Table of Contents Malta Companies and Management Agreements: What You Really Need to Know Legally Secure Structuring of Consultancy Contracts in Malta Tax Optimization through Smart Contract Structuring International Structures: Malta as a Holding Location Practical Implementation: From Concept to Signed Agreement Compliance and Ongoing Obligations Frequently Asked Questions Do you know what surprised me most about Maltese corporate law? Not the complicated tax rules or the endless forms in Maltese—but how many so-called “experts” get management agreements entirely wrong. After three years of Malta experience (and more grey hairs than I’d like), I’m sharing my knowledge here on legally secure structuring for management and consultancy agreements with Malta companies. Spoiler: It’s more complex than the glossy firm brochures make it seem, but doable—if you know what really matters. Malta Companies and Management Agreements: What You Really Need to Know The Basics: Malta Company vs. Partnership Let’s start with the basics your tax advisor won’t explain: In Malta you basically choose between a private limited company (similar to a German GmbH) and various partnership structures. For international management setups, the private limited company is the right pick in 95% of cases. Why? As an EU company, a Malta company can fully benefit from European freedom of establishment while also offering Malta’s attractive tax regime. The 6/7ths refund system (more on that later) allows effective tax rates of 5%—but only with correct legal structuring. My practical tip: I’ve seen entrepreneurs choose partnerships because they “sounded more flexible.” Three months later, they wanted to switch back to a company structure because international partners didn’t understand partnerships. Save yourself the detour. Why Use Management Agreements at All? I hear this question all the time, and the answer is far more nuanced than most think. Management agreements (or management service agreements) not only optimize taxes, but create clear legal frameworks for these areas: Operational management: Who makes which decisions and assumes what responsibilities? Compensation structures: Management fees vs. profit distributions are taxed very differently Limiting liability: Properly set up, they protect you from personal liability Substance requirements: Malta demands real economic activity—management agreements help fulfil this Transfer pricing: Essential for documenting arm’s length terms in international setups My First Experiences with Maltese Lawyers I still vividly recall my first appointment at a top law firm in Valletta. The partner explained to me for 45 minutes why Malta was “the new Dublin” for fintech, but couldn’t tell me how long a simple management agreement would take. Spoiler: 6–8 weeks is realistic, not the promised “2–3 weeks.” What I learned: Maltese lawyers are good, but different. They know their local law inside out, but often have little experience with German or Austrian tax structures. That’s why you usually need a combination of Maltese and domestic counsel. Lawyer Type Strengths Weaknesses Cost (approx.) Malta Big 4 firm International experience, all services Expensive, long waiting times €400–600/hour Boutique Malta law firm Personal, Malta expertise Limited international experience €200–350/hour German firm with Malta desk German approach, understands your structure Expensive, often only theoretical Malta know-how €350–500/hour Legally Secure Structuring of Consultancy Contracts in Malta Understanding the Maltese Legal Landscape Malta’s contract law is based on the Civil Code, heavily influenced by the French Code Civil—quite different from the German or Austrian systems. So, some standard clauses used at home won’t work in Malta, or have entirely different effects. For example: Limitations of liability are much more restricted in Malta than in Germany. You can’t simply exclude liability for gross negligence—that’s invalid under Maltese law (Article 1058 Civil Code). I learned this the hard way when a German template contract was picked apart before the Maltese Companies Tribunal. Three key differences you need to know: Good Faith Principle: Malta requires explicit good faith in contracts—more so than German law Penalty clauses: Penalties are possible, but subject to stricter limits Termination rights: Termination works differently—especially for long-term contracts Essential Clauses for Management Agreements After countless contract negotiations in Malta, I’ve put together a checklist of the really essential clauses. These are must-haves for any management agreement with a Malta company: 1. Scope of Services Define exactly what management services are provided. Vague phrases like “general consultancy” are poison for transfer pricing analysis. Better: Strategic planning and business development Financial management and reporting Operational oversight and quality control Regulatory compliance monitoring Risk management and internal controls 2. Management Fee Structure Now it gets interesting for tax. You have three main models: Fee Model