Entrepreneurial Isles: a guide to Malta and Cyprus business frameworks
Cyprus and Malta are both island states occupying strategic positions in the Mediterranean region. Cyprus is situated in the Eastern Mediterranean close to the Middle East, Turkey and the important maritime gateways of the Bosporus and the Suez Canal. Malta is in the middle of the Mediterranean Sea between Europe and North Africa and serves as a key stopover point on routes traversing the Mediterranean.
This legacy has ingrained a tradition of trade and commerce within the culture of both islands. Both have very open, entrepreneurial economies and offer highly attractive and flexible tax environments for businesses and individuals. Both are also former colonies of the UK, and both have mixed legal systems of civil law and English common law, subject to EU law. English is the second language of Malta and is widely spoken in Cyprus.
Cyprus and Malta joined the European Union at the same time in 2004 and are now counted amongst the smallest EU member states. Cyprus is 30 times the size of Malta. The Cypriot population now stands at above 1.27 million, almost three times the population of Malta’s at 560,000.
Given the small size of their domestic economies, both island states are heavily dependent on trade and have moved toward more service-oriented activities. In addition to thriving tourism sectors, both have developed financial services industries based on highly skilled workforces, technical infrastructure, and robust legal and regulatory frameworks, including tax efficiency.
Tax Efficiency
As full EU member states, Malta and Cyprus offer highly competitive tax systems that are fully compliant with EU and international standards. They have implemented all the relevant EU directives in respect of corporate taxation, including the EU Parent-Subsidiary Directive and the Interest and Royalties Directive.
Companies in Malta are taxed at a flat rate of 35% but its full imputation and refund system ensures relief for double taxation on the distribution of taxed profits. This leads to effective tax rates of 5% in respect of trading income and 10% in respect of passive interest and royalties. The refund is reduced to 2/3rds where the distributing company claims double taxation relief.
Malta’s participation exemption allows dividends from overseas investments to be exempt from Maltese tax if certain criteria are met, or they can be taxed at the standard rate of 35% with a 100% refund available upon distribution.
Any gains or profits derived by non-residents on a disposal of shares in a Malta-resident company are exempt from tax in Malta if the beneficial owner is not resident in Malta and the company does not, directly or indirectly, control immovable property situated in Malta. Malta does not levy any withholding taxes on outbound dividends, interest and royalties.
Malta’s extensive double taxation treaty network now extends to over 70 countries and its flat rate foreign tax credit (FRFTC) allows for a reduced tax rate of 6.25% on foreign passive income without necessitating proof of foreign tax paid. Businesses can also seek advance revenue rulings from the Inland Revenue Department for clarity on their tax obligations, which are typically valid for five years and renewable for another five.
Malta’s ‘fiscal unity’ regime allows related companies within a group to elect to be treated as a single taxpayer for income tax purposes. A parent company holding at least 95% shareholding in its subsidiaries can initiate this process, treating subsidiaries as transparent entities for tax purposes and benefitting from streamlined tax calculations and reporting.
Cyprus also offers a highly favourable tax environment, featuring a standard corporate tax rate of 12.5% together with a network of over 60 double tax treaties. It has established a strong reputation as an attractive destination for corporate relocation and headquartering.
The tax regime includes several exemptions, such as a 100% exemption on interest income not related to ordinary business activities, profits from the sale of securities, capital gains from intellectual property (IP) assets, and profits from permanent establishments abroad under specific conditions. Dividends are exempt from taxation provided they are not tax-deductible by the paying company.
Cypus’s ‘Intellectual Property Box’ offers favourable tax treatment for income derived from IP rights, patents and trademarks, allowing an 80% income tax exemption on worldwide royalty income generated by Cypriot resident companies, with only the remaining 20% being subject to the standard tax rate.
This effectively reduces the tax rate to 2.5% or lower. The 80% exemption further applies to capital gains on the disposal of IP, providing a tax-efficient exit strategy. With its extensive network of double tax treaties, Cyprus facilitates excellent profit repatriation opportunities, making it an attractive jurisdiction for IP holding and management.
Cyprus imposes no withholding taxes on dividends and interest paid to non-residents of Cyprus. There is also no withholding tax on royalties paid to non-residents of Cyprus for rights that are not used within Cyprus.
