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Subsidiary vs. Branch Office in Malta

Subsidiary vs. Branch Office in Malta

In order to have a presence in Malta, foreign enterprises may set up branch offices or subsidiaries in this country. Our Maltese lawyers can offer detailed information on the characteristics of branches and subsidiaries and can manage the procedures involved.

Setting up a subsidiary in Malta in 2024

Both subsidiaries and branches are recognized as business vehicles by the Maltese Commercial Law, however there are few substantial differences between them. A Maltese subsidiary requires at least two shareholders and a minimum share capital of 1,165 euros. If the company’s share capital exceeds the minimum requirements, only 20% of the capital must be deposited. The company must also appoint a director and secretary. The subsidiary must also have a registered office in Malta. A law firm in Malta can have the Memorandum and Articles of Association of the company drafted. Compared to the subsidiary, there is no minimum share capital requirement for opening a branch office in Malta.

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Subsidiaries in Malta can be established with 100% foreign-owned, and complete independence. Moreover, such structures can also have other operations besides the main ones. One should note that the Memorandum of Association and the Articles of Association are necessary for opening a subsidiary in Malta. 

Registering a branch office in Malta in 2024

Both subsidiaries and branch offices must be registered with the Maltese Companies RegistryConsidering that the main difference between branches and subsidiaries is the relation between the parent company and the Maltese company, the following documents are required for the registration of a branch office:

  •  a copy after the parent company’s certificate of registration issued by the Trade Register in its home country,
  •  a copy after the parent company’s Memorandum and Articles of Association,
  •  a copy after the foreign company’s certificate of good standing;
  •  the Memorandum and Articles of Association of the branch office which must be drafted and notarized;
  •  the document through which the branch representative is appointed by the parent company.

The Maltese branch office will also be required to appoint a representative and a secretary. The differences between the Maltese branch and subsidiary are presented in the infographic below:

The-differences-between-a-Maltese-branch-and-subsidiary.png

Malta has signed over 65 double-tax treaties to avoid double taxation. The country is considered the gateway to Europe, and incorporating a branch in Malta is highly beneficial for international entrepreneurs who want to carry out activities in this country.

Differences between Maltese branches and subsidiaries

The major difference between these two types of companies is:

  •  the branch office is an extension of the parent company,
  •  the subsidiary is an independent entity.

From a financial point of view, Maltese subsidiaries are required to register for taxation and for VAT and keep their own financial records, while branch offices must only obtain a VAT number. The parent company of a branch office is required to submit annual audited accounting records with the Malta Trade Register.

Traditional and virtual offices are at the disposal of foreign entrepreneurs who want to incorporate a branch in Malta. Depending on the budget, one can choose the proper option to establish a business presence in Malta.

Which one is best: the Maltese subsidiary or branch?

When deciding the type of entity to register, one of the most important aspects that should be taken into consideration is what is the purpose of the company. Apart from the fact that subsidiary has independency, while the branch office does not, a Maltese subsidiary offers more flexibility in terms of business structure.

Also, if taking into account that Malta is one of the most attractive countries in Europe because of its tax system, the subsidiary can benefit from various tax deductions in comparison with a branch office. However, the tax liability in the case of a branch will be placed on the parent company which can also bring significant tax advantages. This is why it is best to seek advice from a Maltese law firm when having to decide between a branch office or a subsidiary in 2024.

 We invite you to watch a video about the differencies and similarities between branches and subsidiaries in Malta:

Facts about subsidiaries and branch offices in Malta

Here are a few interesting facts about branches and subsidiaries in Malta:

  1. While the subsidiary is required to have a minimum share capital of approximately EUR 1,200, this requisite does not apply to the branch office;
  2. The branch establishment can be considered a permanent establishment under Malta’s double tax treaties; therefore, the parent company can benefit from various tax deductions and exemptions;
  3. The subsidiary will be taxed on its global income, while the branch office only on the income earned in Malta;
  4. Both types of business forms are required to have registered offices in Malta.

Taxation on subsidiary vs. branch in Malta

The tax rate applied to branch income for branches established in Malta mirrors that of Maltese resident companies. Additionally, aside from the tax levied on a branch’s income, no taxes are deducted when transferring profits to the head office. Whereas the following taxes are applied to the subsidiaries:

– capital gains tax rate: 35%,

– corporate income tax rate: 35%.

– withholding tax rate: 15%.

– value added tax (VAT) rate: 18%.

Our Maltese lawyers are adept at navigating the intricacies of company taxation in Malta, offering invaluable assistance to businesses seeking clarity and compliance in this complex landscape. With a deep understanding of local tax laws and regulations, our legal experts provide tailored guidance to help companies comprehend their tax obligations fully.

For further information about the main advantages of opening branch offices and subsidiaries in Malta in 2024, please contact our lawyers in Malta.