Tax Treatment in Malta Pros Cons Fixed monthly fee Business expense, fully deductible Predictable, simple No upside for strong performance Performance-based fee Business expense, but more complex documentation Alignment of interests Transfer pricing proof more demanding Hybrid model Base fee + performance component Balance between predictability and incentives Most complex structure 3. Substance and Economic Reality Malta has become very strict on BEPS rules (Base Erosion and Profit Shifting). Your management contract must reflect real economic activity: Physical presence: Regular presence in Malta or proven remote management activity Decision-making: Document where and how strategic decisions are made Risk management: Who assumes which business risks and exercises corresponding control? Liability and Insurance—What Really Matters I often encounter a sobering pattern: German entrepreneurs overestimate their ability to limit liability in Malta. Maltese law does recognize Directors & Officers insurance, but coverage is often riddled with holes. My recommendation after three years of Maltese practice: Professional indemnity insurance is essential, not optional. At least €1 million coverage, ideally €2–3 million. Yes, it costs about €3,000–5,000 a year, but the first time a client threatens Malta-specific legal proceedings, you’ll be glad you’re covered. Three liability risks often overlooked: Cross-border tax advice: Incorrect tax advice can cause damage in multiple jurisdictions Regulatory breaches: Malta Financial Services Authority (MFSA) issues hefty penalties Data protection violations: GDPR applies in Malta too—and the fines are real Tax Optimization through Smart Contract Structuring Making the Most of Malta’s 6/7ths Refund System Now we get to the heart of the matter: Malta’s famous 6/7ths refund system. But beware—90% of German tax advisors explain it incorrectly or incompletely. Here’s how it really works: Malta levies 35% corporate tax on business profits. So far, so normal. The twist comes on profit distribution: shareholders can reclaim 6/7 of the tax paid—corresponding to an effective tax rate of 5% on distributed profits. But—and it’s a big but—the system only works under certain conditions: Substantial business activity in Malta: Paper companies get no refund Correct application: The refund is not automatic; it must be applied for Timing: Refund claims must be filed within certain deadlines Documentation: Flawless proof of business activity and pre-paid tax How does this affect your management agreements? Crucially: Management fees are business expenses and reduce taxable profit. Clever structuring can look like this: Scenario Profit before Management Fee Management Fee Taxable Profit Effective Tax Burden Without management agreement €100,000 €0 €100,000 €5,000 (5%) With management agreement €100,000 €60,000 €40,000 €2,000 (2%) Management Fees vs. Dividends—The Big Difference Here’s a huge misconception I see repeatedly: German entrepreneurs treat management fees and dividends as being the same for tax purposes. In Malta, that couldn’t be more wrong. Management fees: Are business expenses of the Malta company Reduce taxable profit by 100% Subject to Maltese withholding tax (usually 0% for EU recipients) Must be arm’s length (arm’s length principle) Dividends: Paid out of already taxed profit Entitled to the 6/7ths refund Usually exempt from withholding tax for EU recipients No arm’s length check required The strategic question: Which is more tax-efficient? The answer depends on your overall setup: Rule of thumb from my advisory practice: With total tax burdens below 20% in your home jurisdiction, management fees are usually better. Above that, the dividend-plus-refund structure may be more attractive. EU State Aid Rules—What They Mean for You In 2019, there was a small shock: the EU Commission reviewed Malta’s tax system for unlawful state aid. The result? No concerns about the 6/7ths system, but increased scrutiny on practical compliance. For your management agreements, that means: Genuine business activity required: “Letterbox companies” don’t work anymore Substance requirements are more strictly enforced: Malta demands actual economic activity Increased documentation requirements: Everything must be fully traceable The good news: Properly structured management agreements remain fully EU-compliant. You simply need to be more meticulous than before. International Structures: Malta as a Holding Location The Perfect Structure for EU Business Malta stands out as an EU holding location for international structures. After years of working with various setups, here are the most proven structures I recommend: Classic EU holding structure: German/Austrian company as the operating entity Malta company as EU holding Management agreement between both levels Licensing of IP by Malta company Why does this work so well? As an EU member, Malta can use all benefits of the EU directives: EU Directive Advantage for Malta Structure Practical Effect Parent-Subsidiary Directive Dividend withholding tax exemption 0% withholding tax on profit