Choosing the appropriate legal structure for your business in Malta is a decision that can significantly impact its operations, liabilities, and tax obligations. Such a decision depends on various factors such as the nature of your industry, the number of stakeholders involved, and your long-term business goals.
In this article, we’ll explore the different business entities available in Malta and key considerations for each.
1. Self-employed
Registering as self-employed in Malta offers simplicity and autonomy, and it’s particularly beneficial for freelancers who want to relocate. As a self-employed individual, you have full control over your business operations and enjoy direct profits. However, it’s important to mention that you are personally liable for any debts incurred by the business. This is because, unlike a – rightly named – limited liability entity, a self-employed individual carries unlimited personal liability. This is a general rule in corporate law in most countries Raising finance might also be challenging, as lenders often require personal guarantees.
Important note: Self-employed individuals also need to request a VAT number, and if they hire employees, they must provide due notification to the Employment and Training Corporation and apply for a PE number. Note, however, that self-employed individuals with annual turnovers below certain amounts may be VAT exempt – that is, they need not add VAT to their invoices.
(If you need assistance with VAT and the PE number, our Expatax.mt experts are available to guide you through the process.)
Learn more about registration as self-employed in Malta.
2. Partnerships
Partnerships are suitable for businesses with two or more individuals looking to collaborate and share profits. There are two main types of partnerships in Malta: En Nom Collectif and En Commandite.
- En Nom Collectif: In this type of partnership, all partners share unlimited liability for the business’s obligations. Each partner’s personal assets are at risk, and they are jointly and severally liable for the partnership’s debts.
- En Commandite: Unlike En Nom Collectif, En Commandite partnerships have both general and limited partners. General partners have unlimited liability, while limited partners’ liability is restricted to their capital contribution. This structure provides flexibility in terms of investment and risk-sharing.
People who are familiar with the UK or Nordic tax systems will see a high level of similarity between these partnerships and the British, or for instance the Danish K/S entities. Because of the unlimited personal liability angle, limited company structures are often preferred.
3. Limited Liability Company (Ltd.)
A Limited Liability Company (Ltd.) is a popular choice for businesses in Malta due to its separate legal entity status. Shareholders enjoy limited liability, meaning their personal assets are protected from the company’s debts – in other words, they are only on the hook for the amount of capital they have put into the company, and cannot lose more than that if, for instance, the company becomes insolvent.
A Limited Company offers greater credibility and flexibility, making it easier to raise capital through the sale of shares. The share capital requirement for a company is €1,200. You’re required to pay 20% of this upfront, in addition to a disbursement fee of €320 to the authorities, along with professional fees. Also, companies are obliged to file annual returns and audited accounts.
4. Cooperative
Cooperatives are owned and operated for the collective benefit of their members. Whether for-profit or non-profit, cooperative businesses operate similarly to corporations but with a democratic governance structure where each member has an equal vote. This model encourages collaboration and shared decision-making among stakeholders.
5. Public Limited Company
This structure enables the company to raise capital from a broader investor base while limiting the shareholders’ liability for the company’s losses. However, the benefits of this setup must be weighed against its drawbacks. Public limited companies are typically more suitable for larger businesses due to the complexity and cost involved. Also, they are subject to stringent regulations and reporting requirements, necessitating meticulous compliance efforts to ensure legal and financial transparency.
6. Branch Office
Establishing a branch office in Malta serves as an effective strategy for expanding the reach of a foreign company. Acting as a direct extension of the parent company, it offers a cost-effective avenue to conduct business operations within the Maltese market. However, this approach comes with its own set of considerations. While it allows for a presence in Malta without the need for incorporation, the parent company remains liable for all debts and risks incurred by the branch office. Moreover, securing financing or credit for the branch office may pose challenges, potentially limiting its growth and operational capabilities.
Factors You Should Consider Before Setting up a Business
When choosing the right business entity in Malta, consider the following factors:
- Cost of Running the Company: Evaluate the initial setup costs, ongoing expenses, and compliance requirements associated with each business structure.
- Limitation of Liability: Assess the level of personal liability you are willing to accept for the business’s debts and obligations.
- Tax Benefits: Understand the tax implications of each business entity, including corporate tax rates, deductions, and exemptions.
- Number and Nature of Stakeholders: Consider the number of individuals involved in the business and their roles, as well as their investment preferences and risk tolerance.
- Registration Options: Familiarise yourself with the registration procedures and documentation required for each business entity under Maltese law.
Conclusion
Before deciding the right business entity in Malta, you ought to do some research and consider various factors that might or might not align with your business objectives. So, whether you opt for self-employment, a partnership, a limited liability company, or a cooperative, we suggest you seek professional advice to ensure compliance with legal and regulatory requirements and set your business on a path to success.
If you need further assistance with the process, you’re welcome to contact our experts on Expatax.mt.
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