First published in 2019 – Updated from time to time.
In 2019, Interlegal published its first joint book called Legal and Tax Issues Around the World – Starting and Growing a Business. It is the result of collective work with the accountants’ firms network EuraAudit. This article aims to introduce the legal environment of Malta for entrepreneurs who are interested in forming and financing their business in this country. Note that it is not equivalent to a complete professional analysis. Through this introductory guide, the network intends to help entrepreneurs to craft the questions they need to ask themselves in order to start, operate, and see their business thrive on the global stage. Therefore, Interlegal encourages entrepreneurs to obtain legal advice with CSB Legal’s firm on the issues arising from starting and running a business in Malta.
Malta is a small, yet strategically located, island forming part of the European Union. The country’s economy is based mainly on professional and technological services, such as online gaming, tourism, shipping and banking. The process to set up a company, subsidiary or branch in Malta is relatively straightforward.
Registered Companies and Partnerships
The Companies Act, Chapter 386 of the laws of Malta (the “Act”), governs the corporate law framework in Malta establishes two types of limited liability companies, being:
- private limited liability companies; and
- public limited liability companies.
A limited liability company is a one in which the shareholders’ liability is limited to the amount unpaid on their share capital, through the creation of a distinct legal personality.
All companies registered in Malta must have a memorandum and articles of association that need to be submitted to the Registry of Companies. This document will provide all the basic information necessary regarding the company, such as the shareholder/s of the Company, share capital and directors.
The Memorandum of Association of a private company must contain the following information:
- Name of the company;
- Indication as to whether the company is a public or private company;
- Personal details of each of the shareholders;
- Objects of the company;
- Registered office in Malta of the company;
- Authorised and issued share capital of the company, divided into shares of a fixed nominal value;
- Number of shares taken up by each shareholder, and the amount paid up in respect of each share, and where the share capital is divided into different classes of shares, the rights attaching to the shares of each class;
- The number of directors and their details;
- Manner in which the legal and judicial representation of the company is to be exercised and the name of the first person/s vested with such representation;
- Indication of the first company secretary;
- Any period fixed for the duration of the company.
Private Limited Liability Company
The Memorandum and Articles of Association of a private limited company restrict a shareholders’ right to transfer their shares, limits the number of the company’s members to fifty; and prohibits any shares or debentures of the company being offered to the public.
A private limited liability company must be incorporated by at least two members, save for a single member company, which may have one member only. The appointment of at least one director and one company secretary is necessary to ensure the management of the company. The minimum share capital for the private limited liability company is the equivalent of €1,165. When a company is formed, twenty percent of the share capital must be deposited in a bank account, in Malta, at the time of formation.
Public Limited Liability Company
Unlike a private limited liability company, a public company may offer to the public any shares in or debentures of the company, for cash or other consideration. The Act defines an “offer made to the public” as:
- an offer made to the public generally; and
- an offer made to more than fifty people.
For a public company, the minimum share capital is approximately €46,600, or its equivalent in another currency, of which 25% must be deposited in a bank account prior to registration.
Public companies in Malta have certain requirements for corporate management and annual financial reporting. A minimum of two directors, together with a company secretary, are required to manage the company and the shares of the public company may be traded on the stock exchange, unlike a private company. Its articles of association contain information about the right to transfer shares (which, contrary to the private limited liability company, should not be restricted) and the manner in which the public can subscribe for company shares. The shareholders of both types of company will have limited liability with respect to the companies’ debts and obligations.
It is worth noting that private companies can be converted into public ones by virtue of amendments to the memorandum and articles of association. The resolution to make these changes must be submitted for registration with the Registrar of Companies together with other supporting documentation.
A foreign company may opt to establish a branch in Malta, rather than a separate and distinct company with its own legal personality in Malta. An overseas company, which is considered to be a foreign based entity incorporated outside of Malta, may set up a branch in Malta by registering the branch with the Maltese Registrar of Companies within one month from establishing a branch or a place of business in Malta. It is worth noting that a branch does not constitute as a separate legal entity in Malta and therefore this is seen as a short-term option in Malta and not commonly used by entities desirous to establish a long-term project in Malta.
Other businesses may prefer to trade as a partnership either in the form of a partnership en commandite or a partnership en nom collectif. A Maltese partnership has its own separate legal personality distinct from that of its partners and is capable of owning and holding property (under any legal title) or being sued. Partners to the partnership may be either an individual or a legal person.
A partnership en commandite (more commonly referred to as a limited partnership) has both general and limited partners. The general partners’ obligation is unlimited, joint and several, while the limited partners’ obligation is limited to the amount unpaid on their contribution.
The partnership en nom collectif, more commonly referred to as a general partnership, has its general obligations guaranteed by the unlimited, joint and several liability of all its partners.
Under the Maltese Income Tax Act, Chapter 123 of the laws of Malta, a partnership is treated as transparent for tax purposes, unless it elects to be treated as a company for the purposes of the Income Tax Management Act, Chapter 372 of the laws of Malta. The profits and gains of a tax transparent partnership are, therefore, taxed in the hands of the partners at their applicable personal tax rate. Although the computation of the taxable income is calculated according to the level of the partnership, each of the partners would need to declare their share of profits in their own personal tax returns.
In cases where a limited partnership has elected to be treated as a company for income tax purposes, all relevant provisions of the income tax law would be applicable to such a partnership in an identical manner.
The Act provides an option for a company registered in a foreign jurisdiction to re-domicile and continue operating in Malta. Under the Continuation of Companies Regulations 2002 (Legal Notice 344 of 2002 as amended by Legal Notice 352 of 2003), companies may, (through re-domiciliation) continue with their activities rather than winding up the operation/business and starting afresh in another jurisdiction. The regulations are divided into two parts; the first part is dedicated to companies registered in another jurisdiction coming to Malta to continue their business and the second part is dedicated to companies already registered in Malta continuing their business in other jurisdictions. It is worth highlighting that the Registry of Companies will not accept the re-domiciliation of a company that is black listed by the Financial Action Task Force (FATF).
Winding Up of Companies
A company may either be wound up by the court or dissolved on a voluntary basis.
There are two forms of voluntary liquidation – either a members’ voluntary winding up (which is only possible where a company is solvent), or a creditors’ voluntary liquidation.
For more details, please contact CSB Legal, tel: (+356) 25572414