Malta holding company and the participation exemption
A Maltese holding company can receive dividends and sell subsidiaries without Maltese tax. The conditions are precise, and this guide sets them out.
A holding company exists to own shares in other companies. What matters to it is the tax on the two things it does: receive dividends and, eventually, sell. Under Maltese law both can be exempt through the participation exemption, one of the more generous in Europe, with no minimum holding period for dividends and no withholding tax on what the holding company itself pays out.
What a participating holding is
A Maltese company holds a participating holding in another company when it holds equity shares in that company and any one of the following applies:
- it holds at least 5% of the equity shares, carrying at least 5% of any two of the rights to vote, to profits and to assets on a winding up;
- it holds shares with an option to acquire the whole of the balance of the equity shares;
- it holds shares with a right of first refusal on a disposal of the balance;
- it holds shares and is entitled to sit on the board, or to appoint a director;
- it holds an investment of at least €1,164,000 held for an uninterrupted period of at least 183 days;
- it holds the shares for the furtherance of its own business, and not as trading stock.
The subsidiary may be resident anywhere. It must not own immovable property in Malta.
The anti-abuse conditions for dividends
For a dividend to be exempt, the subsidiary must satisfy at least one of three further conditions: it is resident or incorporated in an EU member state; or it is subject to foreign tax of at least 15%; or no more than 50% of its income is passive interest or royalties. Where none applies, the exemption is still available if the holding is not a portfolio investment and the subsidiary's passive income has been taxed abroad at 5% or more.
Capital gains on the disposal of a participating holding are exempt without the anti-abuse test.
Choosing between the exemption and the refund
A company may apply the exemption, in which case the dividend or gain is simply not taxed. Or it may include the income in its return, pay 35%, and have its shareholder claim a 100% refund on distribution. The outcome is the same; the choice is about timing, and about which document the shareholder's own tax authority wants to see.
Outbound: what leaves Malta untaxed
Malta charges no withholding tax on dividends, interest or royalties paid to non-residents, whether or not a treaty applies. Malta also has no thin-capitalisation rules and no transfer-pricing regime beyond the arm's-length rules introduced for larger groups from 2024. The treaty network runs to more than seventy countries, and as an EU member Malta is within the Parent-Subsidiary and Interest-Royalties Directives.
What a Maltese holding company needs to be real
Substance. A holding company with a registered office and nothing else will fail the tests that other countries apply to it, including the general anti-avoidance rules that came with the Anti-Tax Avoidance Directive. In practice that means resident directors who decide, board meetings held in Malta, and accounts and a tax return filed on time. The exemption is generous because the company is expected to be genuine.
Frequently asked questions
- What is the minimum shareholding for the Malta participation exemption?
- 5% of the equity shares, or one of the alternative tests: an option over the balance, a right of first refusal, a board seat, an investment of at least €1,164,000 held for 183 days, or a holding for the furtherance of the company's own business.
- Is there a minimum holding period?
- Not for the 5% test. The 183-day period applies only to the €1,164,000 investment test. Capital gains on a participating holding are exempt regardless of how long it was held.
- Does Malta charge withholding tax on dividends paid to a foreign parent?
- No. There is no Maltese withholding tax on outbound dividends, interest or royalties.