Setting up a company is likely to be one of the biggest financial decision you will ever make. As a result, such a decision requires careful consideration of your tax and financial situation, business plan and goals, life style, country of tax residency, and your work habits. Deciding upon a corporate structure and location is a key decision for every entrepreneur to make. Although there are quite a few high-quality options available, many people struggle to find the best corporate structure and suitable jurisdiction in which to set up a trading, holding or investment company.
Deciding where to open and run a business depends on many factors like ease of set-up, costs, taxation, banking options, regulaory requirements and remote management possibilities, to name a few. We trust that this comparison of running a business in Malta vs Estonia will help you decide where to start.
In our practice, a question that comes up regularly is what is better: Estonia or Malta. Although every person’s tax and financial situation is different, we’re here to share some general thoughts on benefits of Estonia and Malta that can guide you through those issues as you discuss them with your tax lawyers and trusted financial advisors. You also learn that some of our clients make the most of best practices of both jurisdictions, combining Estonia with Malta. Estonia Co. + Malta Co. = efficient corporate structure utilizing the best Europe has to offer.
Make sure you always consult your tax lawyer before setting up a company abroad. In this article we do a deep dive on comparing Malta to Estonia to answer the question, “Should I go to Malta or Estonia to match my corporate needs, and follow my corporate dreams?”
An International financial centre, well-positioned for business travellers, with a secure and friendly environment – this is Malta, a trusted base for your business wealth with its attractive asset management and investment potency.
From the other side of the European continent, there is a Northern business hub, known as a digital state or a country of unicorns: a famous motherland for an impressive number of impactful and world-changing startups, with the safest digital commercial register in the World and this is Estonia.
Malta versus Estonia? We are going to sail between these business-effective lands and help you to drop the anchor for your company in a right place. Hold tight!
Corporate tax, company registration & business environment in Malta and Estonia
- Both countries are members of EU and Schengen area;
- Official language in Malta is English, while most of Estonians speak English as well;
- Company formation in Estonia can be done fully online by e-residents, in Malta it can be done fully online by licensed Corporate Service providers.
- Malta effective corporate tax rate is just 5%.
- Estonia, standard tax rate of 20% on distributed profits.
- Estonia has a deferred corporate tax system; tax is paid at profit distribution.
- Malta has a full imputation system; shareholders of Malta Co. are entitled to tax refund.
- Both, Estonia, and Malta sport participation exemption on foreign qualified dividends.
- Capital gains are tax exempt in Malta yet taxed in Estonia when distributed to shareholders.
Malta is not considered as a tax haven – it is a well-regulated onshore jurisdiction. The corporate income tax rate in Malta is 35%, which is quite high. However, there is a law that provides that 30% of the taxes paid will be refunded, which means that the effective corporate tax rate is just 5%. This is currently the lowest corporate tax rate in the EU and one of the lowest in the world. The good news is there’s now an even better option! From 2020, Maltese legislation allows for foreign legal entities to register a subsidiary in Malta and opt for fiscal unit group taxation and simply pay 5% corporate tax without a refund procedure. Simple, efficient, zero hassle — and sports a huge cash flow advantage! Taxes on dividends are charged at 0%. No tax on capital gains.
Estonia charges 0% corporate tax if profits are not distributed and 20% on distributed profits. However, this can be reduced to 14% if regular dividend distributions are made for three years or more. There is no tax on outbound dividends and outbound interests, 0 – 10 % withholding tax on royalties. While Estonia is also not a tax haven, its tax code has topped the Tax Competitiveness Index for several years.
Both countries, Malta, and Estonia, have full access to tax treaties and EU directives.
How to start a company in Malta vs Estonia
- Incorporating a limited company in Malta online takes up to 5 working days. Estonian e-residents can start a company in 2 hours.
- The minimum share capital for opening a company in Malta is EUR 1200 of which at least 20% (EUR 240) is to be paid-up. The minimum share capital in Estonia starts at EUR 0.01 per shareholder.