Cyprus is a modern, cosmopolitan, transparent business centre offering opportunities for investment across a wide range of sectors. Invest Cyprus maintains a dynamic portfolio of all available projects in sectors of strategic importance for the government such as hospitality and tourism, healthcare, education, renewable energy, while the country also provides incentives and policies that attract businesses and investors to choose Cyprus as their preferred place to do business.
Effective regulation
Membership of the EU ensures that the legal and regulatory framework of both Malta and Cyprus must align with EU standards covering trade, finance and corporate governance. This alignment not only increases investor confidence but facilitates smoother access for businesses to the broader European market.
The Malta Financial Services Authority (MFSA) is the single regulator for all financial service activities in Malta and is also responsible for the companies registry. The MFSA ensures that companies adhere to best practices in governance, providing a reliable environment for investors.
In Cyprus, these roles are shared between the Central Bank of Cyprus, the Cyprus Securities and Exchange Commission (CySEC), the Cyprus Stock Exchange (CSE) and Registrar of Companies.
Innovation and technology
Malta has recently introduced a Virtual Financial Assets (VFA) Framework to support innovation and new technologies for financial services around crypto assets, while ensuring effective investor protection, financial market integrity and financial stability.
The VFA Framework establishes three types of authorisations for: the registration of VFA Agents, the registration of ‘white papers’ and applications for VFA Services Providers. This has positioned Malta as a key hub for online gaming, blockchain, fintech and other new technologies. Malta’s communication and transport links are excellent.
Innovative research, a rapidly growing start-up ecosystem, a highly educated and experienced strong local talent pool and access to the EU and global workforce, and a range of incentives and development programs and grants render Cyprus a perfect choice to start up and scale companies.
Cyprus has been growing as a technology hub over the recent years, with an increasing number of ICT companies setting up their regional headquarters in the country or treating Cyprus as their hub for software development, systems integration, testing services, research and development and back offices.
The strong IP Box Regime and the Cyprus Startup Visa Scheme which allows talented entrepreneurs from countries outside the EU and the European Economic Area (EEA) to be granted working permission to establish start-ups in the country, attract world-class innovation-based ideas.
Good connectivity
As islands, connectivity with other countries is very important for matters of commerce, tourism and living. Both Cyprus and Malta are easily physically accessible because they are linked via numerous direct and connecting flights with all the main European cities, Middle East, Africa and Asian countries.
The availability of modern, robust and secure connectivity infrastructure is also driving force for the digital economy and a necessary condition for a functional and innovative digital ecosystem. Cyprus and Malta have made significant investment in recent years in their digital infrastructures, which has been a decisive factor in establishing them as regional data gateways in the Mediterranean region and in attracting high-tech companies.
Taking advantage of its strategic geographical position, Cyprus has developed an extensive undersea fibre optic cable network, which connects it to the neighbouring countries of Greece, Italy, Israel, Syria, Lebanon and Egypt and with the rest of the world. More are planned.
There are now four submarine cables connecting Malta and Sicily – GO-1 Mediterranean cable system, Italy-Malta cable system, Epic Malta-Sicily Cable System (EMSCS) and Melita 1.
Trusts
As former British colonies many Common Law principles are embedded into Maltese and Cypriot law and the adoption of Common Law statutes continued after independence. Malta introduced the concept of trusts into its legal regime in 1988 and permits not merely the establishment of Malta trusts, but also accepts and recognises foreign trusts.
Malta is now a respected European hub for global trusts and the Malta trust is used extensively by HNW individuals and families for the protection and management of their global assets. Professional trustees, such as Sovereign, must be licensed by the Malta Financial Services Authority under the terms of the Trust & Trustees Act.
Cyprus International Trusts (CITs) are extremely popular with HNW individuals and professionals. Forced heirship or other laws applicable in foreign jurisdictions do not affect the validity of a CIT or the transfer of property to the trustee of a CIT. The settlor and beneficiaries must not be tax resident in Cyprus, but at least one of the trustees must be a permanent resident in Cyprus for the duration of the trust. Sovereign Trust (Cyprus) is authorised by CySEC as an Administrative Service Provider (ASP).
Investment Funds
Malta has long been an established jurisdiction for alternative investment funds and the sector has gained momentum due to increased asset management and fund servicing activity, with Malta’s flexible and pro-business attitude helping to consolidate the island’s claim for prominence as a fund jurisdiction. As well as globally recognised UCITS schemes and alternative investment funds (AIFs) under the Alternative Investment Fund Managers Directive (AIFMD), fund managers are also allowed to run funds under the island’s Professional Investor Fund (PIF) regime, which is outside the scope of the AIFMD. Alternative Investment Funds (AIFs) under the AIFMD, as well as EU-compliant and globally recognised UCITS schemes.
