MALTA Law and Practice Contributed by: Dr Josef Cachia Fenech Gonzi and Cherise Abela Grech, GTG Legal
plans, to incentivise founders and employees. These instruments are typically structured with a vesting period to encourage long-term com - mitment and align individual performance with the company’s growth. Vesting terms often require continued employ - ment over a set period or the achievement of specific milestones. Reverse vesting mecha - nisms may be applied, particularly with found - ers, whereby shares are issued upfront but subject to potential forfeiture if conditions are not met. Clawback provisions further protect the company by allowing the retrieval of shares if the employee or founder departs before the vesting period ends or fails to satisfy ongoing conditions. In some set-ups, shares are held in a trust dur - ing the vesting period as this also facilitates the implementation of any applicable clawback pro - visions. Depending on the structure, founders or employees may have limited rights over these shares until the vesting process is complete. This arrangement ensures that equity benefits align with long-term performance and retention goals. Overall, these instruments provide companies with flexible tools to incentivise key individuals, ensuring their interests remain closely tied to the venture’s success. 5.3 Taxation of Instruments When structuring incentive pools in Malta, sever - al tax considerations play a pivotal role in deter - mining their design, particularly concerning tax rates and the timing of taxable events. Issuance of Shares The timing of share issuance significantly impacts tax implications. Issuing shares at an early stage
when the market value closely aligns with the nominal value may result in minimal immediate tax consequences. However, issuing shares at a later stage, when the company’s market val - ue has appreciated, typically involves a share premium. In Malta, this premium is allocated to the share premium account, governed by spe - cific provisions in the Maltese Companies Act. According to the Act, funds in the share premium account can be used for purposes such as: • issuing fully paid bonus shares to existing shareholders; • writing off preliminary expenses of the com - pany; and • providing for premiums payable on redemp - tion of redeemable preference shares or debentures. These provisions ensure that the share premium is utilised in a manner that maintains the com - pany’s capital integrity. Fringe Benefit Rules Malta’s Fringe Benefit Rules classify benefits like share options and free share plans as taxable benefits. The taxable value is determined by the excess of the market value of the shares at the time the benefit is provided over any amount paid by the beneficiary. This benefit is subject to a flat tax rate of 15%, which employers are required to account for through the Final Settle - ment System (FSS). Duty on Documents and Transfers The transfer of shares in Malta is subject to duty under the Duty on Documents and Transfers Act payable by the acquirer/transferee. The standard duty rate is 2% of the higher of the market value or the consideration paid for the shares. For property companies, this rate increases to 5%. The market value is typically assessed based
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