The time has come to finally embark on that project that you’ve been dreaming of – but there’s one big question mark ahead of you. How should you register your business?
The two most common options are to operate through a limited liability company or as a self-employed individual.
Each of these options come with their own pros and cons, some of which really depend on your business model and the level of risk you’re willing to take.
Let’s start by looking at Limited Liability Company registration:
- In the eyes of the law, a company is a separate legal person. As such, the company shall carry out its trading activity in its own name by providing the company director with full powers and responsibilities in relation to company operations. This implies that if anything had to go wrong with a company stakeholder (employee, supplier, customer), such stakeholder would have to resolve the issue (whether in Court or otherwise) with the company – and not its shareholders, personally.
- The liability of a company is limited to the amount of authorised share capital. As such, if the company had to be sued and its assets do not suffice, the liability imposed on the company shareholders is capped / limited to the amount of authorised share capital. This does not imply that the company can be used to carry out fraud or any other criminal activity. In such cases the court can decide to lift the corporate veil.
- It is considered to be more professional to trade under the name of a company because it implies a structured set-up. The company is also subject to an annual audit that is considered to be a plus when it comes to securing bigger clients/suppliers, dealing with banks, and tendering for work.
- A Maltese-registered company has mandatory statutory reporting obligations.
Any company registered in Malta must submit 3 annual reports;
(1) Annual Audited Financial Statement (Malta Business Registry)
(2) Annual Corporate Tax Return (Commissioner For Revenue)
(3) Annual Return (Malta Business Registry).
These reports must be submitted regardless of whether the company is in operation or not. In the case of a trading company, there also is the obligation of registering for VAT purposes and submitting quarterly VAT returns.
- The formal closure of a limited liability company entails the formal process of a liquidation, which also would trigger additional costs.
Moving on to Self-Employed Registration
- The reporting obligations of a self-employed individual are far less stringent and frequent than that of a company. Nonetheless, a self-employed individual still has its own reporting obligations as follows;
(1) Preparation of an annual Profit & Loss statement
(2) Filing of an annual personal tax return
(3) Payment of National Insurance Contributions in 3 instalments (Apr / Aug / Dec)
- A self-employed individual operates under his/her personal name, meaning that they will carry unlimited liability. Any issues with business stakeholders are to be resolved with the self-employed individual on a personal level. Furthermore, there is no limitation to the liability that can be brought against the self-employed individual.
Here are some other considerations worth weighing up
- Corporate / Personal Taxes: Companies are subject to a flat income tax rate of 35% on profits. On the other hand, self-employed individuals are subject to progressive tax rates starting at 0% and gradually increasing to 15% then to 25% and finally to 35% (beyond €60,000 in profits). Overall income would probably be your deciding factor here, as in terms of taxation, this can be managed very easily with the help of a good accountant.
- Grants / Tax Credits: Generally, grants and tax credits are normally equally available to all registered businesses regardless of whether they operate as a company or self-employed business.
- Set-Up Procedures / Costs: The incorporation of a company requires one to draft the companies Memorandum and Articles of Association. Such documents will regulate the governance of the company in line with Malta’s legislation (The Companies Act). Furthermore, such a process would also require the submission of additional applications/disclosures and the registration of the company for VAT and Tax purposes. The set-up process of a self-employment is less bureaucratic and thus less costly. In terms of timelines, both set-ups can be managed within one week.
- Malta Tax Refund System: Malta’s tax refund system for international investors can only be availed of by corporate structures and thus not by self-employed individuals.
If you’re looking to start up a new business and require assistance for anything ranging from company incorporation, VAT registration, government funding, tax refunds and much more contact NM Group today!