IN408 - The Use of a Malta Holding Company to Hold Shares in a Swiss Company - The Advantages Available
Malta has long been considered a leading holding company jurisdiction due to its participating holding exemption on dividends and capital gains, as well as its lack of withholding tax on payments to shareholders.
Switzerland has also been a favoured location for international trading and holding companies as these companies enjoy beneficial rates of taxation as well as access to Switzerland’s extensive tax treaty network.
Malta’s holding company regime, coupled with the beneficial Double Taxation Agreement between the two countries, provides a number of advantages when a Malta company is used to hold shares in a Swiss subsidiary.
The key features of the Double Taxation Agreement (“agreement”) are as follows:
- Withholding Tax on Dividends
The standard withholding tax on dividends paid from Switzerland is 35%.
In the past Swiss companies have passed dividends to Maltese companies free of withholding tax, by virtue of the EU Parent Subsidiary Directive. This, has however, required a capital contribution by the Maltese parent of at least 25%.
The agreement provides for a withholding tax exemption on dividends from Switzerland to a Maltese company where the Maltese company directly holds 10% or more of the Swiss company's capital for at least one year. Both companies must be subject to taxation.
- Withholding Tax on Interest
The agreement provides for a withholding tax exemption on interest payments between companies where one company has a direct holding in the other of at least 10% for one year or more. This exemption also applies where both companies have a common direct parent with a minimum 10% holding in each company for a year or more. Both companies must be subject to taxation.
Interest received in Malta is taxed at 35%. However the shareholder can claim a refund from the Maltese tax authorities in respect of a substantial element of any taxation paid by the Maltese company relating to dividend payments to shareholders. This results in low net Maltese taxation on interest, generally an effective Maltese tax rate of 10%.
Where the Maltese company in turn pays interest to another jurisdiction a "fine margin" on the interest can be agreed with the Maltese tax authorities. There will then be no withholding tax on interest paid by the Maltese company.
- Withholding Tax on Royalties
The agreement provides for an exemption from withholding taxes on royalties. This, coupled with Malta's tax refund regime and unilateral double tax relief in the form of a flat rate tax credit, results in very low net Maltese tax on royalty income (see Dixcart Information Note number 230).
Another interesting opportunity exists for companies to migrate to Malta and to secure a rebasing of Intellectual Property costs. The rebased cost can then be amortised over three years.
Use of Advance Rulings
Dixcart recommends that advance rulings are obtained from the Swiss Federal Tax Administration prior to the distribution of dividends, interest and royalties. This is to avoid any possibility that the benefits of the agreement are denied by the authorities taking a view that treaty abuse has occurred.
How Can Dixcart Help?
Dixcart has offices in Malta and in Switzerland and is experienced in establishing and managing companies in these jurisdictions. Dixcart is well placed to advise and organise structures to take advantage of this attractive Double Taxation Agreement.
Swiss and Maltese companies offer a number of low tax advantages and both jurisdictions offer tax rulings which can provide certainty.
Please speak to Sean Dowden or Jonathan Vasssallo at the Dixcart office in Malta for additional information on this topic: firstname.lastname@example.org.