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How to Start a Business in Malta?
Despite being a tiny country in the middle of the Mediterranean Sea, Malta offers a ton of economic opportunities for any company willing to take a risk on it. When I first moved to Malta, I was mesmerized by its rich culture, scenic natural landscape, and of course, the low tax and overall cost of living. But now that I’ve come to know Malta, I can see why a lot of astute entrepreneurs decide to start a company in Malta. But don’t take a stranger’s word for it. Before walking you through the steps on how to start a business in Malta, let’s discuss why you should start a company there in the first place.
Reasons to Form a Company in Malta
One reason why you should start a company in Malta is because of its geographic location.
Malta is strategically situated between Europe and Africa, which means there is a ton of import and export business as well as tourists passing through the country each year. And though it is considered a relatively small country to do business in, Malta has a population of 400,000, and it’s steadily growing. Another reason why you should learn how to start a business in Malta is that Malta is becoming an international hub for commerce. Malta is starting to embrace emerging industries and adapting its existing infrastructure to create a sustainable future.
Colonized by Great Britain in 1813, Malta has been running its infrastructure on a British framework, which gives it a solid foundation from which to build its economy. From a business perspective, starting a business in Malta makes sense due to its favorable tax policies put in place by the government.
Malta does not impose withholding tax on dividends earned by a company and its shareholders.
This critical tax feature means more capital flexibility and liquidity for your company.
Furthermore, withholding tax is not imposed on royalties either.
As a non-resident of Malta, you can also get tax refunds on distributed earnings that were charged a tax in Malta, with the exception of earnings that were sourced from real estate or earnings that qualify for and await a final withholding tax.
Businesses in Malta must be paying out their dividends either to international shareholders or to a Malta-based holding company that is completely owned by non-residents in order to qualify for said tax refunds.
Malta is also one of the few countries that carry out a double tax treaty with dozens of other countries including, but not limited to, the US, China, Canada, Australia, UAE, South Africa, and most countries in Europe.
A double tax treaty (opens in a new tab) means that a business in Malta can avoid the imposition of tax by multiple governments on the same declared assets and profits. Depending on what type of business in Malta, you start, there are several other tax incentives your business may qualify for.
For instance, for a business involved in freeport activities, Malta has a Malta Freeports Act 1989 (opens in a new tab) set in place in which a company is exempt from customs duties, withholding tax, and stamp duties. I’ve also come to appreciate the low and relatively competitive VAT rate in Malta. Currently, the VAT rate is at a standard 18 percent for most consumer products and services.
However, certain goods have a lower VAT rate of 7 percent or even zero percent.
For those who are unfamiliar with what this business abbreviation is, Vat, or value-added tax, is simply a tax attached to an item whenever a value is added to every step of the supply chain. The VAT is an important term to familiarize yourself with if you plan on doing business in Malta. In the US, there is no such thing as VAT, which is why I always advise entrepreneurs coming in from the US to learn the term. The overlooking VAT can result in faulty business budgeting, as VAT can chip away at your profits.
Learning how to start a business in Malta also offers the benefit of massively reduced overhead expenses.
When you start a business in Malta, you don’t just get the tax incentives and lower the VAT rate.
Labour costs are significantly lower in Malta, so are real estate, inventory, raw materials, etc. Being a bilingual nation, most of its locals are fluent in both the native Maltese tongue and English.
You’ll be able to save hundreds of thousands of dollars from these common overhead expenses to start. If you don’t speak any other language besides English, Malta can accommodate you. Anyone looking to set up a business in the country can expect relaxed relations with locals.
Now, before you make the final decision to move and start a business in Malta, I think it’s only fair to note a few disadvantages of company registration in the country. This way, you get a clear and complete picture before you book any flights and fill out any business registration forms.
Disadvantages of Starting a Business in Malta
Let’s take a look at the corporate tax rate in Malta first.
Currently, the corporate tax is at 35%, which is higher than the average global corporate income tax rate, which is at 24%. Both international income and capital gains are treated as taxable income for businesses in Malta. This relatively high tax rate could simply eat away the savings you get from Malta’s low VAT rate.
Malta is also densely populated, with more than 400,000 residents all squeezed into three islands. Sure, this is a good thing as it ensures consistently heavy foot traffic and a strong labor force to support your business in Malta, but it can also be frustrating to move around and do anything on the island.
The increasing population, especially of retirees and tourists, can eventually lead to a rise in the cost of living as large swaths of land get snagged up to be turned into rental communities and businesses move in.
As someone who’s lived around Malta for quite some time, I’ve also noticed the lack of road infrastructure around the island’s less travelled corners. Roads around the Valletta area and surrounding towns have the roads to support heavy car traffic, but once you venture off these major roads, you’ll find yourself in less comfortable road conditions.
From a business perspective, this can lead to more costs for your company and limits the places you can establish a headquarters for your business in Malta.
Now that we’ve gone through the highs and lows of starting a business in Malta, let’s dig into how to start a business in Malta.
