Malta company formation: holding company vs trading company
The use of a Maltese holding company and/or a trading company is mainly a functional and tax one. For tax purposes, holding companies use the participation exemption (Cap. 123, Art. 12(1)(u)) or the full refund; trading companies reach 5% through the 6/7ths refund (Cap. 372, Art. 48(4A)) or a tax unit under the Consolidated Group (Income Tax) Rules (S.L. 123.189).
Both are private limited companies under the Companies Act (Cap. 386). What differs is the objects clause, the income the company earns, how that income is taxed, and what it costs to run.
Holding company vs trading company at a glance
Holding company | Trading company | |
|---|---|---|
Main income | Dividends and gains from participating holdings | Trading profits from its own activity |
Malta tax route | Participation exemption, or full refund on distribution | 35%, then 6/7ths refund on distribution (5% effective), or a direct 5% through a tax unit |
Effective Malta tax | 0% | 5% |
Key condition | A participating holding, plus anti-abuse tests on dividends | Distribution and refund claim, or 95% group for a tax unit |
VAT | Generally outside scope; Art. 12 only where needed | Art. 10 registration, quarterly returns |
Running cost with Fiduscorp | From €5,200 year 1, €2,885 from year 2, plus audit | Around 3 times higher than Holding, depending on volumes |
The holding company: participation exemption or full refund
A Maltese holding company owns shares in other companies. Dividends and capital gains from a participating holding are exempt from Malta tax under the participation exemption (Income Tax Act, Cap. 123, Art. 12(1)(u)). Alternatively, the company pays tax and the shareholder claims a full refund on distribution (Cap. 372, Art. 48(4A)).
A participating holding is, in short, at least 5% of the equity shares of the subsidiary, or one of the alternative tests in Art. 2 of the Income Tax Act. For dividends, anti-abuse conditions also apply: for example, the subsidiary is resident in the EU, is subject to foreign tax of at least 15%, or earns no more than half its income from passive interest and royalties. Each structure should be checked against these conditions before it is set up.
The trading company: 35% with 6/7 refund or direct 5%
A trading company pays 35% on its profits (Cap. 123). When it distributes a dividend, the shareholder claims a refund of 6/7ths of the tax paid on trading income, giving an effective Malta tax of 5% (Cap. 372, Art. 48(4A)). Passive interest and royalties attract a 5/7ths refund, 10% effective.
Groups with at least 95% common ownership can instead form a tax unit under the Consolidated Group (Income Tax) Rules (S.L. 123.189) and pay about 5% directly, without waiting for refunds. See Malta Tax Consolidation vs Tax Refund for how the two routes compare on cash flow.
Companies earning from qualifying intellectual property can also use the Patent Box regime, with an effective rate of about 1.75%.
Running costs
As at 2026, a standard holding company with Fiduscorp costs €5,200 in year 1 and €2,885 in year 2, plus the statutory audit by an independent auditor (from €1,200). A trading company costs around 3 times more to run, depending on transaction volumes, VAT and complexity. For fees refer to our 2026 cost breakdown.
Compliance applies to both
Audited annual financial statements filed with the Malta Business Registry.
An annual income tax return and, where relevant, refund claims.
Home-country CFC rules, which may tax Maltese profits regardless of the refund or exemption.
Substance: management and control in Malta, so that treaties and the tax result hold.
When a two-tier structure makes sense
Many groups combine both: a Malta holding company owning a Malta trading company. Refunds and profits stay within the group, the trading risk is ring-fenced from the holding's other assets, and a future sale or new investor is easier to arrange at holding level. With 95% ownership, the two companies can also elect to form a tax unit and pay 5% directly instead of 35% and 6/7 refund.
Whether one company or two is right depends on the activity, the shareholders' tax residence and the exit plan. For the wider picture, see Breaking Down Malta's Tax Structure for Businesses and our corporate tax structure page.
Frequently asked questions
Do I need a holding company or a trading company in Malta?
A holding company suits owning shares in other companies, as its dividends and gains can be exempt under the participation exemption. A trading company suits an operating business, reaching 5% Malta tax through the 6/7ths refund or a tax unit with a 5% direct tax. Many groups use both.
What is the participation exemption in Malta?
It exempts dividends and capital gains from a participating holding, broadly at least 5% of a subsidiary's equity shares, from Malta tax (Income Tax Act, Cap. 123, Art. 12(1)(u)). Anti-abuse conditions apply to dividends.
Can a Maltese holding company and trading company form a tax unit?
Yes, where the parent holds at least 95% of the subsidiary. Under the Consolidated Group (Income Tax) Rules (S.L. 123.189) the group then pays about 5% directly instead of claiming refunds.
For the full guide, see Setting up a Company in Malta.
Comments