Table of Contents Malta Substance Requirements 2025: What Has Changed Economic Substance Test: The 5 Core Criteria for Malta Companies Malta Holding Substance Requirements: Special Rules for Holding Companies Compliance Standards 2025: Documentation and Proof Practical Implementation: How to Meet the Substance Requirements Common Compliance Mistakes and How to Avoid Them Outlook: Whats Coming in 2025 Frequently Asked Questions Does this sound familiar? You think your Malta company is running smoothly, and then you get a letter from the Maltese tax authorities. Suddenly you have to prove that your company is not just a shell, but has real economic substance in Malta. Welcome to the reality of the stricter 2025 compliance standards. After two years on the island and countless conversations with tax consultants, entrepreneurs and frustrated business owners, there is one promise I can make: the days of letterbox companies are finally over. Anyone running a Malta company today must be able to prove real substance – otherwise, they risk massive problems with international tax authorities. The good news? With the right preparation and up-to-date knowledge of the rules, it’s manageable. The bad news? Ignorance will cost you dearly in 2025. Malta Substance Requirements 2025: What Has Changed The year 2025 brings the strictest substance requirements for Malta companies to date. What used to be considered tax-optimized structuring is now scrutinized like never before. New EU Directives and Their Impact The EU Anti-Tax Avoidance Directive (ATAD) has put serious pressure on Malta. Since January 2025, stricter rules apply for the recognition of Maltese companies within the EU. What does this mean for you? Your company has to prove that it truly operates in Malta—not just that it’s registered there. The most important changes at a glance: Minimum Economic Activity Test: Companies must show a minimum level of business activity proportionate to their income Enhanced Documentation Requirements: More comprehensive documentation requirements for all business activities Real Business Purpose Test: Every transaction needs a genuine economic purpose Quarterly Compliance Reporting: Quarterly submissions to the Maltese authorities OECD BEPS Updates for Malta The OECD Base Erosion and Profit Shifting (BEPS) initiative has shaken up Malta’s tax regime. As an EU member, Malta must implement all BEPS measures – and this has consequences for your company structure. Especially relevant is Action 5 (Harmful Tax Practices): Malta had to adapt its IP box regimes and introduce tougher nexus rules. If you process intellectual property through Malta, you must prove that the respective development activities actually take place on the island. Economic Substance Requirements Made Stricter The Economic Substance Requirements (ESR) are at the heart of the new compliance standards. Whereas before, a local director and postal address might suffice, Malta now demands measurable economic activity. The new ESR framework is based on five pillars which Ill explain in detail in the next section. Spoiler: a virtual office in Sliema won’t be enough. What does this mean for you? Allow at least 6-12 months of lead time to build genuine substance. Quick fixes no longer work. Economic Substance Test: The 5 Core Criteria for Malta Companies The Economic Substance Test is make-or-break for your Maltese company. These five criteria determine whether your company is recognized as substantial or fails as a mere tax arrangement. Management and Control in Malta Core Management and Control means: the most important business decisions must be made physically in Malta. That doesnt mean your CEO needs to be in the office every day, but strategic resolutions must be passed locally. Specifically, that means: At least 6 board meetings per year in Malta Documented decisions for significant business transactions Evidence that directors were physically present in Malta Local control over bank accounts and investment decisions I know of a German entrepreneur who held his board meetings via Zoom from Munich. That worked for three years—until the Maltese authorities followed up. The cost of back taxes: over €150,000. Adequate Business Activity Relative to Turnover The Adequate Business Activity criterion is the trickiest. Malta checks whether your local business activity is proportionate to your income. A company turning over 5 million euros can’t be run by a part-time assistant. Annual Turnover Minimum Business Activity Typical Costs Up to €500,000 1 Full-Time Employee €35,000-45,000 €500,000 – 2M 2-3 Employees + Management €80,000-120,000 €2M – 10M 5+ Employees + Senior Management €200,000-350,000 Over €10M Full local operations €500,000+ Qualified Staff On Site Adequate Employees means not just “warm bodies”, but skilled professionals. The Maltese authorities look closely to see if your staff truly possess the competencies your business requires. For an IT holding, for example, you need not only an accountant but also someone with technical expertise. For a real estate holding, a lawyer isn’t enough—you also need real estate know-how. Practical tip: Carefully document the qualifications of your staff. CVs, certificates, advanced training records—anything that shows you have the right people on board. Adequate Operating Expenditure in Malta The Adequate Operating Expenditure criterion checks whether your local expenses are realistic. A consulting company making €2 million annually but spending only €30,000 in Malta is