A Malta company does not need to sell traditional goods or services to generate trading income. An actively managed investment portfolio may also qualify as a trading activity.
The important question is not simply what the company owns. It is how the company manages those investments and how each type of income is generated.
Active investment trading
If the company regularly purchases and sells US and EU stocks, futures and bonds with the aim of earning profits from price movements, this activity may generally be treated as investment trading.
Typical examples include:
- Profits from buying and selling listed shares
- Gains from futures transactions
- Profits from actively trading bonds
- Gains from other financial instruments forming part of the company’s trading portfolio
The company initially pays Malta corporate tax at 35%. Once the taxed profits are distributed as a dividend, the shareholder claims a 6/7 refund of the Malta tax paid. This leaves an effective Malta tax rate of 5%.
For example:
- Trading profit: €100
- Malta corporate tax: €35
- Shareholder tax refund: €30
- Effective Malta tax: €5
The refund is not an automatic 5% company tax rate. The company must first pay the tax, distribute the relevant profits and satisfy the applicable refund requirements.
What if the company simply holds bonds?
This is where the treatment may be different.
If bonds are purchased mainly to be held until maturity while the company collects regular coupons, the income is more likely to be treated as passive interest rather than trading income.
Passive interest normally qualifies for a 5/7 shareholder tax refund, leaving an effective Malta tax rate of 10%, assuming the interest has suffered foreign tax of less than 5%.
For example:
- Bond interest: €100
- Malta corporate tax: €35
- Shareholder tax refund: €25
- Effective Malta tax: €10
The repayment of the original bond principal is not income. Any discount, redemption premium or additional return may, however, be treated as interest-related income.
If the company actively buys and sells bonds instead of simply holding them for their yield, the resulting trading gains may qualify for the 6/7 refund. Bond coupons received while those positions are open require a closer review, based on the company’s actual strategy and holding pattern.
What about dividends from stocks?
Dividends received from ordinary portfolio shareholdings generally fall within Malta’s shareholder refund system. However, their exact treatment depends on several factors:
- Whether the shares form part of a diversified trading portfolio
- Whether the investment qualifies as a participating holding
- Whether foreign withholding tax has been deducted
- Whether the Malta company claims double-taxation relief
A qualifying participating holding may benefit from Malta’s participation exemption or a full tax refund, resulting in 0% Malta tax.
Where double-taxation relief is claimed for foreign tax, the shareholder refund will normally be calculated under the 2/3 refund mechanism instead. For this reason, US and EU withholding taxes should be reviewed before deciding which Malta tax-relief route is more beneficial.
The company can have mixed income
An investment company does not need to choose between being entirely “trading” or entirely “passive.”
The same company may generate:
- Trading gains from stocks and futures, qualifying for the 6/7 refund
- Passive bond interest, qualifying for the 5/7 refund
- Foreign income subject to the 2/3 refund mechanism
- Qualifying holding income benefiting from a full exemption or refund
Each income stream must be identified, accounted for and distributed correctly. The tax treatment follows the underlying income, not simply the general description of the company as an “investment company.”
How to support trading treatment
The company should be able to demonstrate that investment trading is a genuine and organised business activity. In practice, we recommend having:
- Investment trading clearly included in the company’s objects
- A brokerage account opened in the company’s name
- A documented investment and risk-management strategy
- Regular and systematic trading activity
- Board decisions relating to the strategy, brokers and significant transactions
- Proper transaction records and portfolio reports
- Accounting treatment consistent with the company’s investment strategy
- Effective management and control of the company from Malta
There is no single minimum number of transactions that automatically makes an investment activity “trading.” The overall pattern, commercial intention and manner in which the portfolio is managed will be considered.
Is an investment licence required?
Investing the company’s own funds is different from managing money for clients.
If the company accepts third-party funds, manages investments for other persons or provides investment services, an MFSA licence may be required. Proprietary trading through the company’s own brokerage account should nevertheless be reviewed separately, particularly where derivatives, direct market access or specialised trading systems are involved.
A Malta company regularly purchasing and selling US and EU stocks, futures and bonds may generally qualify as carrying on an investment-trading activity. The related trading profits benefit from the 6/7 shareholder tax refund, producing an effective Malta tax rate of 5%.
However, bonds held passively for coupons are different. The interest will normally fall under the 5/7 refund mechanism, resulting in an effective Malta tax rate of 10%.
Before the company starts trading, its expected instruments, income sources, transaction pattern and foreign withholding taxes should be mapped in advance. This makes it possible to structure the activity correctly, estimate the real effective tax rate and avoid surprises when the first tax return and refund claim are prepared.