- The minimum number of shareholders is one: either for incorporation in Malta or Estonia. Corporate shareholders are permitted, non-resident shareholders are permitted in both jurisdictions.
- There is no requirement to appoint a local resident director neither in Estonia nor in Malta. Corporate directors are permitted in Malta, not in Estonia. The minimum number of directors is one in both jurisdictions.
- Opening a business bank account in Malta can take up to 6 weeks with a local bank or 5 working days at E-Money Institution. The business banking options in Estonia are quite similar and the best option is to open a business account with a payment institution (Wise, Intergiro, OuiTrust, Payhawk). EMI provides more flexibility, with no need to physically visit their offices for identity verification, and requires less local substance for your business, than traditional banks do.
In both countries you can register your company online via local corporate service providers. The process of incorporation takes up to one week in Malta and a few hours in Estonia. Local registered address is required for incorporation in Malta and a local director and a secretary – both are highly recommended to keep your daily business routine smooth and save costs: all these services provided by the local licensed firms.
In Estonia you will need a local contact person, who must be either specially licensed firm or a professional practitioner (notary, lawyer, accountant, etc). These, and other services are provided by InCorpora OÜ, E-residency Marketplace Member.
Due Diligence requirements are similar in both jurisdictions: you will need to provide certified copies of a passport/ID card, proof of residential address (usually it is a utility bill), and professional reference letter for beneficial owners of the company, for shareholders and directors.
Running your company in Malta vs Estonia
Malta companies must submit annual return to Malta Business Registry, along with declaration, which confirm that no changes of ownership took place during the past year. This is done on company anniversary.
Important to note, that public access to beneficial owners information in Malta was declared invalid by the Court of Justice of the European Union on the 22nd of November 2022. The access is limited to competent authorities and subject persons only.
VAT declarations for trading companies are usually submitted quarterly. Audited financial statements & tax return are to be submitted every year within 6 months after the end of financial year (extension could be claimed if the company is registered after the 30th of June).
Upon profit distribution, you pay 35% corporate tax — which can later be claimed back in part by shareholder(s), resulting in an incredibly low (5%) effective tax rate. Alternatively, you may form a fiscal unit in Malta, consisting of 2 companies (at least one of them should be Maltese) and pay 5% tax for a whole group, skipping the process of tax refund.
In Estonia company owners must submit an Annual Report. Income, social tax and VAT declarations are made on monthly basis. Estonian e-residents have 24/7 remote access to manage their companies online from anywhere in the world. They can simply authenticate using their E-Residency digital IDs and log in to the file company annual reports, declare VAT returns, digitally sign contracts, and encrypt & send documents. An annual report must be submitted in the Estonian e-Business Register within 6 months after the end of the financial year. Income and social tax returns to be submitted by the 10th of every month in the Estonian Tax and Custom Board online environment – aka e-MTA – and VAT returns by the 20th of each month in e-MTA.
Malta Business Registry also provides software that allows submitting most of the documents online and executing majority of business tasks remotely via online system, secured by digital certificates. However, in some cases (share transfer, for example) hard copies of originally signed documents will be required.
More to offer:
Being a thriving business hub, Malta has much more corporate structures to offer, besides incorporation of limited company:
Malta Limited Partnership – a tax transparent entity that has legal EU personality – it can enter contracts in its own name. This is an attractive planning instrument when the beneficiaries or partners are not residents of Malta and pay taxes in their countries of residence.
Malta Permanent Establishment for Overseas Co. – a branch of your foreign company in Malta, at the same time an independent tax resident business unit with its own tax number, place of business and local administration. A fast track to EU for Non-EU entities with all its opportunities, unlocked for your business development and growth. Malta Permanent Establishment for Overseas Co. has a remittance bases taxation system, which is extremely tax efficient and creates a lot of planning opportunities.