suspicious. Typical operating expenses include: Salaries and wages (largest item) Office rent and utilities IT infrastructure and software licenses Professional services (legal, tax consultants) Marketing and business development Travel expenses for Malta-based activities Physical Presence and Business Premises Your Physical Presence must fit your business activity. A shared office in Valletta might suffice for a small consulting firm, but not for a large trading company. The Maltese authorities check: Appropriate office size for the number of employees Facilities matching the business purpose Actual use (not just a mail-drop address) Longer lease terms as an indicator of serious business activity What does this mean for you? Budget at least €1,500-3,000 per month for suitable office space in good locations. Cheap setups stick out immediately. Malta Holding Substance Requirements: Special Rules for Holding Companies Malta holdings are especially in the crosshairs of the tax authorities. Why? Because this is where most of the tax structuring opportunities—and thus potential for abuse—are found. Minimum Substance for Passive Income For passive income like dividends, interest, or royalties, reduced substance requirements apply. But beware: “reduced” doesnt mean “nonexistent.” Malta requires at least the following for holding companies: A qualified board with at least one Malta-resident director Adequate administrative infrastructure Documented investment strategy and due diligence processes Regular monitoring of investments That may sound minimal, but it does have its pitfalls. I once saw an apparently simple holding get into trouble because it didn’t have investment committee minutes. Administrative vs. Operational Substance Malta distinguishes between Administrative Substance and Operational Substance. Pure holdings can get by with less operational substance, but must demonstrate even stronger administration structures. Substance Type Pure Holding Operational Holding Minimum Staff 1-2 qualified employees 3+ staff depending on activity Board Meetings Quarterly Monthly Documentation Investment-focused Operations-focused Annual Costs €60,000-100,000 €150,000+ Board Meetings and Decision-Making The Board Composition of your Malta holding is critical. A Maltese nominee director who just nods things through is no longer enough. Local directors have to have real decision-making powers and document their actions. Best practice for board meetings: Preparation: Circulate the agenda 48 hours in advance Attendance: Document physical presence in Malta Minutes: Detailed records of all decisions Follow-up: Track implementation of resolutions A tax advisor in Valletta once told me, The quality of your board minutes determines the quality of your substance. There’s truth in that. What does this mean for you? Invest in qualified local directors and professional board processes. This costs more, but saves millions in back taxes. Compliance Standards 2025: Documentation and Proof Documentation is the backbone of your substance strategy. Without watertight paperwork, even the best operational substance is worthless. Malta’s 2025 compliance standards are merciless: what isn’t documented didn’t happen. What Documents You’ll Need The Essential Documentation for Malta companies is now much broader than before. Here’s the complete checklist I’ve put together over the years: Corporate Governance Documents: Memorandum and Articles of Association (keep up to date) Board Meeting Minutes with detailed decisions Shareholders meeting minutes Director appointments and resignations Signatory Authorization Matrices Business Activity Records: Detailed business plans and updates Contracts with clients, suppliers, service providers Invoice trails and payment records Bank statement analysis with business justification Due diligence reports for all major transactions Employment and Operations: Employment contracts and job descriptions Payroll records and tax filings Office lease agreements and utility bills IT-infrastructure documentation Insurance policies Pro tip: Use a digital document management system. Paper chaos won’t survive a regulatory review. Reporting Requirements To Maltese Authorities Malta has tightened its reporting requirements for 2025. You now have to submit certain information not just annually, but quarterly. Quarterly compliance reports include: Economic activity summary with key performance indicators Employee headcount and payroll expenses Malta-sourced revenue and operating expenses Board meeting summary and key decisions Related party transactions (especially critical) Annual comprehensive filing includes: Audited financial statements Economic Substance Return (ESR) Transfer pricing documentation Country-by-country report (where applicable) Beneficial ownership information CBC Reporting and International Transparency Country-by-country reporting (CbC) is mandatory for large Malta companies. With consolidated revenue of €750 million or more, you must break down exactly where which profits arise and which taxes are paid. The CbC report framework requires: Revenue: Breakdown by related/unrelated party Profit/Loss: Before income tax by jurisdiction Income Tax: Paid and accrued Economic Activity Indicators: Employees, assets, etc. Even if you fall below the €750 million threshold, you should prepare. The OECD is already discussing lowering it to €200 million. What does this mean for you? Start structured record keeping early. Retroactive documentation is expensive and often