Substance Checklist Malta 2025: Fulfilling All International Requirements

What are Substance Requirements in Malta?

Substance Requirements are rules that ensure your Maltese company isn’t just a paper shell. EU law and the OECD demand that companies actually operate economically where they are tax resident.

Why do these requirements even exist?

Short answer: To combat tax avoidance. The long answer: Since the EU’s ATAD (Anti-Tax Avoidance Directive) 2016 and the OECD BEPS (Base Erosion and Profit Shifting) action points, EU member states like Malta must prove that companies truly have real business activities on the ground.

So what does that mean for you? You cant just set up a mailbox company in Valletta and hope nobody checks. Malta wants to see that your business is rooted locally—with employees, offices and real decision-making processes.

Who do the Malta Substance Requirements apply to?

Basically to all Maltese companies, but there’s extra scrutiny for:

• Holding companies with foreign subsidiaries
• IP companies (Intellectual Property) that manage licences
• Financial service providers and insurers
• Shipping companies with international routes
• Trading companies with cross-border business

My tip: Even if you’re “only” planning an operating company, consider the substance requirements from the beginning. Retrofitting later is more expensive and complicated.

The Three Pillars of Maltese Substance

Malta focuses on three core areas:

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

Malta Substance Requirements 2025: The Current Requirements in Detail

Since January 2025, stricter rules apply in Malta. The Malta Financial Services Authority (MFSA) has revised its guidelines and now carries out tighter inspections. Here’s what has changed and how it will affect your planning.

Physical Presence: More than Just a Postal Address

Your Maltese company needs an adequate business address. What “adequate” means depends on your business activity:

Important: A virtual office at a Company Service Provider is no longer sufficient since 2025. You need a physical workplace that your employees can use daily.

Personnel Requirements: The Right People on Site

This is where it gets concrete: Malta expects qualified staff working and making decisions locally. Minimum requirements (as of 2025):

• At least 2 full-time employees with a Maltese employment contract
• At least 1 director resident in Malta
• Qualifications suitable for the business activity (proof required)
• Appropriate remuneration (Malta benchmark: min. 35,000 EUR/year for qualified staff)

What does that mean for you? Hiring just two interns and hoping for the best won’t cut it. The MFSA checks CVs, qualifications and payroll.

Operational Requirements: Proving Real Business Activity

Malta wants to see your company generates real value there. This includes:

• Core Income-Generating Activities (CIGA) on site
• Regular board meetings in Malta (min. 4 times a year)
• Local bank accounts and operational banking
• Compliance infrastructure (bookkeeping, audit, legal)

Pro tip: Document everything meticulously: every meeting, every decision process, every operational activity. If you’re audited, you’ll need to provide complete records.

Economic Substance Test Malta: How to Pass the Audit

The Economic Substance Test is the heart of Malta’s checks. Here’s how it works and some pointers to ensure you pass safely.

The Three-Stage Audit Approach

Malta checks your substance in three stages—think of it as a stress test for your company:

Stage 1: Relevance Test

First, they determine if your company is substance-relevant. That depends on your activities:

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

What does that mean for you? The more international your business, the more scrutiny from Malta.

Stage 2: Minimum Substance Test

This is where numbers come into play—Malta loves statistics:

Stage 3: Adequate Substance Test

The gold standard: Malta checks whether your substance fits the scale of your operations. A 100-million holding with 2 employees? Not going to work.

Rules of thumb for adequate substance:

• Per 50 million EUR managed assets: 1 additional qualified employee
• Per 10 million EUR annual turnover: 1 additional executive
• Operating costs: At least 0.1% of managed assets

The bigger your business, the more you need to invest in Maltese substance. There is no maximum—but there’s a minimum credibility threshold.

Malta Substance Checklist: Your Step-by-Step Guide

Enough theory—let’s get practical. Here’s a checklist I use with my clients to systematically build up their Malta substance.

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

Establish Legal Foundations

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

Phase 2: Physical Infrastructure (Months 2–3)

Secure Office Location

Finding an office in Malta is a patience game—budget at least 4–6 weeks:

Office Equipment Checklist:

• Internet connection (min. 100 Mbps) ✓
• Phone system with Maltese number ✓
• Workspaces for all staff ✓
• Meeting room (shared use allowed) ✓
• Security system (especially for IP companies) ✓
• Mailbox and reception service ✓

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

Find the Right Talent

Finding personnel in Malta is challenging—the market is small and competitive. My experience:

• Local Director: 60,000–120,000 EUR/year (depending on qualifications)
• 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 give realistic salary benchmarks.

Ensure Employment Compliance

1. Draft employment contracts under Maltese law
2. Social security registration for all employees
3. Private health insurance (often expected, not mandatory)
4. Set up payroll system

Phase 4: Operational Implementation (Months 4–6)

Localise Business Processes

This is where things get real—you need to create real value in Malta:

• Decision processes: Strategic decisions must be made in Malta
• Contract conclusion: Important agreements should be negotiated from Malta
• Risk management: Establish compliance and risk management on site
• Controlling: Financial steering and reporting from Malta

Documentation and Compliance

Malta is very documentation-focused. Keep strict records of:

• Board meeting minutes (at least quarterly)
• Attendance lists for major meetings
• Documentation of decisions
• Staff timesheets
• Operational cost statements

Malta Holding Substance Requirements: Special Rules for Holding Companies

Holdings are the hallmark of the Maltese corporate landscape—but also the focus of substance checks. Here are the special features you need to know as a holding company.

