Tax planning strategy for consultant

[Sols]

How does this strategy work, you pay full tax in Malta, then via DTT you inform paid taxes in the country where the holding company is, then go back to malta and ask for a tax refund, due to non-residency etc?

The Malta company first pays the full 35% corporate tax in Malta. Once that's done, the parent company applies for a tax rebate of up to 6/7 (six sevenths). 35*(6/7)=30. As long as the shareholder lives up to the requirement of being non-resident and non-domiciled, the request is approved.

If you are a foreigner living in Malta, you only fulfill one of those two criteria: you are non-domiciled, but you are resident. So residents set up companies which qualify as tax resident through incorporation (such as UK), or simply rely lack of enforcement from IRD and use non-resident companies (such as BVI).

So if the Malta company paid 70,000 EUR in corporate tax against 200,000 EUR profits, the parent company would get 60,000 EUR back. This makes your net tax rate 5%.

In many, but not all, cases the tax rebate is not in scope for corporate income tax for the holding company. I'm not familiar enough with Mexico to comment on that specifically.

To use the money for yourself, people (expats in Malta) often pay themselves a tiny salary of around 9,000 EUR from the Malta company which is not subject to tax. The rest of the money, they take out from the parent company one way or another. There are different, creative ways to do that as a non-domiciled resident.

Technically, if you are a non-resident of Malta, you don't even need a holding company since you, as a natural person, satisfy the criteria. But then you have a local tax burden to worry about. The structure works best if you are resident in Malta, or can pay yourself money from the holding company in a tax efficient way.

 

[dxt3r]

The Malta company first pays the full 35% corporate tax in Malta. Once that's done, the parent company applies for a tax rebate of up to 6/7 (six sevenths). 35*(6/7)=30. As long as the shareholder lives up to the requirement of being non-resident and non-domiciled, the request is approved.

If you are a foreigner living in Malta, you only fulfill one of those two criteria: you are non-domiciled, but you are resident. So residents set up companies which qualify as tax resident through incorporation (such as UK), or simply rely lack of enforcement from IRD and use non-resident companies (such as BVI).

So if the Malta company paid 70,000 EUR in corporate tax against 200,000 EUR profits, the parent company would get 60,000 EUR back. This makes your net tax rate 5%.

In many, but not all, cases the tax rebate is not in scope for corporate income tax for the holding company. I'm not familiar enough with Mexico to comment on that specifically.

To use the money for yourself, people (expats in Malta) often pay themselves a tiny salary of around 9,000 EUR from the Malta company which is not subject to tax. The rest of the money, they take out from the parent company one way or another. There are different, creative ways to do that as a non-domiciled resident.

Technically, if you are a non-resident of Malta, you don't even need a holding company since you, as a natural person, satisfy the criteria. But then you have a local tax burden to worry about. The structure works best if you are resident in Malta, or can pay yourself money from the holding company in a tax efficient way.

Mexico is not good enforcing this, but i do need to prove i paid taxes in malta so they don't challenge the validity of my invoices, so my customers can report the expense as tax deductible. For this to be posible i would have to declare a dividend in favor of the sharehoder (holding company or individual), which can be capitalized or paid?

 

[Sols]

Mexico is not good enforcing this, but i do need to prove i paid taxes in malta so they don't challenge the validity of my invoices, so my customers can report the expense as tax deductible. For this to be posible i would have to declare a dividend in favor of the sharehoder (holding company or individual), which can be capitalized or paid?

You would have to check with a Mexican tax adviser/lawyer to be sure. I suppose you could show the Mexican authorities that you have paid 35% corporate tax in Malta, and then not tell them about the 6/7 rebate you get. Might not be legal, though.

Whether the tax rebate counts as an incoming dividend or something else is something to determined in the holding company's jurisdiction. As I mentioned, in many but not all jurisdiction, it's exempt from tax. Read the MT-MX DTT and discuss it with a local lawyer.

 

[dxt3r]

You would have to check with a Mexican tax adviser/lawyer to be sure. I suppose you could show the Mexican authorities that you have paid 35% corporate tax in Malta, and then not tell them about the 6/7 rebate you get. Might not be legal, though.

Whether the tax rebate counts as an incoming dividend or something else is something to determined in the holding company's jurisdiction. As I mentioned, in many but not all jurisdiction, it's exempt from tax. Read the MT-MX DTT and discuss it with a local lawyer.

thanks for the advice, will do more research and post my findings

 

[dutchnik]

You speak Dutch? I am in the same situation so maybe I can help with my knowledge.

 

[seedboxer]

You speak Dutch? I am in the same situation so maybe I can help with my knowledge.

What is your email address? I cant send you a PM it seems.

 

[dutchnik]

What is your email address? I cant send you a PM it seems.

I know about my PM but don’t know how to activate it. Don’t want to share my email address here

 

[Tango2015]

You would have to check with a Mexican tax adviser/lawyer to be sure. I suppose you could show the Mexican authorities that you have paid 35% corporate tax in Malta, and then not tell them about the 6/7 rebate you get. Might not be legal, though.

Whether the tax rebate counts as an incoming dividend or something else is something to determined in the holding company's jurisdiction. As I mentioned, in many but not all jurisdiction, it's exempt from tax. Read the MT-MX DTT and discuss it with a local lawyer.

I just came across this thread and have a similar question but perhaps not exactly the same situation. I am soon to be a resident of Mexico and have an online business selling digital services to customers outside of Mexico. The idea of a Maltese operating company with a foreign parent outside of Malta (and outside of Mexico) seems like it could be a good structure. The Maltese operating company would be a deemed tax resident of Mexico but would already have paid 35% tax, so nothing due in Mexico...in theory. I am reading the MT-MX DTT but wonder if you have any other insights to share.