Substance Checklist Malta 2025: Meeting All International Requirements

What are Substance Requirements in Malta?

Substance Requirements are rules ensuring that your Maltese company is more than just a name on a letterbox. EU law and the OECD demand that companies are truly active where they are tax resident, not just on paper.

Why do these requirements exist at all?

The short answer: to combat tax avoidance. The longer answer: Since the EU’s 2016 ATAD (Anti-Tax Avoidance Directive) and the OECD’s BEPS (Base Erosion and Profit Shifting) action points, EU countries like Malta are required to prove that companies resident there are engaged in real business activities.

What does this mean for you? You can’t just set up a mailbox company in Valletta and hope no one asks questions. Malta wants to see that your business is truly rooted locally—with employees, offices and genuine decision-making procedures.

Who must comply with Malta’s Substance Requirements?

Generally all Maltese companies, but the following are scrutinized most strictly:

• Holding companies with stakes in foreign subsidiaries
• IP companies (Intellectual Property) managing licences
• Financial services providers and insurers
• Shipping companies with international routes
• Trading companies active across borders

My tip: Even if you’re “just” planning an operational company, think about substance requirements from the very start. Retroactively catching up is costly and complicated.

The Three Pillars of Maltese Substance

Malta focuses on three key areas:

1. Physical Presence: Offices, equipment, local infrastructure
2. Economic Activity: Turnover, business transactions, value creation
3. Human Resources: Qualified employees, local decision makers

Malta Substance Requirements 2025: The Current Requirements in Detail

Since January 2025, Malta has tightened its rules. The Malta Financial Services Authority (MFSA) has revised its guidelines and is now stepping up enforcement. Here’s what’s changed and how it will impact your planning.

Physical Presence: More Than Just a Mailing Address

Your Maltese company needs an adequate business premises. What “adequate” means will depend on your business activities:

Important: Since 2025, a simple registered address with a company service provider is no longer enough. You’ll need a real workspace your staff can use every day.

Staffing Requirements: The Right People on the Ground

This is where things get specific: Malta expects qualified employees working locally and making real decisions. Minimum requirements (as of 2025):

• At least 2 full-time employees with Maltese employment contracts
• At least 1 director with residence in Malta
• Qualifications suited to your business activities (documentation needed)
• Appropriate compensation (Malta benchmark: min. 35,000 EUR/year for skilled roles)

What does this mean for you? You can’t just hire a couple of interns and hope for the best. The MFSA checks résumés, qualifications and salary documentation.

Operational Requirements: Proving Genuine Business Activity

Malta wants to see real, local value creation. This means:

• Core income generating activities (CIGA) occur locally
• Regular board meetings in Malta (at least 4x per year)
• Local bank accounts and operational accounts
• Compliance infrastructure (accounting, audit, legal)

Pro Tip: Document everything precisely. Every meeting, every decision process, every operational action. In a substance audit, you’ll need to prove it all.

Economic Substance Test Malta: How to Pass the Assessment

The Economic Substance Test is the core of Malta’s review process. Here’s how it works—and some insider strategies to help you pass with confidence.

The Three-Stage Assessment

Malta reviews your substance in three stages—a stress test for your company:

Stage 1: Relevance Test

Firstly, authorities check if your company is even subject to substance requirements. This depends on your activities:

• Non-relevant activities: Purely local retail, local services
• Relevant activities: Cross-border trading, IP management, holding activities
• High-risk activities: Pure IP-holding without operations

What does that mean for you? The more international your business, the closer Malta will look.

Stage 2: Minimum Substance Test

This is where Malta gets quantitative—they love numbers:

Stage 3: Adequate Substance Test

The final challenge: Malta checks if your substance and business size make sense together. A 100-million holding company with 2 employees? That won’t fly.

Rules of thumb for adequate substance:

• Per 50M EUR of managed assets: 1 additional qualified employee
• Per 10M EUR in annual turnover: 1 additional manager
• Operating expenses: At least 0.1% of assets under management

What does it mean for you? The larger your business, the more you’ll need to invest in Maltese substance. There’s no upper limit—but minimum credibility is a must.

Malta Substance Checklist: Your Step-by-Step Guide

Enough theory—let’s get practical. Here’s a checklist you can use to systematically build your Malta substance. It’s what I use for my clients, too.

