Table of Contents What does substance actually mean? The Three Pillars of Malta Substance Offices in Malta: More Than Just an Address Building Your Team: From Job Posting to Full Staff Operational Activity: What Tax Authorities Really Want to See Common Pitfalls and How to Avoid Them Practical Checklist for Building Substance Frequently Asked Questions Building substance in Malta—it may sound like dry tax law at first, but it’s your ticket into a world where tax authorities are paying close attention. I still remember my first consulting meeting here: The lawyer looked at me and said, A mailbox company doesn’t cut it anymore. You need real substance. What does that mean? Offices, staff, and operational activities that prove your business really operates in Malta—not just exists on paper. After two years of Malta reality and countless conversations with tax advisors, MFSA representatives, and entrepreneurs, I know: Substance is not a nice-to-have, it’s a survival strategy. The days when a rented business address in Sliema was enough are gone. International tax authorities are scrutinizing more than ever—and Malta is keeping pace. What does substance actually mean? Substance—or substance, as it’s called in English professional jargon—means providing evidence that your company carries out genuine economic activities in Malta. Not just an empty shell that saves taxes. The Malta Financial Services Authority (MFSA) defines it as: Genuine economic activity with adequate resources and infrastructure. The MFSA’s Official Definition According to the MFSA Guidelines, substance comprises four key elements: Physical Presence: Offices appropriate for your business purpose Qualified Personnel: Employees with the required expertise Operational Decisions: Key business decisions are made in Malta Appropriate Expenditure: Operating costs that match your business activity Sounds dry? It is. But there’s a simple logic: If you use Malta as a tax haven, you also have to create real economic value. Why Substance Is More Important Than Ever The EU has tightened its Anti-Tax Avoidance Directive (ATAD). Germany, Austria, and other countries are watching much more closely. I know entrepreneurs who had to completely overhaul their Malta setup when their home tax office suddenly demanded proof of substance. The German tax authority scrutinized our Malta company for three months. In the end, only one thing mattered: Can we prove that real work is happening in Malta? – Dr. Michael K., Consulting Firm So what does that mean for you? Malta is still attractive—but only with solid substance. Half-hearted solutions get expensive. The Three Pillars of Malta Substance In my discussions with Malta insiders, the same pattern always emerges: Successful substance rests on three pillars. If one of them is missing, the whole structure becomes unstable. Pillar 1: Physical Presence An office in Malta is mandatory—but not just any office will do. The MFSA differentiates between serviced offices and dedicated premises. They only accept serviced offices—meaning shared office spaces—in rare exceptions. The standard is dedicated private offices. Minimum Requirements for Physical Presence: Dedicated office space (not just a desk) Business address that matches your level of activity Permanent availability (not by the hour) Size appropriate for your staff Pillar 2: Qualified Personnel Staff is the make-or-break factor. You don’t need a team of twenty, but employees must fit the actual business operations. A fintech with only a secretary? Not credible. A holding structure with a qualified compliance officer? That fits. Pillar 3: Operational Decisions in Malta This is the trickiest pillar: Key business decisions must demonstrably be made in Malta. Board meetings, strategic planning, investment decisions—all have to be documented and based locally. What does that mean for you? You can’t just use Malta as a tax address—you have to live Malta as a genuine business location. Offices in Malta: More Than Just an Address Office hunting in Malta is an adventure of its own. I’ve seen entrepreneurs spend three months trekking through Valletta, Sliema, and St. Julian’s every single day. The problem: What’s marketed as a business center often turns out to be an overpriced desk in an open-plan office. The Best Office Locations for Substance Location Rent (per m²/month) Advantages Disadvantages Valletta €25-35 Prestigious address, central Expensive, parking issues Sliema €20-30 Business district, good infrastructure Very touristy St. Julians €18-25 Gaming hub, young scene Noisy, party atmosphere Ta Xbiex €15-22 Quiet, yacht marina Limited office selection Gzira €12-18 Affordable, authentic Less prestigious What the MFSA Checks During Office Inspections The MFSA does unannounced office inspections. Yes, really. A lawyer friend told me about a case where MFSA inspectors showed up at 2:30pm and found