Keep in mind that to start a business in Malta or anywhere in the world requires grit and commitment.
Success likely won’t come overnight so be sure you’re up for the 80-hour workweeks.
Determine What Nature of Business in Malta to Start
Before you go trigger-happy and complete registration forms for your business, know what business you want to start in Malta.
What type of business are you most inclined to work tirelessly on?
The nature of the business you start in Malta should depend on two main factors – market demand and your passion/interest. Each country has its own consumer needs. A high-end hotel chain may not be the best business idea to start in an impoverished country. Meanwhile, opening a store that sells cheap knockoffs in a prime location won’t do you any favors either.
Identify a market gap in Malta and fill it.
Regardless of what product/service it is, you must find someone in Malta who needs your prospective product/service; otherwise, you might simply be starting a passion project or a liability.
Determine What Form of Business in Malta to Start
The company laws governing business in Malta provide a range of options for aspiring business owners.
Business in Malta will be categorized as one of these:
Sole Proprietorship
Unarguably the simplest type of company to start, a sole proprietorship business is for self-employed entrepreneurs who don’t plan on taking in employees, at least not at the start. Examples of a sole proprietorship company include a dog walking business or a home-based web design business.
A sole proprietorship business is not subject to any setup or registration fees hence making it easier to start for undercapitalized entrepreneurs.
For a business that does not make more than 35,000 EUR for consumer products or 24,000 EUR for services, registration for VAT isn’t even required.
Another advantage of sole proprietorship registration is that you have full ownership of your company.
Limited Liability Company
A company can also consist of multiple branches or subsidiaries. LLC registration can either be private or public.
A private limited liability company is not allowed to have over 50 shareholders, and it has to maintain a minimum share capital of 1,200 EUR. On the other hand, registration of a public LLC requires you to have a minimum of 46,600 EUR in share capital. Registration of a public company means that your shares can be bought and sold over the Malta Stock Exchange (opens in a new tab). The subsidiaries of an international holding company may also be declared as an LLC during registration in Malta.
Partnership
A partnership registration in Malta will fall under a general or a limited category. Registration for a partnership is relatively straightforward in that it only needs a contract that’s been drafted and notarized.
A general partnership registration means multiple parties share the risk and responsibilities of a company. Meanwhile, a limited partnership company involves the appointment of general partners and limited partners. General partners assume all the potential debt and obligations that a company will have. Limited partners are only held accountable in proportion to their contributions to the business. Just like a limited liability company, registration of a partnership requires you to also register for VAT.
IHC
An international holding company holds the shares and company assets of offshore companies.
Malta exempts IHC income and capital gains from tax. An international holding company registration tends to be more complex in nature and is often used strategically by experienced business owners as a moat from legal and financial risk.
Trust
Malta also allows the establishment and registration of a trust.
In a trust structure, a trustee transfers possessions to a beneficiary. These possessions are assets in the form of cash or real estate. Registration of trust is commonly done to bypass certain tax policies or to hold assets for a beneficiary who is yet to be of legal age.
Register Your Company in Malta
The next step on how to start a business in Malta is to register. Company registration is a crucial step since everything else you do won’t matter until you have an official entity. Company registration in Malta starts with registering your company name online.
The Maltese Registry of Companies (opens in a new tab) handles company registration in the country. Afterward, you’ll need to supply the required forms to the Registry of Companies.
The registration forms required to start a company in Malta include:
- Memorandum and Articles of Association
- Proof of successfully deposited initial share capital
- Proof of ID for subscribers
The Memorandum and Articles of Association (opens in a new tab) is a document that contains information about the company, including what company type it is categorized as, its nature of operations, and the company address. Once the required documents are processed by the Registry of Companies, company registration is finalized within 24 hours. In some cases, you will need to pay a registration fee. The registration fee will mainly depend on the share capital of the company. For instance, company registration for up to 1,500 EUR of share capital is roughly 245 EUR. Registration fees can go as high as 2,250 EUR.
And while most steps of the registration process can be done online, you or a legal representative of the company must be physically present to sign the paperwork. You’ll also need to register your company with the ETC or Employment and Training Center. The agency is responsible for all company registration in Malta. Regardless if you are starting a sole proprietorship business or a limited liability company in Malta, you’ll need to complete a form for each employee. The process is fast and free of charge.
Malta also requires a company to go through data protection registration if they intend to collect the personal data of future or current customers. Though this adds up to more time and effort on your part, I think it’s a good sign of how Malta is catching up with the rest of the world when it comes to business regulations.
Learn the Legal Ins and Outs of Doing Business in Malta
An important yet commonly overlooked step on how to start a business in Malta is the legal obligation/s that come with it.
To start a business is only half the battle; survival is the other half of it. No company in Malta can survive without it knowing, at the very least, the basics of corporate law. In terms of business tax, we’ve already discussed that earlier in the article.