incomplete. Practical Implementation: How to Meet the Substance Requirements Enough theory—let’s be practical. How do you meet the substance requirements without burning a fortune? After two years of trial and error, I can show you some shortcuts. Employees in Malta: Employment vs. Service Provider The employment question is the biggest cost factor. Full-time employment in Malta is expensive, but service providers are viewed with skepticism by the authorities. The trick is the right mix. Salaried staff makes sense for: Key management functions (CEO, CFO, operations manager) Roles that require genuine control Compliance and risk management Client contact and business development Service providers work well for: Administrative tasks (HR, payroll, basic accounting) IT support and maintenance Legal and tax advisory (via established firms) Marketing and PR Realistic salaries for qualified staff in Malta: Position Gross Salary p.a. All-in Costs Operations Manager €45,000-65,000 €55,000-80,000 Compliance Officer €35,000-50,000 €45,000-65,000 Administrative Assistant €25,000-35,000 €30,000-45,000 Business Development €40,000-60,000 €50,000-75,000 Renting Office Space: Whats Sufficient For office space, quality wins over quantity. A professional 100sqm office in a good location has far more substance than 200sqm in an unknown industrial area. Top business locations for substance: Valletta: Prestige address, but expensive (€30-50/sqm) Sliema/St. Julians: Business hub, good infrastructure (€25-40/sqm) Ta Xbiex: Established business district (€20-35/sqm) Gzira: Up-and-coming area, moderate prices (€18-30/sqm) Important: Watch out for service charges and utilities. An advertised €25/sqm can quickly become €35/sqm. Must-haves for your Malta office: Separate rooms for confidential discussions Professional IT infrastructure Meeting room for board meetings Adequate security (important for compliance) Parking (don’t underestimate Malta’s traffic chaos) Board Composition and Local Directors Choosing the right local directors is crucial. A cheap nominee director could cost you millions if a review goes badly. Quality criteria for Malta directors: Relevant industry experience (not just law or accounting) Proven Malta residency Untarnished reputation Availability for regular board meetings Understanding of your business model Cost calculation for qualified directors: Senior professionals: €25,000-50,000 annually Experienced non-executives: €15,000-30,000 annually Specialized expertise: An extra €5,000-15,000 My advice: don’t skimp on directors. An experienced local businessman who understands your business is worth his weight in gold. Budgeting for Real Substance Lets be honest: real substance costs money. Here’s my realistic budget estimation for different company sizes: Small entity (up to €1M turnover): Office space: €30,000-50,000 Employee costs: €60,000-100,000 Professional services: €15,000-25,000 IT and equipment: €8,000-15,000 Total: €113,000-190,000 annually Medium entity (€1-10M turnover): Office space: €50,000-80,000 Employee costs: €150,000-300,000 Professional services: €25,000-50,000 IT and equipment: €15,000-30,000 Total: €240,000-460,000 annually What does this mean for you? Budget at least 10-15% of your Malta turnover for real substance costs. Anything less looks suspicious. Common Compliance Mistakes and How to Avoid Them In two years in Malta, Ive seen every conceivable compliance disaster. The good news: most mistakes can be avoided if you know what to look out for. Recognizing and Avoiding Sham Substance Sham substance is the ultimate compliance killer. Maltese authorities are very sharp at spotting fake activities a mile away. Red flags that stand out immediately: Board meetings that always last exactly 15 minutes Employees working for 20 other companies at the same time Offices that look like dentist clinics from the 1980s Business transactions only between related parties Management fees that are suspiciously round figures (always €100,000, never €97,346) How to build real substance: Start with why: Set clear business goals for your Malta activities Think long-term: Plan at least 3–5 years ahead Invest in people: Good staff are your best compliance insurance Document everything: Authentically, not artificially Be consistent: Your story needs to be coherent Closing Documentation Gaps Documentation gaps are the classic compliance mistake. You have real substance, but can’t prove it? Then you’ve got a problem. Common documentation gaps: Missing board meeting minutes for critical decisions Incomplete employment records Sloppy financial reporting Missing due diligence documentation Incomplete communication trails My tried and tested documentation system: Document Type Update Frequency Retention Period Board Minutes After each meeting Permanent Financial Records Monthly 7 years Employee Files Upon changes 5 years after leaving Contract Documentation On conclusion/change Contract term + 3 years Timing When Building up Substance The timing mistake is especially tricky: you only start building substance after the authorities make an inquiry. That looks like an admission of guilt and makes things worse. Golden rule: Substance must exist before the economic activities begin, not after. Optimal timeline for building substance: Month 1-2: Company incorporation and basic setup Month 3-4: Office setup and first hires Month 5-6: Board establishment and initial operations Month 7-8: Documentation systems and processes Month 9-12: Full operational substance From