Participating Exemption - Participating Holding (PH)

A PH arises where the Malta Company:

• Holds > 10% of the equity shares of a foreign company; or
• Holds at least 1 equity share in said foreign company and has an option over the balance; or
• Holds at least 1 equity share in said foreign company and has a right of first refusal over the balance; or
• Holds at least 1 equity share in said foreign company and has the power to appoint a director; or
• Has an equity shareholding in said foreign company of at least €1.165m which has been held for an uninterrupted period of at least 183 days; or
• Holds equity shares in said foreign company in furtherance of its business provided that it is not held as trading stock.

Equity shares are shares which confer upon the holder the entitlement to:

• dividends upon distribution;
• votes at a meeting;
• surplus assets upon a winding up

At the option of the taxpayer, dividends and capital gains derived from a PH are exempt from Malta tax.

If the PH is acquired after 01/01/2007, the foreign Company must:

• be resident or incorporated in an EU country or territory; OR
• be subject to any foreign tax of at least 15%; OR
• not have more than 50% of its income derived from passive interest or royalties.

Where none of the conditions set out above are satisfied then both of the following two conditions must be satisfied for the income to be eligible for the participation exemption:

• the equity holding by the company registered in Malta in the body of persons not resident in Malta is not a portfolio investment and for this purpose the holding of shares by a company registered in Malta in a body of persons not resident in Malta which derives more than 50% of its income from portfolio investments shall be deemed to be a portfolio investment; AND
• the body of persons not resident in Malta or its passive interest or royalties have been subject to any foreign tax at a rate which is not less than 5%.