Pure Holdings vs. Mixed Holdings

Malta makes a strict distinction between two kinds of holdings:

Pure Equity Holdings

Only holds equity interests, no operations:

• Reduced substance requirements: 1–2 qualified employees are enough
• Focus on governance: Board meetings and oversight take precedence
• Cost efficiency: Operating costs can be lower

Mixed Holdings

Equity holdings plus operating business:

• Full substance requirements: As for operating companies
• Extra compliance: For each segment
• Higher costs: But also more flexibility

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

Scaling Substance by Asset Size

Malta expects increased substance as assets under management grow:

IP Holdings: The Special Case

Intellectual property holdings are under special scrutiny since the OECD DEMPE principle (Development, Enhancement, Maintenance, Protection, Exploitation):

• Development activities must be demonstrably in Malta
• IP management requires specialist staff
• Licence negotiations must happen from Malta
• Risk-taking must be on the ground

Warning: Pure “IP boxes” with no real development are practically impossible to maintain in 2025 and beyond. Malta checks especially closely here.

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

After three years advising, I know the pitfalls inside out. Here are the five most common mistakes—and how to dodge them gracefully.

Mistake 1: Treating Substance as an Afterthought

The classic: First form the company, then figure out substance later.

Why it fails: Building substance takes 6–12 months. Without planning, things get expensive and chaotic.

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

Mistake 2: Poor Staffing Strategy

The classic: Hire cheap interns or overpriced experts with no Malta connection.

Why it fails: Malta checks qualifications and salary levels. Under- or overpaying will be noticed.

My solution: Pay Malta-standard salaries, hire local talent, document qualifications.

Mistake 3: Dummy Meetings and Fake Decisions

The classic: Hold board meetings, but major decisions are made elsewhere.

Why it fails: Malta doesn’t just check minutes—they want substance behind decisions.

My solution: Shift real authority to Malta. Directors must make real decisions locally.

Mistake 4: Gaps in Documentation

The classic: Poor record-keeping of Maltese activities.

Why it fails: If you can’t prove it, it doesn’t exist. No documentation, no recognition.

My solution: Systematic, digital, audit-proof documentation from day one.

Mistake 5: Underestimating Running Costs

The classic: Only budget for setup costs—ignore ongoing substance costs.

Why it fails: Substance costs money every year. Without a running budget, the structure collapses.

My solution: Realistic budgeting for 3–5 years. Substance is a constant, not a one-off, cost item.

Red Flags: What Malta Notices Instantly

• Salaries below market level (Malta knows its wage bands)
• Staff without relevant qualifications for the business
• Operating costs under 5% of turnover (unrealistically low)
• No Maltese bank accounts despite Malta residency
• Board meetings always at the same time with no real agenda
• Decisions made by email rather than in meetings

Costs and Effort: What It Takes to Fulfil the Substance Requirements

Let’s get down to brass tacks: What does it really cost to operate a substantive Malta company? Here’s a no-nonsense cost breakdown—no sugarcoating.

One-off Setup Costs (Year 1)

Ongoing Annual Costs

These are the running costs year after year—this is where you’ll see if your Malta structure makes business sense:

Personnel Costs (the Biggest Item)

• 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 staff budget: 140,000–220,000 EUR/year

Operating Costs

Total Cost of Ownership (TCO) – The Real Calculation

Year 1 (with setup costs):

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

From Year 2 (ongoing 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 Malta Company Pay Off?

The million-euro question. My rules of thumb from practice:

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

Reality check: If your annual tax savings are under 200,000 EUR, Malta is probably too expensive. You’re better off with a simpler setup in Germany/Austria.

Cost Traps and Hidden Expenses

What’s often “forgotten” in the calculation:

• Travel costs: 15,000–30,000 EUR/year for regular Malta trips
• Opportunity costs: Management time for setup and operations
• Compliance updates: Regular changes when laws are updated
• Exit costs: If the structure needs to be wound up

Practical Cost-Saving Tips

1. Use shared services: Share compliance functions with other companies
2. Build up stepwise: Don’t do everything at once, expand gradually
3. Local providers: Maltese service providers are often cheaper than international ones
4. Digital infrastructure: Cloud-based solutions save office costs

Frequently Asked Questions (FAQ)

Can I meet the substance requirements with a shared office?

For small holdings (under 10 million EUR managed), a shared office is possible in principle, but you still need your own workspaces and access to meeting rooms. Since 2025, a postal address alone is not enough.

How many employees must I have in Malta (minimum)?

At least 2 full-time staff with Maltese employment contracts—including at least 1 director resident in Malta. For larger companies (over 50 million EUR assets), more accordingly.

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

Malta can deny tax residency, impose fines or even revoke your company’s license. You may also face back payments in other countries if substance is disputed.

Can my Malta staff work remotely?

No, this is a common misunderstanding. Employees must physically work in Malta and have their primary residence there. Remote work is only occasionally allowed.

How often must the board meet in Malta?

At least 4 times a year; for larger companies, more frequently. Important: Strategic decisions must really be made at these meetings—not just rubber-stamped.

What qualifications must my Malta staff have?

They need qualifications relevant to the business. For an IP holding, you need IP experts; for a trading company, sales professionals. Malta checks CVs and certificates.

Can I transfer existing staff to Malta?

Yes, but they must move their tax residency to Malta and sign local contracts. A simple secondment isn’t enough for substance requirements.

What’s the realistic cost of meeting the substance requirements?

Budget 200,000–400,000 EUR per year for a standard structure, including staff, office and compliance. In the first year, add another 50,000–100,000 EUR for setup.

How long does it take to set up a substantive Malta company?

Allow 6–12 months. The incorporation is quick, but recruiting, finding offices and setting up compliance take time.

Do I, as shareholder, personally need to live in Malta?

No, but at least one director must be resident in Malta. That director must also have real decision-making power, not just be a figurehead.