month 13: First major business transactions Rush jobs don’t work. An Italian holding I know tried to create substance in three months. Result: €2 million in taxes owed. What does this mean for you? Plan long-term and build substance systematically. Patience pays—impatience gets expensive. Outlook: Whats Coming in 2025 Malta’s compliance landscape is evolving rapidly. Anyone who thinks the current rules are the final word is very much mistaken. Here are the most important changes on the horizon. Pillar Two Implementation in Malta Pillar Two of the OECD (Global Minimum Tax) will fundamentally change Malta’s tax regime. Starting 2025, the 15% minimum tax applies to multinational groups with revenue over €750 million. What this means for Malta companies: Substance becomes king: Only companies with real economic activity can benefit from exceptions Complex calculations: Effective tax rate testing will become a nightmare for tax advisors Top-up taxes: If Malta taxes are insufficient, the parent company pays the difference Safe harbours: Certain activities are exempt—but only if you prove real substance DAC6 and Reporting Obligations The EU Directive on Administrative Cooperation (DAC6) significantly increases reporting requirements for cross-border tax arrangements. Malta will now have to share far more information with other EU countries. Reporting obligations extended to include: Cross-border arrangements with specific hallmarks Aggressive tax planning structures Beneficial ownership information in real time Related-party transactions above certain thresholds The result: Your Malta structure is more transparent than ever. Privacy becomes a luxury only a few can afford. Brexit Impact on UK-Malta Structures The Brexit fallout hits Malta-UK structures with a delay. Many double tax treaties must be renegotiated, and EU freedoms no longer apply automatically. Concrete effects: Withholding taxes: Higher withholding taxes between the UK and Malta Substance requirements: The UK now scrutinizes Malta companies even more strictly Regulatory divergence: Different compliance standards are emerging Migration pressure: Many UK-Malta structures are relocating to Ireland or the Netherlands A London family office I advise had to dissolve its entire Malta structure due to Brexit-related compliance costs. A shame after 15 years of carefully built substance. What does this mean for you? 2025 will be the year of great restructuring. Those who fail to act now will pay much more later. Frequently Asked Questions How much does real substance for a Malta company cost at a minimum? For a small Malta company (up to €1M turnover) you should budget at least €100,000–150,000 annually for real substance. This covers office space, qualified staff, local directors and professional services. Larger companies need more—often €200,000–500,000 per year. Can I, as a non-resident, be director of my Malta company? Yes, but you must be able to prove that key business decisions are actually made in Malta. This means regular physical presence for board meetings and documented on-site decision-making processes. A Malta-resident director is almost always required in addition. Is a shared office sufficient for physical presence? That depends on your business. For small consulting firms, a professional shared office may suffice; for larger operations, it does not. What matters is that the office matches the scope of your business and is actually used. Solely using a mailbox won’t work anymore. How often do I need to hold board meetings in Malta? At least quarterly, better monthly for larger companies. What matters is that important business resolutions are physically taken in Malta. Meetings must be documented, and attendees must be demonstrably present in Malta. What happens if the substance requirements are not met? The consequences are severe: loss of tax benefits, back payments plus interest, fines between €5,000 and €50,000, and in the worst case, international double taxation. Malta will also share non-compliance information with other EU tax authorities. Can I use service providers for staffing? Partially yes, but critical functions must be covered by your own employees. Service providers are suitable for administrative activities, but not for management and control. The ratio between in-house staff and service providers must be reasonable. How do I properly document my Malta substance? Keep a digital document management system with all board minutes, employment contracts, office leases, invoices, and bank statements. Regularly document business operations and keep all compliance reports up to date. If its not documented, it’s considered not to have happened by the authorities. Do substance requirements also apply to small Malta companies? Yes, but in a moderated form. Even small companies must prove real economic activity. Requirements are proportional to size, but total lack of substance is never acceptable. Can my existing Malta structure still be saved? It depends. If you act quickly and systematically build substance, there’s often something to save. Honest self-assessment with qualified advisors, then consistent implementation, is key. Whitewashing doesn’t work—the authorities catch on right away. Is Malta still worth it in 2025? For companies with real economic activity, definitely yes. Malta still offers attractive tax benefits, EU access, and a stable legal system. But the days of “cheap solutions” are over. Those willing to invest in real substance can use Malta very successfully.