Cyprus was one of the first EU member states to transpose the AIFMD into national legislation and has grown into fast a leading investment fund centre in Europe for investment funds and asset management companies, offering direct access to key markets.
Cyprus funds investment funds enjoy all the tax advantages offered by the Cypriot tax legislation and AIFs have been extensively used for investment in non-traditional asset classes, such as private equity and real estate, as well as family offices.
Citizenship by Investment
Although Cyprus suspended its citizenship by investment programme in 2020, the Maltese Exceptional Investor Naturalisation (MEIN) scheme grants citizenship for ‘exceptional services’ to individuals and their families who make a direct investment in Malta that contributes to its social and economic development.
As citizens of Malta, successful non-EU national applicants gain the right to live, work or study in Malta – or any other EU/EEA member state or and Switzerland by extension. An applicant and all adult dependants must have held Maltese residency status for a minimum of 36 months (or 12 months under an ‘expedited procedure’ option).
The main applicant must make a non-refundable exceptional direct investment of €600,000, plus €50,000 for each dependant, or €750,000 under the 12-month expedited procedure. In both cases they must also buy a property in Malta with a minimum value of €700,000 or lease a property for a minimum annual rent of €16,000 and make a €10,000 donation to a qualifying NGO.
Subject to a comprehensive four-tier due diligence review, successful applicants enjoy Maltese citizenship for life, which can be passed on to future generations by descent, the option to maintain dual citizenship and the right to reside, settle and stay indefinitely in Malta. Maltese passport holders enjoy visa-free or visa-on-arrival access to 183 countries, including the US, Canada and Australia, and access to the Schengen Area.
Residency Programmes
Malta and Cyprus offer a range of residency programmes for non-EU nationals that cater for most personal requirements and budgets. Benefits include visa-free travel within the Schengen Area and tax advantages. Malta imposes no municipal tax, no estate duty, no inheritance tax and no wealth tax.
The Malta Permanent Residence Programme (MPRP) allows individuals to reside indefinitely in Malta. Applicants must make a property investment (either through purchase or long-term lease) and a contribution to the Maltese government, as well as demonstrating sufficient financial means to support themselves and their dependents.
The Malta Global Residence Programme (GRP) is aimed at non-EU nationals seeking special tax status while residing in Malta. Applicants must be economically self-sufficient and make a property investment (either through purchase or long-term lease). They must establish tax residency in Malta, pay a combined minimum annual tax contribution of €15,000 and must not spend more than 183 days per year in any other country.
The Malta Start-Up Residence Programme is tailored for innovative entrepreneurs. It facilitates the establishment of start-ups in Malta in qualifying activities, while supporting the immigration process of their founders, core employees and respective immediate family members. Founders and co-founders must demonstrate a tangible business investment and are required to reside in and pay taxes in Malta.
Cyprus’s diverse residency options, combined with its favourable living conditions and attractive tax incentives, position it as an appealing destination for both expatriates and investors.
The Permanent Residency Programme (PRP), known as the Cyprus Golden Visa, offers non-EU residents both ‘Fast Track’ and ‘Slow Track’ options. The ‘Fast Track’ route allows applicants to obtain permanent residency status within approximately two months by making a minimum investment of €300,000 in qualifying assets such as real estate or local businesses. This status is valid for life and can be passed on to dependants.
The ‘Slow Track’ option is available for individuals with a secure annual income sufficient to support a good standard of living in Cyprus, allowing them to reside in the country while their application is processed over 12 to 18 months. Applicants must provide documentation showing a guaranteed annual income of at least €50,000 from abroad (an additional €15,000 for each dependent spouse and €10,000 for each minor child).
The Self-Sufficient Temporary Residence Permit is an annually renewable option that permits individuals and their qualifying dependants to live in Cyprus as visitors without employment rights. Applicants must demonstrate a minimum annual income and possess a residential property in Cyprus.
The Cyprus Tax Residency Programme offers preferential tax incentives for both EU and non-EU nationals. For an individual to be considered as a tax resident in Cyprus, they must spend more than 183 days in a year in Cyprus. Cyprus further offers a ’60-day Rule’ regime, which enables foreign nationals to enjoy Non-Domiciled Tax Residency status by spending only 60 days in Cyprus within a calendar year, instead of 183.