distributions Interest/Royalties Directive Withholding tax exemption on interest and royalties Tax-free IP licensing possible Merger Directive Tax-free restructurings Flexible structural adjustments A real-life example from my advisory work: A German IT entrepreneur with €500,000 annual profit reduced his overall tax burden from 28% to 12% through clever Malta structuring—fully legal and EU-compliant. Substance Requirements—More than Just Paperwork This is where things get serious: Malta demands economic substance for all tax benefits. This is not bureaucratic window-dressing but a real requirement with actual consequences. What Malta means by substance: Physical presence: Offices in Malta (serviced office usually sufficient) Local employees: At least one qualified employee or director Local decision-making: Major business decisions must be made in Malta Core income-generating activities: Value-creating activities must partly take place in Malta My reality check after three years: A serviced office for €200/month plus a local director for €1,500/month is sufficient for most structures. It only gets expensive when you really need staff—but then we’re talking much larger profits. Warning: I’ve seen entrepreneurs who thought they could “fake” substance. Malta Revenue (the Maltese tax authority) now audits strictly—and if you get caught, all tax benefits are lost. Transfer Pricing and the Arm’s Length Principle Here’s where it gets highly technical: Transfer pricing—charges between group companies—must be at arm’s length. That applies to management fees between your German and Maltese companies too. What does “arm’s length” mean, exactly? Malta follows the OECD Transfer Pricing Guidelines: Comparable uncontrolled price method: What would an unrelated third party pay for the same services? Cost plus method: Service cost plus a market standard margin Transactional net margin method: Net profit margin for comparable transactions Market rates for management fees usually fall within: Type of Management Service Market Range Documentation Burden Administrative services Cost + 5–10% Low Strategic management 2–8% of turnover Medium Risk management 5–15% of profit High My advice: Have a transfer pricing study done before setting management fees. Costs €3,000–8,000 but saves you headaches with the tax authorities later. Practical Implementation: From Concept to Signed Agreement Choosing a Lawyer in Malta—My Recommendations After countless conversations with Maltese firms, I’ve learned: The most expensive lawyer isn’t automatically the best. Here’s what I look for: Must-haves for Malta lawyers: Admitted to practice in Malta: Sounds obvious, but some “Malta experts” just have cooperation agreements Companies Act expertise: Maltese company law changes all the time—your lawyer needs to be up to date Tax law background: Ideally, additional qualification in Maltese tax law English-native: Malta is bilingual, but contracts are usually in English Three types of firm I can recommend: Camilleri Preziosi: Top-tier firm, international standards, priced accordingly (€400–500/hour) Ganado Advocates: Strong corporate practice, good middle ground on quality/price (€300–400/hour) Boutique firms: Often perfect for smaller structures, personal service (€200–300/hour) My insider tip: Ask for a fee estimate before engaging. Reputable firms will give you a realistic quote—rip-offs hide behind vague estimates. Typical Costs and Timelines Here are the numbers you really care about. These are realistic costs and schedules from my experience: Management agreement (standard): Service Time spent Cost Timeline Initial draft management agreement 8–12 hours €2,400–4,800 1–2 weeks Negotiation rounds (2–3 iterations) 4–6 hours €1,200–2,400 2–3 weeks Final review and execution 2–3 hours €600–1,200 1 week Total 14–21 hours €4,200–8,400 4–6 weeks Complex international structures: If you’re dealing with multi-jurisdiction setups or special regulatory requirements, expect costs to double. Ive had management agreements for €15,000–20,000, but those included transfer pricing studies, MFSA compliance, and cross-border tax opinions. Realistic total costs for a complete Malta setup (company plus management agreement): Simple structure: €8,000–12,000 Standard international setup: €15,000–25,000 Complex multi-jurisdiction structure: €30,000–50,000+ The Most Common Mistakes (and How to Avoid Them) After three years of Malta experience, I’ve seen a “hall of fame” of the worst mistakes. Here are my top 5 so you don’t repeat them: Mistake #1: Underestimating substance A German entrepreneur thought a letterbox address would suffice for a Malta company. After six months, a letter from Malta Revenue arrived: substance audit. Result: €25,000 extra tax plus penalty interest. The lesson: invest in real substance from the start. Mistake #2: Ignoring transfer pricing Management fees at 50% of sales without documentation? Not a good idea. The German tax office was not amused and requalified the entire fees as hidden profit distribution. Cost: €80,000 additional tax. Mistake #3: Penny-pinching on legal