Malta Fiscal Unit – already mentioned smart option saving your time and money. Group of companies, the minimum of 2 (both or at least one of them to be incorporated in Malta) form a fiscal unit and according to new rules of consolidation, pay 5% of corporate tax for a group, without the requirement to pay 35% and claim a refund.
Estonia is one of the best jurisdictions for holding your investments. You can read a deep dive on this reviewing our previous article: Why an Estonia Co. is the Best Vehicle to Hold Your Investments In.
Estonia Co. is cheaper to run and administer than Malta Co. In Malta audit is required for all companies, no matter the size or volume of business.
Both jurisdictions are good for holding foreign subsidiaries as qualified foreign dividends are tax exempt. However, capital gains are tax exempt in Malta, yet trigger a corporate tax in Estonia if paid out to shareholders of Estonia Co.
Combining Estonia and Malta
The good news is you may utilize the benefits of both countries. There are client situations, where one does not have to choose between Estonia and Malta. Rather, it is possible to use the best features and practices from both jurisdictions. Estonia Co. can easily be combined with Malta Co. or Malta branch. Such international tax planning solutions may be very favourable and tax efficient. Proper tax advice is required, before setting up any international corporate structure. Please contact us at InCorpora to discuss this in more detail.
MALTA & ESTONIA IN NUMBERS
|MINIMUM COST TO START BUSINESS||€ 1300||€ 925|
|TIME TAKEN TO REGISTER BUSINESS||up to 5 working days||2 hours|
|FIRST YEAR COSTS||€ 2140||from €925|
|CORPORATE INCOME TAX||5%* effective tax rate||0 / 20 / 14** %|
|SHARE TRANSFER TAXES||Yes (but companies that receive at least 90% of its income outside Malta are exempt)||No|
|DIGITAL ID CARD||No||Yes|
|MINIMUM SHARE CAPITAL||€240 paid up||from €0.01 per shareholder|
|E-SERVICES||Most of the services could be provided online via licensed corporate service providers in Malta, including company registration and majority of routine business tasks.||Estonia has streamlined its e-services for the remote management of businesses. E-residents are provided with a transnational digital identity, which allows them 24/7 secure and safe use of Estonian public e-services.|
* Corporate Tax Rate in Malta is 35% until dividend distribution, however there is a law that provides that 30% of the taxes paid will be refunded, which means that the effective corporate tax rate is just 5%.
** Corporate Tax Rate in Estonia is 0% until dividend distribution, and flat 20% on net profit distributions (calculated as 20/80). If company pays out regular dividends for three years, Corporate Tax Rate lowers to 14% (calculated as 14/86). Estonia has a deferred corporate tax system.
Key advantages of setting up a company in Malta
Located in the Mediterranean, midway between Europe and Africa, the beautiful island of Malta is an excellent option for international investors and entrepreneurs for business relocation. With its good financial climate, strong political support from the government, attractive corporate tax system and plenty of corporate structures to choose from, Malta is gaining a position of a top choice. With its cutting-edge infrastructure, robust asset management and investment fund sectors, solid as a rock private wealth structure: such as trusts and foundations, Malta shall take your business, wealth, and security to a new level. However, Malta company is somewhat more costly and procedure of incorporating such company is more time consuming, than an alternative company incorporation in Estonia.
Key advantages of setting up a company in Estonia
Estonia offers a simple, online process for foreign entrepreneurs to register an EU business. Estonia has built a trustworthy, secure, efficient, and entrepreneur-friendly business ecosystem with minimal red tape and innovative regulations. Its favourable business climate allows anyone, from micro-enterprises to large multinationals, to build sustainable and successful ventures.
Malta does not have the lowest incorporation costs or state-of-art E-residency, which allows business owners to perform any routine operations online and at lightning speed. If a simple, fast, and money-saving incorporation and company maintenance is your priority then Estonia will fit the bill. However, if you are looking for more advanced and flexible corporate structuring, a low effective tax rate, and potency for investment and private wealth, then Malta company could become an essential part of your prosperity strategy.