documents: Reference analyses, reports, calculations Mistake #2: The Phantom Employee Trap Companies hire employees supposedly working in Malta, but who are practically invisible. Red Flags for Authorities No digital footprint: No emails from local staff to external partners Unrealistic working hours: All important emails sent outside Maltese working hours No local interaction: No meetings with local advisors, banks, authorities Template communications: All emails sound identical (probably by the same ghostwriter) How To Build Authentic Employee Substance Local networking: Staff should attend Malta Business Network events Banking relationships: Have local staff manage bank contacts Professional development: Send staff to Maltese training programs Community involvement: Engage in local business associations Mistake #3: Expense Allocation Chaos Cost allocation between jurisdictions is a minefield. Here are typical traps: Error Type Example Risk Solution Unrealistic cost base €50m holding with €30k costs Substance doubts Benchmark to similar structures Inconsistent allocation IT costs sometimes to Malta, sometimes Germany Transfer pricing issue Define clear allocation keys Missing documentation Costs with no receipts or justification Tax office target Meticulous documentation Artificial expenses Overpriced “consultancy” from a sister company Anti-avoidance rules Arm’s-length pricing Mistake #4: Neglecting IT Infrastructure In a digital world, everything leaves a trail. Common IT compliance risks: Digital Red Flags Server locations: All key systems hosted in Germany, not Malta Email domains: Business email uses .de domains Cloud services: Data stored in non-EU data centers Video conference records: All important meetings held outside Malta Building IT Substance Properly Register a Malta domain: Use .com.mt for official email EU cloud providers: Microsoft 365 or Google Workspace with EU residency Local IT services: Hire Maltese IT firms Backup strategy: Store major data in Malta or the EU Mistake #5: Neglecting Transfer Pricing Many Malta structures fail not because of substance, but because of poor transfer pricing. Common Transfer Pricing Mistakes No benchmarks: Intercompany prices with no comparables analysis Inconsistent methods: Different pricing for similar services No documentation: No written service agreements Risk-return mismatch: High profits without corresponding functions or risks Transfer Pricing Best Practices Economic analysis: Every intercompany transaction needs economic justification Benchmarking studies: Use databases like Bureau van Dijk or Thomson Reuters Risk assessment: Document which company assumes which risks Annual updates: Transfer pricing is not “set and forget” – review annually Mistake #6: Compliance Monitoring Gaps The biggest mistake: setting up substance once and hoping it runs itself. Compliance Monitoring Checklist Monitoring Area Frequency Responsible Documentation Staff presence Monthly HR Malta Time tracking reports Board decisions Quarterly Company secretary Board minutes Expense allocation Monthly CFO Malta Cost center reports CRS compliance Annually Tax advisor CRS self-certification Substance review Semi-annually Managing Director Substance report Practical tip: I always recommend a compliance dashboard for clients – a one-page monthly overview of all critical substance KPIs. You’ll spot problems instantly. Mistake #7: Legal Entity Management Chaos Malta structures often skip professional corporate management. That backfires during audits. Corporate Governance Basics Registered office: Not just an address, but an actual place of business Company secretary: Professional service, not an intern Statutory books: All company records complete and up to date Annual returns: Timely filing at Malta Business Registry Bottom line: Good documentation isn’t expensive – poor documentation can sink your entire structure. Invest in professional compliance systems from the very start. Your Step-by-Step Checklist: Building Substance in Malta After all that theory, now for the practical part. Here’s your complete roadmap for establishing real, compliant economic substance in Malta. Phase 1: Strategy and Structural Planning (Month 1–2) Week 1–2: Develop Business Case Define your business model Which activities can/should relocate to Malta? How much substance is the minimum? What’s the true commercial reason? Create a tax plan Consult tax advisor in your home country Engage Malta tax advisor Design transfer pricing structure Budget calculation Setup costs: €15,000–25,000 Running costs: €150,000–300,000 per year Staff costs: €100,000–200,000 per person Week 3–4: Legal Structure Design Select company form Private Limited Company (standard) Public Limited Company (for larger structures) Partnership (for some business models) Shareholding structure Direct vs. indirect holding Nominee structures (if needed) Consider exit strategy Phase 2: Entity Setup and Registration (Month 3) Week 1: Company Incorporation Name reservation Check name with MFSA Check domain availability (.com.mt preferred) Trademark research Directors and shareholders Managing Director resident in Malta At least one Maltese or EU director Appoint company secretary Memorandum and articles Define a broad business purpose Set authorised share capital Establish corporate governance rules Week 2–3: Registration and Licenses Malta Business Registry Submit company registration Obtain certificate of incorporation Apply for VAT registration Tax registration Income tax registration Social security registration Prepare CRS self-certification Week 4: Banking Setup Open a bank account HSBC Malta or Bank of Valletta (well-established options) Choose a corporate banking package Set up online banking and SEPA access Financial infrastructure Implement accounting software (Sage, QuickBooks) Set up payment processing Arrange insurance policies Phase 3: Building Operational Substance (Month 4–6) Month 4: Office and IT Infrastructure Office space At least 50–80 sqm for 2–3 people Valletta, Sliema, or St. Julian’s preferred Meeting rooms and professional appearance IT setup Microsoft 365 or Google Workspace (EU region) VPN access for secure communication Implement backup systems Cybersecurity measures Month 5–6: Recruiting Staff Fill key positions Managing Director (Malta resident) Finance Manager/Controller Executive Assistant/Office Manager Recruitment process Create job descriptions Engage local recruitment agencies Employment contracts under Maltese law Develop onboarding program Phase 4: Operations and Compliance (from Month 7) Monthly Tasks Board Activities At least one board meeting per quarter in Malta Prepare