the office empty. Result: Questions, explanations, stress. MFSA Office Inspection Checklist: Are employees present and demonstrably working? Does the office equipment match business operations? Are business documents available onsite? Does the office feel lived in or just staged? Does the headcount align with official data? Realistic Office Costs in Malta A 50 m² office in Sliema will cost you about, per month: Rent: €1,000-1,500 Utilities: €200-300 Internet/Phone: €80-120 Cleaning: €150-250 Furnishing (one-off): €3,000-8,000 That adds up to €1,430-2,170 per month—plus furnishing. Cheaper than Munich, pricier than Thessaloniki. So, what does this mean for you? Budget at least €20,000 per year for a credible office. You can go cheaper, but substance recognition gets tricky. Building Your Team: From Job Posting to Full Staff Recruiting in Malta is a bit like dating: The first profiles look promising, but once you get to know people, you quickly see if it fits. After dozens of interviews in Malta’s cafés, I’ve learned: The job market is small, but the quality is good. How Much Staff Do You Really Need? The MFSA doesn’t specify exact numbers, but checks for adequacy. A holding company can get by with 1–2 qualified employees. An investment fund needs at least 4–6 full-time staff. A payment service provider? Plan on 8–15 people. Typical Staff Setups by Business Model: Business Model Minimum Staff Typical Positions Annual Cost Holding Company 1–2 People Compliance Officer, Administrator €60,000-120,000 Investment Fund 4–6 People Fund Manager, Risk Officer, Compliance, Administration €280,000-450,000 Gaming License 8–12 People CTO, Compliance, Customer Support, Marketing €400,000-650,000 Payment Services 8–15 People AML Officer, Risk Manager, Operations, IT Security €450,000-800,000 Recruiting in Malta: What Works Malta has a population of 515,000. The qualified job pool is accordingly limited. Most good people know each other. Networking is everything. The Best Recruitment Channels in Malta: JobsPlus.gov.mt: The national job board. Free, but slow. LinkedIn Malta: Surprisingly effective for specialists. Keep Me Posted: Local job portal with broad reach. Networking Events: Malta AI & Blockchain Summit, Malta Business Network University of Malta: For junior roles and interns Salary Levels in Malta: What You Really Have to Pay Malta has become more expensive. The gaming industry and fintech startups have driven salaries up. A qualified compliance officer now commands €45,000–65,000 gross. Five years ago, it was €35,000. Typical Annual Gross Salaries (2024): Compliance Officer: €45,000–65,000 Fund Administrator: €35,000–50,000 Risk Manager: €55,000–75,000 Senior Developer: €40,000–60,000 Marketing Manager: €35,000–55,000 Customer Support: €22,000–32,000 Office Administrator: €20,000–28,000 Staff Documentation for Proof of Substance The authorities want proof. Employment contracts, payroll, social security certificates. I recommend a monthly “substance file”: Work hours logged for all employees Task records (who is doing what?) Meeting minutes with Malta reference Attendance lists for the office Business decisions logged with Malta time and place Sounds bureaucratic? It is. But in a pinch, it can save your skin. What does this mean for you? Plan for at least €100,000 per year to fund a minimally functional team. Less than that, and it’s hard to establish credible substance. Operational Activity: What Tax Authorities Really Want to See Operational activity is the core of substance. It’s not enough for your staff to just sit in Malta and reply to emails. The business activity must create genuine economic value. And you need to be able to document that. What Counts as Operational Activity? The MFSA and international tax authorities look at “core income generating activities” (CIGA). These are the activities that directly generate revenue. For an investment fund, it’s portfolio management. For a gaming firm, it’s software development. For a holdings company, it’s strategic management of shareholdings. Examples of Recognized Operational Activities: Business Model Operational Activities in Malta Documentation Required Investment Fund Portfolio analysis, investment decisions, risk management High Trading Company Market research, negotiations, contract closings Medium IP Holdings License negotiation, IP development, rights management High Gaming License Software development, customer support, compliance Medium Consulting Consulting services, project management, research Low Documentation of Operational Activities Here’s where it gets real: What paperwork do you need to prove operational activity? After two years’ experience in Malta and talks with tax professionals, I recommend this system: Monthly documentation: Activity reports: What has each employee done? Decision protocols: Which business decisions were made? Meeting minutes: Board meetings, team