Phase 1: Preparation and Planning (Months 1–2)

Establish Legal Foundations

1. Complete company formation
   • Finalize Memorandum & Articles of Association
   • Register with Malta Business Registry
   • Apply for tax number (VAT registration)
2. Set up compliance structure
   • Hire Maltese tax advisor (cost: 3,000–8,000 EUR/year)
   • Select audit firm
   • Appoint company secretary
3. Prepare banking setup
   • Initiate account opening with Maltese bank
   • Prepare due diligence documents
   • Create business plan for bank

Phase 2: Physical Infrastructure (Months 2–3)

Secure an Office Location

Finding office space in Malta can test your patience—allow at least 4–6 weeks:

Office equipment checklist:

• Internet connection (min. 100 Mbit/s) ✓
• Telephone system with Maltese number ✓
• Workplaces for all employees ✓
• Conference room (can also be shared) ✓
• Security system (especially for IP companies) ✓
• Mailbox and reception service ✓

Phase 3: Staff & Organisation (Months 3–4)

Find the Right Employees

Recruiting in Malta is challenging—the market is small and competitive. In my experience:

• Local Director: 60,000–120,000 EUR/year (depending on credentials)
• Operations Manager: 35,000–50,000 EUR/year
• Administrative Assistant: 20,000–30,000 EUR/year
• Compliance Officer: 45,000–65,000 EUR/year

Insider Tip: Use Maltese recruitment agencies like Konnekt or Reed. They know the local market and can provide realistic salary benchmarks.

Ensure Employment Compliance

1. Create employment contracts in line with Maltese law
2. Register social security for all staff
3. Private health insurance (often expected, not mandatory)
4. Set up payroll system

Phase 4: Operational Implementation (Months 4–6)

Localize Business Processes

Now comes the crucial phase—your value creation needs to happen in Malta:

• Decision-making: Strategic decisions must be made in Malta
• Contracts: Important contracts should be negotiated from Malta
• Risk management: Compliance and risk management established locally
• Controlling: Finance management and reporting from Malta

Documentation & Compliance

Malta is very documentation-driven. Keep meticulous records of:

• Board meeting minutes (at least quarterly)
• Attendance lists at key meetings
• Decision documentation
• Employee time tracking
• Operational cost records

Malta Holding Substance Requirements: Special Rules for Holding Companies

Holdings are a cornerstone of the Maltese corporate scene—but also the main focus of substance reviews. Here are the key details if you’re setting up a holding company.

Pure Holdings vs. Mixed Holdings

Malta very clearly distinguishes two types of holding companies:

Pure Equity Holdings

Only holding participations, no operational activity:

• Reduced substance requirements: 1–2 qualified staff are sufficient
• Focus on governance: Board meetings and oversight in the foreground
• Cost-efficiency: Operational costs can be lower

Mixed Holdings

Holdings with operational activity:

• Full substance requirements: Same as operating companies
• Additional compliance: For each business line
• Higher costs: But also higher flexibility

What does this mean for you? Decide consciously which route you want to take. A pure holding is cheaper but less flexible.

Scaling Substance by Asset Size

Malta expects more substance as managed assets increase:

IP Holdings: A Special Case

Intellectual property holdings have been closely scrutinized, especially since the OECD’s DEMPE rules (Development, Enhancement, Maintenance, Protection, Exploitation):

• Development activities must demonstrably take place in Malta
• IP management requires specialized staff
• Licence negotiations must be conducted from Malta
• Risk assumption must take place on site

Warning: Pure “IP-Box” companies with no actual development activity have become essentially untenable since 2025. Malta is especially strict here.

Common Mistakes with Malta Substance Requirements – And How to Avoid Them

After three years’ experience, I know the pitfalls inside out. Here are the five most common mistakes—and how to steer clear of them.

Mistake 1: Treating Substance as an Afterthought

Classic mistake: Set up the company first, then figure out the substance later.

Why it fails: Building substance takes 6–12 months. Without a plan, it gets expensive and chaotic.

My fix: Plan for substance from day one. Budget: 150,000–300,000 EUR in the first year.

Mistake 2: Poor Staffing Strategy

Classic mistake: Hire cheap interns or overpriced experts with no Malta connection.

Why it fails: Malta checks qualifications and pay scales. Underpaying or overpaying stands out.

My fix: Offer market-rate Maltese salaries, hire local talent, document qualifications.

Mistake 3: Faux Meetings and Sham Decisions

Classic mistake: Hold board meetings but make the real decisions elsewhere.

Why it fails: Malta checks not just meeting minutes, but the substance of decisions.

My fix: Shift real decision-making power to Malta. Directors must have genuine authority.

Mistake 4: Gaps in Documentation

Classic mistake: Poor records of Maltese company activities.

Why it fails: You must be able to prove everything in an audit. No documents, no recognition.