But what I failed to mention before is that, while Malta has a 35% tax rate, it’s actually only 5%. This is because of the stipulation that allows foreign company shareholders a 6/7ths tax refund. A company in Malta is also required to file all of its accounts and transactions and maintain accurate records of it. Employment regulations of Malta also require company employees to have paid days off during major holidays.
Moreover, employees are entitled to 32 days of holiday each calendar year. According to employment laws, a company must also allow pregnant employees up to four months of paid maternity leave. It is also within an employees’ right to take up to two weeks of paid sick leave per the calendar year.
Last but not least, any foreign company seeking to operate in Malta must have a valid work permit, with the exemption of foreign companies from the European Economic Area, and Switzerland.
Find a Business Lender in Malta
Before you can start to operate in Malta, your business needs money to hire a distributor/supplier, hire employees and be able to provide them with benefits, order inventory, and, essentially, day-to-day fund operations. Finding a business lender to help you start your company, however, can be daunting as there are several options out there. Picking the wrong one means having to deal with absurdly high-interest rates on your business loan or an unfavorable repayment schedule.
A good resource to have for a company in Malta is MFSA or the Malta Financial Services Authority (opens in a new tab). The agency is responsible for regulating all finance, investment, insurance, and pension companies in Malta. The MFSA regulates and oversees the financial industry of Malta. They work to ensure that the interests of consumers come first and that financial markets are kept transparent and efficient.
Sources of funding for your company in Malta include:
- Venture capital
- Angel investment
- Donations
- Savings
- Grants
The latter options are called soft funding as they have no strict obligation to return the capital to its original investors. Funding sought through a bank will come at higher interest rates. It can also be difficult to get approved of one, depending on your credit history and type of company formation. For instance, a partnership business has a higher chance of getting approved compared to a sole proprietorship business since partnerships spread the financial risk and obligation to each registered partner of the business.
Crowdfunding platforms are a relatively new way to source the funds you need.
Companies, like Kickstarter (opens in a new tab), are leading the charge towards this cutting-edge way of peer-to-peer investing and can be useful for entrepreneurs who don’t have the local financial record to get approved for a traditional bank loan in Malta. When figuring out which funding source best suits your Malta company, be mindful of how much ownership you are giving away to your backers. As your business grows, every portion of it becomes more valuable. You wouldn’t want to give away half of it before it’s even taken off.
Start Marketing Your Company
Marketing your business is about building a solid, reputable brand. Start marketing your company through Facebook and Instagram ads. Online advertising is undoubtedly the easiest way to reach the 400,000+ residents of Malta without breaking the bank. Local SEO practices will also help position your business more favorably on search engine results pages.
Content marketing and blogging are two other cost-effective ways to start building a brand for your business. Writing engaging and helpful content that you can associate with your brand can build you a following, which you can then convert into paying customers. Getting involved with your local community in Malta can also pay off. Look for community events and activities that you can participate in or host. It’ll give you a chance to know your target audience better while also giving your brand some much-needed local publicity. Host a fundraiser for the local children’s hospital or donate to expand the local park. These good deeds may seem like an unnecessary expense, but if executed meticulously, the rewards can easily offset the risk.
Build a Website For Your Business
Another important step on how to start a business in Malta is to build a website. A company website adds legitimacy to your brand. It makes you look more trustworthy and professional.
A company website is also a great way to aggregate all the pertinent information about your business so you can answer all general questions on a FAQ-style page. When you start a company website in Malta, you’ll need to decide whether or not to bring in a professional to do the development and upkeep of the business website.
You can also learn how to code and build the website yourself from scratch. The downside here is the time spent learning how to code the website and that you cannot be completely sure the site is free of security gaps that hackers could expose.
Hire Employees For Your Business
While this probably won’t be the last step on how to start a business in Malta, we’ll end on hiring employees for your new business. A business can’t run efficiently without the right people behind it. The good news is, the labor force in Malta is strong and steadily increasing. In fact, a common benchmark known as the labor force participation rate in Malta has reportedly increased to 61.40% in 2019, up from 60.90.
In the last two decades, the labor force participation or registration rate in Malta has averaged above 50%. In addition, the unemployment rate in Malta has been at a record low, currently at 3.40%, while wages have nearly doubled. When hiring employees for your business, give more weight towards the candidate’s personality and sense of drive and passion rather than limiting your criteria to his/her educational background.
It’s also smart to only fill essential roles when hiring employees for your business that’s operating in Malta. This may include a CTO, engineers, accountants, and a legal team to make sure you are complying with all Malta laws, such as filing the right tax forms. You should also consider outsourcing any of the one-time work tasks to third-party professionals to circumvent the need to pay salaries and benefits to a full-time employee.
Final Thoughts
Starting a business of any kind in Malta can be frustrating at times, but ultimately rewarding if done right. The country’s multicultural community, an abundance of natural resources, and positive tax programs make Malta a practical place to set up your business.
And with the current trajectory of its economy, doing business in the country is only about to get more lucrative.