management reports Document strategic decisions Financial Management Monthly closing and reporting Expense allocation reviews Cash flow management Quarterly Tasks Compliance Reviews Substance requirements check Transfer pricing review CRS compliance update Business Development Local network building Market analysis updates Strategic planning reviews Annual Tasks Statutory Compliance File annual returns Prepare tax returns Audit (if required) Strategic Reviews Business model assessment Review if substance is adequate Update tax planning Critical Success Factors: What Really Matters Success Factor Importance Common Pitfalls Best Practice Qualified staff Very high Cheap “dummy” directors Real experts with track record Documentation Very high Backdated documentation Real-time documentation Local presence High Virtual offices Real offices with physical presence Professional advisors High Choosing cheapest option Specialist Malta experts Ongoing compliance Very high “Set and forget” mindset Continuous monitoring Your Go-Live Checklist Before you “switch on” your Malta structure, review these final points: □ Legal structure: All entities properly registered and capitalized □ Tax compliance: All registrations complete, first returns filed □ Banking: Accounts opened, online banking functional, first transactions tested □ Personnel: Key employees hired, contracts signed, onboarding complete □ Office: Office leased, IT infrastructure operational, professional image ensured □ Documentation: All corporate documents in place, board minutes for first decisions created □ Substance plan: Clear 12-month operational plan □ Monitoring: Compliance monitoring system live Final recommendation: Be generous with your time and budget. A well-built Malta structure takes 6–9 months and €200,000–400,000 in the first year. But if done right, you’ll have a solid, compliant setup for years ahead. Frequently Asked Questions About Economic Substance in Malta How many employees do I need for real substance in Malta? For a basic holding structure, you need at least 2 full-time employees, including one Managing Director resident in Malta. For operational companies or larger holdings (over €50 million), youll need 3–4 qualified full-timers. Whats important isn’t just the number but the qualifications – an experienced finance manager adds more value for substance than three admin assistants. What are the realistic annual costs for a compliant Malta structure? For a professional Malta structure with genuine substance, you should budget €150,000–300,000 operational costs per year. 60–70% of this is salary (that’s €100,000–200,000 for 2–3 staff), 15–20% for office/IT costs (€20,000–40,000), and 10–15% for professional services like accounting, audit, and legal support (€15,000–30,000). These costs are non-negotiable for compliance – cheap “solutions” tend to end up with regulatory trouble. Can my staff work partly remote without risking substance? Hybrid work is possible, but with clear limits. Staff working more than 50% remotely only count proportionally for substance. A 3-2 model (3 days in Malta, 2 days remote) is generally accepted as counting 100%. Fully remote staff don’t count for substance. Key: Keep meticulous attendance records and make sure all major business decisions are made physically in Malta. What if German/Austrian tax authorities audit my Malta setup? During an audit, authorities focus on three areas: real employees on site, documented business activity in Malta, and appropriate running costs. They check board minutes, contracts, email traffic, travel expenses, and real use of Maltese office space. A well-documented, substantive structure handles these audits fine. You’ll have problems only with mailbox companies or questionable paperwork. Is Malta still a good choice in 2025 compared to other EU countries? In 2025, Malta is attractive for certain structures, but not for all. It’s ideal for mid-sized holdings (€5–100 million), operating companies with a real Malta angle, and situations where cost efficiency matters more than top-tier reputation. Malta is not suitable for pure shell companies, very large holdings (over €100 million), or companies already scrutinized by tax authorities. The Netherlands or Luxembourg may offer more reputation, Malta offers more flexibility and lower costs. What types of business activities are best for Malta substance? Especially suitable: participation and holding activities, IT services and software development, marketing/sales for European markets, treasury/cash management, intellectual property management. Less suitable: pure passive investments, business with only non-European partners, highly regulated businesses like banking/insurance (without the required licenses), and activities needing national licenses in other EU countries. How long does it take to set up a compliant Malta structure? Plan for 6–9 months from first planning to fully operational structure. Incorporation takes 2–3 weeks, banking 4–8 weeks, finding and setting up an office 4–6 weeks, recruiting staff 8–12 weeks. At the same time you’ll be building processes, IT, and compliance systems. Rushing all this in 2–3 months leads to compliance trouble later. Better to invest the time for solid foundations from the start. What are the biggest risks for Malta structures in 2025? Main risks: poor substance documentation that can’t withstand audit; changes in anti-tax-avoidance rules affecting existing structures; reputation risks with German/Austrian tax authorities; high recurring compliance costs that wipe out tax benefits; and dependency on a small talent pool for key positions. Mitigate these by professional planning, proper budgeting, and continuous compliance monitoring. Can I upgrade existing structures to new substance requirements? Yes, but usually it means significant changes. Old shell structures must be revamped: hire real staff, relocate operations, professionalize documentation, and often reform legal structures. Upgrade costs are typically just 20–30% less than a full rebuild. Crucial: Start upgrading before tax authorities become active. Reactive fixes during an audit are rarely convincing. How do I document business decisions for substance compliance? Every important business decision needs a “Malta footprint”: Board minutes with local input, supporting documents from Malta staff, follow-up actions with Malta-responsible persons, and communication records showing the decision is executed in Malta. Avoid template language and unrealistic timing. Good rule of thumb: an external reviewer should be able to understand from your board minutes why and how a decision was taken and implemented.
