MALTA Law and Practice Contributed by: Dr Josef Cachia Fenech Gonzi and Cherise Abela Grech, GTG Legal
on the company’s net asset value, adjusted for factors such as the market value of any other shares held by the company. There are instances where a company, and thus the acquisition of shares therein, is exempt from payment of duty. However, this is primarily applicable to compa - nies which have more than 90% of their business interests outside of Malta and which are not ulti - mately owned or controlled by individuals who are tax resident and domiciled in Malta. Capital Gains Tax Upon the sale of shares, capital gains tax con - siderations arise. In Malta, capital gains derived from the transfer of securities are generally taxed as part of the individual’s income, with rates var - ying between 15% and 35%, depending on the total income. However, certain exemptions exist, such as gains from the transfer of shares listed on the Malta Stock Exchange, which are exempt from both income tax and duty. Timing of Taxable Events The timing of taxation varies based on the type of benefit. • Share options: taxation occurs at the exercise date, calculated on the difference between the market value at exercise and the exercise price. • Share awards: taxable at the time the shares are issued or transferred to the employee at the end of the vesting period, based on the market value at that date. • Share transfers: duty is payable upon the execution of the transfer agreement, with the applicable rate depending on the nature of the company (eg, property versus non-prop - erty company). Understanding these tax considerations is cru - cial for effectively structuring incentive pools in
Malta, ensuring compliance and optimising the benefits for both the company and its employ - ees. 5.4 Implementation There are various considerations to take into account before preparing and implementing employee incentive programmes in Malta. Pri - marily, the company needs to consider whether such an incentive programme would affect any rights currently held by the shareholders of the company. These are found in the MAA of the company and in the shareholders’ agreement, if any. The creation of such schemes usually cre - ates specific share classes to be assigned to the employees participating in such schemes. Any changes to the MAA, or the creation of any share classes, would require approval by the shareholders. The company would also need to assess any fiscal and tax considerations that such schemes would have on the current share - holders and the new employees, as the allotment of new shares may have tax considerations on both the current shareholders and the employee participants of the scheme. As for dilution of interest, there are options in place to prevent the dilution of certain rights. Employees participating in such schemes would usually have no voting rights and hence the issu - ing of new shares would not affect voting power. It is also possible for certain employee schemes to be structured through phantom shares, mean - ing that employees do not become equity hold - ers in the company. However, all these measures would result in the dilution of dividends/income received and therefore any such schemes must be agreed to by the relevant shareholders.
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