Malta has one of the EU’s most comprehensive participation exemption regimes (a term generically used to refer to exemption from tax on dividends received from a subsidiary and on any capital gains earned on the sale of shareholdings), offering tax exemptions in Malta for dividends and capital gains related to a Participating Holding (PH).
A Maltese holding company (MaltaHoldCo) has a Participating Holding when it has a shareholding in the share capital of a company whose capital is represented by registered shares or equity holdings, does not own real estate in Malta, and meets at least one of the following conditions:
a) The shareholding has a 10% holding and a right to, at least, 10% of 2 of the following:
1. Voting rights
2. Right to profits available for distribution
3. Right to the assets available for distribution on liquidation; or
b) The shareholding has a value of, at least, € 1,164 M on purchase date and has been held for a continuous period of, at least, 183 days; or
c) Malta HoldCo detains an option to buy the entirety of the outstanding shares of the subsidiary; or
d) Malta HoldCo has powers to appoint one member of the board of directors of the subsidiary; or
e) Malta HoldCo has a right of first refusal in the case of sale, redemption or cancellation of the outstanding foreign company's shares; or
f) Malta HoldCo holds a shareholding for the development of its own business and not only as stock for resale purposes.
Only in the case of dividends does the non-resident company have to also meet at least one of the following anti-avoidance conditions:
a) to be resident or incorporated in the EU; or
b) to be subject to, at least, a 15% foreign tax rate; or
c) more than 50% of its income does not result from passive interest or royalties.
If none of these 3 conditions has been met, the following 2 conditions must be met cumulatively:
a) the holding by Malta HoldCo is not a portfolio investment and the non-resident participated company has not more than 50% of its income derived from portfolio investments; and
b) the non-resident participated company or the respective passive interest and royalties have been subject to, at least, 5% foreign tax.