The tax benefits include no tax on worldwide dividend and interest income for non-domiciled individuals for 17 years, no tax on gains arising from the disposal of investments (shares, bonds, etc), no estate duty, wealth or gift taxes, and no tax on retirement gratuities and access to a special tax regime on foreign pension income.
Good places for retirement
Cyprus has long been regarded as a premier retirement destination, renowned for its excellent climate, appealing lifestyle, safety and low taxes on pension income. Tax residency in Cyprus has many benefits and exemptions for non-nationals, especially retirees.
One of the advantages of obtaining a Category 5 Permanent Residency Permit (PRP or Fast Track PRP) is the low tax rates on pension income that apply to individuals retiring in Cyprus.
A foreign pension received in Cyprus can be taxed either at the standard personal income tax rates in Cyprus, of which the first €19,500 of earned annual income is tax-free, or at a special 5% flat rate for any amounts exceeding €3,420 per year.
There is no withholding tax in Cyprus and non-domiciled tax residents are exempt from the Special Defence Contribution Tax. Cyprus also has double tax treaties with more than 60 countries, allowing for less taxation on types of income streams such as dividends, interest, assets and royalties for residents of Cyprus.
Finally, Cyprus imposes no inheritance tax, making it easy for those retiring in Cyprus to leave wealth for their families free of tax.
Malta also offers a special tax status for retirees under the Malta Retirement Programme (MRP). This is open to citizens of the EU, the EEA and Switzerland who are no longer employed and are in receipt of a pension as their regular source of income.
The chargeable tax rate under the MRP is a flat rate of 15% on income arising outside of Malta, subject to a minimum tax charge of €7,500 per annum, which increases by €500 per dependant. For married couples the minimum charge is therefore €8,000. Participants can hold non-executive positions on the board of a Maltese company but are not permitted to be employed by the company in any capacity.
Relocation destinations
Cyprus and Malta are attractive destinations for expats and their families. They both offer a captivating climate and lifestyle, with year-round sunshine, unique natural landscapes, and a rich and diverse culture and history, while the cost of living remains relatively moderate compared to other Western European countries.
As of the first quarter of 2024, the average gross annual wage in Malta was around €23,000. Sectors such as financial services, technology and gaming tend to offer higher salaries, whereas hospitality and retail positions typically pay less.
In Cyprus, the average gross annual wage is around €28,000. Salaries vary significantly across industries, with finance, tourism, and IT often offering the most competitive compensation. The cost of living is generally moderate, although some popular tourist areas may be pricier.
Malta is a sought-after tourist destination renowned for its rich historical legacy, stunning architecture, and picturesque Mediterranean beaches. Key attractions include the ancient, fortified city of Mdina, the historic sites of Valletta, and the Megalithic Temples, which are among the oldest freestanding structures in the world.
Cyprus draws a significant number of tourists attracted by its diverse landscapes, archaeological sites, and beautiful beaches. Notable destinations include the coastal cities of Paphos and Limassol, the Troodos Mountains for hiking, and the historical ruins of Kourion and Salamis.
Both Malta and Cyprus enjoy a Mediterranean climate with hot, dry summers and mild, wet winters. The favourable weather, boasting around 300 sunny days per year, contributes significantly to their status as year-round tourist destinations.
High quality healthcare is provided through the respective national healthcare systems, which are highly regarded for quality and accessibility. This covers both inpatient and outpatient care and is available to all citizens and permanent residents. Private healthcare options complement public services, particularly for non-EU residents who must provide private health insurance.
Both islands also offer world-class educational and research institutions, offering a large variety of fully accredited study programmes in English. Primary and secondary schooling is mandatory in Malta and Cyprus and permanent residents and citizens can send children to free public sector schools. There are numerous private schools, and many follow the British curriculum or international baccalaureate.
Sovereign in Cyprus and Malta
Our dedicated teams in both Cyprus and Malta stand ready to support businesses and investors during the location selection process while providing facilitation and after care services when it comes to setting up your business, relocating staff or expanding your operations.
When it comes to choosing the right location to start up a business, relocate a company or expand operations in Europe, Cyprus and Malta should be prime contenders in the minds of entrepreneurs or decision makers for the following reasons:
- Positive economic outlooks
- Access to global talent
- Access to the EU market
- Excellent regulatory structures
- Strong Business support services
- Low cost of doing business
- Attractive and transparent tax regimes
