This time we are discussing an interesting tax design for Intellectual Property in Malta. As a basic premise, we assume that a smart person has a business idea in which intangible assets are in the foreground and these can be expected to have enormous value increase potential. After founding a GmbH in Germany, this person first establishes a Scottish partnership and in turn a holding company with an operating subsidiary in Malta. Later, the person moves to Malta. If she sells her company profitably via share deal in the future, she will not pay taxes in Malta. And when selling by asset deal, only 5% tax is payable in Malta.

In some industries, intangible assets make up a large part of the company’s assets. This is the case with influencers, for example, because their personal rights are of particular importance here. Such intangible assets are also called Intellectual Property in international usage, a term that has now become established in Germany. Since we would like to present to you in this article a cross-border tax arrangement in connection with Malta, which is aimed at those intangible assets, we now use the synonym Intellectual Property for this.

Of course, the goal of a tax design is to save, in the best case even the complete avoidance of taxes. However, different aspects can be distinguished. On the one hand, tax design can optimize the ongoing taxation of a company or entrepreneur. On the other hand, a tax structure can specifically address taxation in the case of company sales. Our article will deal in particular with the latter aspect.

In order to provide you with an easy-to-understand insight into our tax design in connection with Intellectual Property in Malta, we want to give you an example.

Mrs. Sabine Sattel loves horses. She has worked early and a lot with these fascinating creatures and thus has an extremely sound expertise. Since she would like to share this knowledge with other enthusiastic horse fools worldwide, she has now started to post videos on various social media channels. For example, she tells about small but fine or famous studs, horse racing or other competitions, about the history of horse breeding as well as about the care and health of her favorites.

Her commitment has now made her quite well known, so that she is starting to earn money with her influencer activities. Since this starts to grow significantly beyond hobby, she asks her tax consultant for advice. And he advises you now to found a GmbH.

However, this advice proves to be somewhat hasty. Because the introduction of their personal rights into their Happy-Horse-GmbH has resulted in a division of operations. Fortunately, this was noticed in the first months of the existence of their GmbH. This will enable us to mitigate this potential tax risk in time.

We discover the division of operations rather accidentally, because Ms. Sattel wants to know from us as her new tax consultants how she could now move abroad as a GmbH shareholder without getting in the way of the exit tax. And so we heal several tax issues through our tax design for their intellectual property with a corporate structure in Malta.

Our recommendation to Ms Sattel is that she is the first to set up a Limited (Ltd.) in Scotland. She needs this to establish a Limited Partnership (LP) with her. The corresponding German equivalent is the GmbH & Co. KG. With the LP, Ms Sattel now founds another company, namely a Limited, but this time on Malta. And this Maltese Limited in turn establishes another Limited as an operating subsidiary.

Parallel to her German GmbH, Ms Sattel now has a double-storey holding company abroad. But what is this good for?

The highlight is that Ms. Sattel is now selling her still low-value personal rights to the Maltese operating subsidiary. In doing so, it deliberately sets a selling price that corresponds to the current market value of its personal rights. Although this creates a capital gain on the German side, which is taxable, Ms. Sattel also moves all future gains in her personal rights to Malta. That will pay off for them later.

As was to be expected, the popularity of Ms. Sattel’s contributions increases noticeably from year to year. At the same time, she earns more and more money with her social media channels. That their Happy-Horse GmbH for the transfer of their personal rights – the Intellectual Property, which is now positioned in Malta thanks to our tax design – Pays licenses, reduces the taxable profit in Germany as operating expenses. Here, however, we must take care that no additional taxation arises. This can be achieved, for example, by setting up an active business operation – after all, the Maltese subsidiary should be operational. Where appropriate, the licence barrier may also restrict the operating expense deduction. But that too is avoidable.

More important, as already mentioned at the beginning, is that Ms. Sattel can one day sell her company as tax-free as possible. There are basically two ways to do this, the share deal and the asset deal. More importantly, Mrs Sattel moves to Malta before the company sells. Although this leads to exit taxation in Germany, it can either be avoided by further tax arrangements or kept relatively low. The latter is especially advantageous as long as their Happy-Horse-GmbH does not yet generate large profits. And since many young companies are more likely to make losses in the early days anyway, this scenario is likely to accommodate Mrs Sattel in terms of her exit tax.

Now Mrs. Sattel has moved to Malta. Next is the sale of your company. Then let’s see how this affects tax in the two variants Share Deal and Asset Deal.

The easier way for Ms. Sattel is the share deal, because this saves her a liquidation of her companies. Several variants can be distinguished here. On the one hand, it can sell its shares in the operating subsidiary through its Maltese holding company. Then it would be conceivable that she sold her holding company. Or, as a third alternative, it sells its co-entrepreneur shares in the Scottish partnership. In view of the liquidation of all foreign companies thus avoided, this would probably be the best case for them. In any case, the intellectual property in each of the three options passes to the acquirer of the respective company construct.

The tax advantage here is that Mrs Sattel, as a person brought to Malta, is subject to a special tax regime, namely the non-dom tax regime. In her case, this means that she does not have to pay taxes on capital income, because Malta does not provide for taxation of foreign capital income for non-dom persons.

This applies to the variants in which Mrs Sattel sells shares of her Maltese companies. However, if it starts at the grassroots level and sells its shareholdings in the Scottish LP, then we will also have to deal with the tax law there. However, since the Scottish LP has only foreign assets and this is irrelevant for local taxation, Ms Sattel is also in this case completely protected from the taxation of her profits.

The other variant provides for the sale of the intellectual property itself. It therefore takes place out of the Maltese operating subsidiary. In this case, Maltese tax law provides for special taxation. The tax rate is only 5%. Compared to the taxation that would arise in Germany in a similar situation, this is vanishingly small.

After the sale of the intellectual property, the subsidiary distributes its profits to its parent company. There is no further tax on Malta. But the holding company will now also pass on the profit to the Scottish partnership. There is no tax either in Great Britain or Malta.

However, it is important that the payment is not made to a Maltese account, otherwise this would still lead to taxation in Malta. This is because the taxation principle, which is widespread in the Anglo-Saxon region, is applied according to the so-called remittance basis, i.e. according to income paid out domestically. And since Malta has been under British administration for a long time, the Maltese have incorporated much of the UK tax system into their tax law – including the remittance base principle. However, this detail should not be a major hurdle in our tax design for Intellectual Property in Malta; An account with a bank outside Malta may already exist in Germany.

Sometimes special structures are required to generate significant tax benefits. The question often arises whether this actually harmonizes with German tax law. After all, this design leads to Ms. Sattel receiving the profit from her company assets outside Germany, which have grown over the years. So there is no taxation in Germany.

Really? Let us remember that Germany imposed taxes on the sale of the Intellectual Property to the Maltese operating subsidiary. In addition, there may also have been an exit tax. This was relatively low, because at that time no significant increase in the value of intellectual property had taken place. Nevertheless, Germany has fully respected and applied its taxation law. A further tax claim of Germany can therefore be rejected with good reason.

In conclusion, we can state that our tax design for Intellectual Property in Malta is particularly worthwhile if you set up a company in Germany, where you can expect enormous value increase potential in the field of Intellectual Property in the future. That this seems quite attractive for young influencers is obvious. But also in other industries, such as tech companies or other creative startups, this is a nice opportunity to keep future profits as tax-free as possible with this tax design.