advice Bought an “off-the-shelf management agreement template” online for €800. Looked good but had fatal gaps under Maltese contract law. The subsequent legal dispute cost €40,000. Mistake #4: Getting the timing of refund applications wrong Didn’t apply for the 6/7ths refund on time (deadline: end of year after distribution). €15,000 tax savings lost because the tax advisor didn’t know Malta deadlines. Mistake #5: Underestimating compliance Annual returns filed three months late. Result: €2,000 fines and a “striking off” procedure. The company was nearly deleted. My most important advice: Don’t cut corners on the setup, cut running costs instead. A proper setup costs €20,000–30,000 up front but can save you €100,000+ in tax over the years. Compliance and Ongoing Obligations Annual Returns—And What Really Happens If You Forget Them Let me get straight to reality: Malta takes compliance seriously. Very seriously. After three years in Malta, I’ve learned: It’s better to ask one time too many than risk missing a deadline. The most important ongoing duties for Malta companies: Compliance Duty Deadline Penalty for Delay Worst Case Annual return January 31 €233 penalty Striking off (deletion) Financial statements 10 months after year-end €233–1,165 Criminal prosecution Tax return June 30 (year after year-end) 5% p.a. penalty interest Enforcement proceedings Beneficial ownership For changes: 14 days €5,000 €10,000 + criminal liability The Beneficial Ownership Register is often overlooked. Since 2018, every Malta company has to report its beneficial owners—and update within 14 days of any change. Sounds easy, but it’s tricky: Indirect stakes over 25% are also reportable Trust structures must be fully disclosed False statements are a criminal offense (up to 2 years imprisonment) My advice: Work with a local company secretary. Costs €1,500–3,000 a year, but covers all filings and deadlines. Much cheaper than fines for errors or delays. FATCA and CRS Reporting This is where it gets internationally complex: Malta is compliant with both FATCA and CRS. That means: Automatic exchange of information with over 100 countries, including Germany, Austria, and Switzerland. What gets automatically reported? Account balances: All bank accounts of the Malta company Investment income: Interest, dividends, capital gains Insurance products: Cash value of life insurance Beneficial owner information: Who ultimately controls the company For your management agreements, this means: Transparency is a must. The days when Malta was a “tax haven” for secrecy are over. But that’s a good thing—legal tax optimization needs no secrecy. Important note: CRS reports do not mean you’ll automatically owe more tax. They just create transparency. If your Malta structure is clean, there’s nothing to worry about. Practical implications for management agreements: Documentation becomes more important: All payments must be traceable Substance proof scrutinized: Home tax authorities can see Malta payments and will ask questions Transfer pricing is under the microscope: Arm’s length must be watertight The good news: Clean structures benefit from transparency. If everything is by the book, CRS actually builds trust with your partners and banks. Frequently Asked Questions Do I really need a Malta lawyer for management agreements? Yes, definitely. Maltese law differs significantly from German or Austrian law. Standard templates from Germany usually don’t work or have dangerous gaps. How long does it take to set up a Malta structure with a management agreement? Realistically 8–12 weeks for company formation plus management agreement. For complex international structures, expect 4–6 months. Can I get the 6/7ths tax refund without a physical presence in Malta? No. Since 2019, Malta requires genuine economic substance. Minimum: office, local director, and proven business activity. What happens if Germany/Austria classifies my Malta company as a letterbox company? It becomes tax-transparent and all profits are taxed back home. That’s why proper substance is essential. Are management fees between Germany and Malta subject to withholding tax? Normally not, thanks to the EU Interest/Royalties Directive. But: The service must really be provided and paid at arm’s length. Can I simply transfer my German contracts to Malta? Not directly. Maltese law has different fundamentals. Contracts need to be redrafted or heavily adapted. How high can management fees be? Depends on services rendered. Rule of thumb: 5–15% of turnover or 20–40% of profit, but always with transfer pricing documentation. Do I have to pay personal income tax on management fees in Malta? Only if you’re Maltese tax resident or the fees are earned in Malta. For German managers, this usually doesn’t apply. Can Malta revoke my management company? If you violate substance requirements or compliance duties, yes. So: always be diligent and meet your deadlines. Is Malta worthwhile even at lower profit levels? From about €200,000 annual profit upwards it makes sense. Below that, the setup and running costs usually eat up the tax benefits.