meetings, strategy sessions Email correspondence: Proof of Malta-based communication Contract negotiations: Deals conducted from Malta Annual documentation: Business plan updates: Strategic plans created in Malta Budget planning: Financial planning based in Malta Risk assessments: Risk analysis conducted locally Compliance reports: Malta-specific compliance activities The Limits: What Does NOT Count as Malta Substance Not everything your Malta company does qualifies as substance. Purely administrative tasks aren’t enough. A secretary forwarding invoices? Not substance. An accountant just posting other people’s numbers? Also not enough. What does NOT qualify as operational substance: Administrative tasks without decision-making authority Simply forwarding documents and emails Bookkeeping without a strategic component Basic phone services or customer support Warehousing with no value-add Board Meetings in Malta: The Gold Standard for Substance Board meetings in Malta are the easiest way to prove operational substance. When key decisions are recorded as having been made in Malta, every tax office is satisfied. My Malta Board Meeting Checklist: Location: Always in the Malta office premises Attendees: At least one Malta-based director Minutes: Detailed with date, location, and decisions Topics: Strategic business decisions, not just formalities Frequency: At least quarterly, ideally monthly A friend of mine runs his fintech company like this: Board meeting in Malta on the first Monday of every month. Strategic decisions, new partnerships, budget adjustments—all discussed and recorded there. Result: No issues with German or Austrian tax authorities. What does this mean for you? Structure your business so that at least 60% of key decisions are demonstrably made in Malta. Otherwise, substance recognition becomes difficult. Common Pitfalls and How to Avoid Them After two years in Malta, I’ve witnessed every substance mistake at least once. Most are avoidable—but costly if they happen. Here are the usual suspects: Pitfall 1: Fake it till you make it The most common mistake: Rent an office, hire nobody, and hope it’s enough. Doesn’t work. The MFSA does checks, tax offices ask questions. An empty office with dusty desks is a huge red flag. Solution: Hire actual staff from day one. Better to start with one part-timer than none at all. Pitfall 2: Outsourcing Everything Outsourcing compliance? Okay. Outsourcing bookkeeping? Also fine. But if you outsource all operational activities, you have no substance. The MFSA only accepts outsourcing for supporting functions. Solution: Keep core business activities in-house. Outsource only for admin support. Pitfall 3: Remote Control from Germany This is the deadliest pitfall: Key decisions are still made in Germany, Malta is just window dressing. German tax authorities spot this immediately and tax the Malta company as a German permanent establishment. Solution: Transfer real decision-making power to Malta. Malta-based directors must have actual authority. Pitfall 4: Cutting Costs in the Wrong Places I know entrepreneurs who spend €50,000 on legal fees but scrimp on offices and staff. That’s backwards thinking. Substance costs money—but less than a tax back-payment. Solution: Set realistic budgets for office, staff, and operational costs. At least €150,000–200,000 per year for credible substance. Pitfall 5: Slacking Off on Documentation The first six months, everyone documents everything meticulously. Then people get sloppy. Big risk: If the tax office checks in three years, you’re missing evidence for the last 18 months. Solution: Establish documentation routines. Monthly substance reports, quarterly compliance checks. Reality Check: What Malta Substance Really Costs Let’s be honest: Substance in Malta isn’t cheap. Here’s a realistic cost breakdown for a minimal setup: Cost Item Annual Cost One-off Cost Office Rent (50m²) €18,000–25,000 €5,000–10,000 Staff (2 people) €80,000–120,000 €5,000–15,000 Compliance & Legal €15,000–30,000 €10,000–25,000 Bookkeeping €8,000–15,000 €2,000–5,000 IT & Communication €3,000–6,000 €2,000–8,000 Travel costs (Board Meetings) €5,000–12,000 – Total €129,000–208,000 €24,000–63,000 These are the minimum costs for credible substance. Sounds like a lot? It is. But if you’re saving €500,000+ in taxes, it still adds up. Bottom line? Substance in Malta is an investment, not a bargain. Expect at least €150,000 per year for a professional setup. Practical Checklist for Building Substance After hundreds of Malta consultations, I’ve developed a checklist that actually works. It’s distilled from successful—and failed—substance projects. Phase 1: Planning and Preparation (Months 1–2) Define your business model: □ Which operational activities will take place in Malta? □ How many employees are needed? □ What qualifications does the staff need? □ Which decisions will be made in Malta? □ What’s the realistic annual budget? Legal structure: □ Set up or transfer a Malta company □ Appoint Malta-based directors □ Apply for necessary licences (MFSA, Gaming, etc.) □ Complete tax registrations Phase 2: Building the Infrastructure (Months 2–4) Set up office: □ Secure suitable office space and sign lease □ Office furnished and fully operational □ IT infrastructure installed (internet, phone, server) □ Business address registered with authorities □ Documentation systems established Recruit staff: □ Post job ads □ Conduct interviews □ Sign employment contracts □ Register for social security □ Onboarding and training completed Phase 3: Commence Operations (Months 4–6) Launch business activity: □ Hold first board meeting in Malta □ Start operational activity □ Business decisions made in Malta □ Documentation routine established □ External communications from Malta Ensure compliance: □ MFSA filings submitted on time □ Tax obligations met □ Substance documentation complete □ Internal compliance processes in place Phase 4: Monitoring and Optimization (Ongoing) Monthly tasks: □ Prepare activity reports □ Maintain attendance lists □ Document business decisions □ Complete compliance checklists □ Monitor costs and budget Quarterly tasks: □ Hold board meetings in Malta □ Substance review with advisors □ Evaluate staff performance □ Review legal updates □ Identify optimization opportunities Annual tasks: □ Complete substance documentation □ File annual tax returns □ File MFSA annual reports □ Plan staff and costs for upcoming year □ Compliance audit by external advisors Emergency Plan: If Your Substance Is Challenged Sometimes, despite all precautions, something goes wrong. German tax authorities request information, the MFSA wants more evidence. When that happens—stay calm and respond systematically. Immediate Actions for Substance Challenges: Contact your lawyer: Let a professional respond for you Gather documentation: Compile all substance evidence from the last 3 years Brief the team: Prepare employees for possible questions Step up activities: More board meetings, more documentation Create an exit plan: In case substance is not accepted So, what does this mean for you? Building substance is a marathon, not a sprint. Plan for 6–12 months for the full structure to be in place, and keep standards consistently high after that. Frequently Asked Questions How long does it take to build credible substance in Malta? Realistic timeline: 6–12 months for a complete setup. You’ll need the first 3 months for office and staff, another 3–6 months to establish operations. International tax authorities usually expect at least 12 months of documented activity. Can I build substance with remote staff? Partly, but it’s risky. The MFSA allows remote work for support functions, but core business activities have to take place physically in Malta. Board meetings, strategic decisions, and the management team should be on-site. What happens if my substance isn’t recognized? Your Malta company becomes fiscally transparent. German tax authorities may treat it as a German permanent establishment and tax the entire profit in Germany—retroactively for up to 4 years, plus interest and possible penalties. Is a co-working space enough for Malta substance? No, co-working spaces do not qualify as adequate offices for licensed activities. The MFSA requires dedicated, private office space. Serviced offices are accepted only in exceptional cases with special approval. What’s the real cost of minimum substance in Malta? Expect €150,000–200,000 per year for a credible setup with your own office and 2–3 employees. Plus, initial setup costs of €30,000–50,000. You can do it cheaper, but substance recognition becomes risky. Do I personally need to live in Malta for substance? No, personal residence is not required. But you should regularly be on-site for board meetings and strategic decisions. 6–8 Malta visits per year are recommended. Which industries have the strictest substance requirements? Financial services (banking, investment funds) face the highest demands. Gaming and payment services are close behind. Trading companies and holdings have moderate requirements. Simple service companies have the lowest. Can I move my existing German structure to Malta? Yes, but be careful. Transferring business activities can trigger tax consequences (exit taxation, transfer of functions). Definitely get tax advice beforehand. How often does the MFSA check substance? The MFSA does irregular audits, typically for licensed companies every 2–3 years. Additional checks may happen if there are complaints or suspicious reports. Inspections have become more frequent lately. What is the most common substance mistake? Remote control from Germany. Many entrepreneurs do set up offices and hire staff in Malta—but keep making all key decisions in Germany. Tax authorities see through this instantly.