My fix: Systematic, comprehensive documentation from the start. Digital, complete and audit-ready.

Mistake 5: Underestimating Ongoing Costs

Classic mistake: Only budgeting for setup costs, ignoring ongoing expenses.

Why it fails: Maintaining substance costs real money over time. Without a budget, the structure collapses.

My fix: Realistic budget planning for 3–5 years. Substance is a continuous, not a one-off, cost factor.

Red Flags: How Malta Instantly Spots Issues

• Salaries below market levels (Malta knows its salary bands)
• Staff without relevant qualifications for the business activity
• Operating expenses under 5% of turnover (unrealistically low)
• No local bank accounts despite Maltese residency
• Board meetings always at the same time with no real agenda
• Decisions made via email instead of in meetings

Costs and Effort: What Meeting Malta’s Substance Requirements Will Cost You

Let’s get down to brass tacks: What does it actually cost to run a substantial Maltese company? Here’s a frank cost breakdown—no sugar coating.

One-off Setup Costs (Year 1)

Ongoing Annual Costs

These are the ongoing yearly costs—this is where your Malta structure’s profitability is decided:

Payroll (the lion’s share)

• Local director: 70,000–120,000 EUR/year (gross)
• Operations manager: 40,000–55,000 EUR/year
• Administrative support: 25,000–35,000 EUR/year
• Social Security: +10% on all salaries

Minimum payroll budget: 140,000–220,000 EUR/year

Operating Costs

Total Cost of Ownership (TCO) – The True Account

Year 1 (including setup):

• Small setup: 218,500 EUR
• Standard setup: 357,000 EUR
• Premium setup: 529,000 EUR

From year 2 onwards (running costs):

• Small setup: 185,000–265,000 EUR/year
• Standard setup: 229,000–309,000 EUR/year
• Premium setup: 399,000–579,000 EUR/year

When Does a Maltese Company Make Sense?

The million-euro question. Here are my rules of thumb from practice:

• Minimum annual turnover: 2–3 million EUR (otherwise, the costs outweigh the benefits)
• Sweet spot: 5–50 million EUR annual turnover
• Break-even tax savings: At least 300,000 EUR/year

Reality check: If your annual tax savings are below 200,000 EUR, Malta is probably too expensive. Consider a simpler structure in Germany/Austria instead.

Cost Traps and Hidden Expenses

What’s often “forgotten” in the calculations:

• Travel costs: 15,000–30,000 EUR/year for regular Malta visits
• Opportunity costs: Time needed for setup and management
• Compliance updates: Ongoing changes with new laws
• Exit costs: If you need to dissolve the structure

Money-Saving Tips

1. Use shared services: Share compliance functions with other companies
2. Build up gradually: Don’t do everything at once—scale step by step
3. Go local with providers: Maltese service providers are often cheaper than international options
4. Leverage digital infrastructure: Cloud-based solutions save office expenses

Frequently Asked Questions (FAQ)

Can I meet substance requirements with a shared office?

For smaller holdings (under 10M EUR in assets under management) a shared office is generally an option, but you still need your own workplaces and access to meeting rooms. Since 2025, a simple registered address is no longer enough.

How many employees must I have in Malta at a minimum?

At least 2 full-time employees with Maltese contracts, including at least 1 director resident in Malta. Larger companies (over 50M EUR in assets) need proportionally more staff.

What happens if I don’t meet the substance requirements?

Malta can revoke tax residency status, impose fines or even withdraw the company’s licence. You may also face back taxes in other countries if substance is called into question.

Can my Malta employees work remotely?

No, that’s a major misconception. Employees must physically work in Malta and have their main residence there. Home office is only allowed on an occasional basis.

How often must the board meet in Malta?

At least 4 times per year; more often for larger companies. Key decisions must genuinely be made at these meetings—not just rubber-stamped afterwards.

What qualifications must my Malta employees have?

Staff must be suitably qualified for your business. IP holdings need IP experts; trading companies need sales professionals. Malta checks résumés and certificates.

Can I send existing employees to Malta?

Yes, but they must move their tax residency to Malta and switch to local employment contracts. Secondment alone is not sufficient for substance requirements.

What’s the realistic cost of meeting substance requirements?

Budget 200,000–400,000 EUR per year for a standard setup including staff, office and compliance. The first year adds a further 50,000–100,000 EUR in setup costs.

How long does it take to build substantial presence in Malta?

Allow 6–12 months. Company formation is quick, but hiring, office search and compliance setup take time.

Do I have to live in Malta as a shareholder?

No, but at least one director must be a resident of Malta. That director must have real decision-making powers—not just a formal title.