Best jurisdiction for providing financial services - Malta?

[JustAnotherNomad]

I want to start a new business that will be offering financial services to business customers in the EU and eventually also the UK. Sorry, can't give more details than that, but a banking license won't be required.
Reputation and access to banking is very important, so that customers will be able to trust the company with their money.
Everything will be completely above board, nothing fishy, I will be working with an auditor to put the customers' minds at ease that everything is fine.
Still, I would like to run this in a cost-effective way, which should also mean low taxes. But in fact, saving taxes is not even so important to me. I could also start the business in one jurisdiction, and once it's up and running, move operations to another country.

I have been thinking about incorporating in Malta: It's a financial center and 5% corporate income tax is quite tempting. But I don't know about the running costs. I've heard that Maltese companies usually cost about 10k a year to maintain. I also don't know much about Malta's reputation. Using some virtual office address where thousands of companies are registered certainly wouldn't be good for marketing.
Maybe some other country would be a better choice?
I would prefer to have operating costs of not more than 2k a year. But if it works out, I will eventually need local staff anyway.
And again, taxes aren't the main focus at this point, establishing trust and having low operational costs in general is more important.

 

[Sols]

Most financial services require a license, especially within EU/UK. If you're honed in on just the incorporation cost and want to keep that part under 2,000, do you have the budget to get a financial services license?

While you have identified that you don't need a bank license, you might be looking at a PI or EMI license. And whether it's a PI or EMI license, you'll need hundreds of thousands of EUR just in share capital and to afford license application (including legal advice and consultants), not to mention the salary costs for compliance officers, risk manager, and so on.

So step 1 would be to figure out if you need a license and, if so, to fully assess the costs and do some fund raising.

Regarding Malta itself, it's fine for some types of financial services but not others. Look at what else is on the market in different jurisdictions. You'll want one where the local regulator, local business partners, and local talent pool are reasonably in line with yours. Be mindful that Malta is on the FATF-GAFi grey list now.

 

[JustAnotherNomad]

Thanks. I guess "financial services" wasn't the right term. I consider it very unlikely that the business will require a license because it won't be handling third-party funds on paper, but I'll obviously check that.
Assuming a license won't be required, which country would you go with?

 

[Marzio]

Assuming a license won't be required, which country would you go with?

Assuming you are a Dubai resident (if i remember correctly) and the business wouldn't need a license i'd go with Hungary. Or even better i'll register a UK LTD and request a residency transfer via treaty tie breaker. This will give you the prestige to operate using a UK LTD with the benefits of Hungarian taxation (9% Corporate income tax) and the HUGE benefit of not having withholding taxes for dividends distributed to corporate shareholders (even if those are situated in tax havens like Dubai).

I know Malta doesn't have withholding taxes too but the perception of Malta (& Cyprus) is somewhat shady, UK instead transmits immediate trust. I guess that's why a lor of EMI's incorporated there.

This is a company that offers "financial services" and looks like it uses the same exact strategy i outlined above with the difference being that the UK company is resident in Bulgaria.

 

[JustAnotherNomad]

I want to target the EU market first, so I think using a UK company might not be ideal.
I'm not too worried about taxes really, it's more important that there is full transparency. I'm not sure if I would like it if a company claims to be from the UK, but I found out they really have their offices in Hungary.
Maybe Ireland would be a better option?

 

[Sols]

Access to banking (not EMIs, but local credit institutions) is a big ask these days, especially if you're forming a company as a non-resident foreigner.

Ireland is a decent option but banks are unlikely to accept you, unless you have at least a local director and ideally some stuff/presence in Ireland. It's the same (if not worse) in Malta and Cyprus. Within EU and sticking to the more reputable member states, there aren't a lot of options. Maybe Luxembourg, but incorporation costs will be massive by comparison.

Do you plan to have a team/employees where the company is formed?

 

[Marzio]

I want to target the EU market first, so I think using a UK company might not be ideal.

A residency transfer means that the company is a full Hungarian EU company, it only has a UK LTD makeup around.

I'm not too worried about taxes really, it's more important that there is full transparency. I'm not sure if I would like it if a company claims to be from the UK, but I found out they really have their offices in Hungary.
Maybe Ireland would be a better option?

You are not claiming to be from UK, your company is registered in UK, the address is in UK but it's managed from Hungary. If you don't plan to invite anybody to your office then nobody will know that you are operating from Hungary.

Also looks like that bank accounts are easy to open and workforce cost a fraction of what it could cost you in other countries.

If what you are looking for is full trasnparency and potentially high costs but immediate trust and the best banking in the world then go to Switzerland. Yes, it's not EU but its network of DTT, parent-subsidiary directive application and the use of EU IBAN system would be a great choice for a financial service.

If instead for whatever reason being in a EU state is a must for you i would consider Netherlands.

 

[JustAnotherNomad]

Access to banking (not EMIs, but local credit institutions) is a big ask these days, especially if you're forming a company as a non-resident foreigner.

I guess I should be able to solve that with a local nominee director?

Do you plan to have a team/employees where the company is formed?

If it works out, I think it has the potential to be huge. But there's a lot of trust involved, so having some virtual office probably won't cut it. And I will also need someone who can answer the phone and offer customer service etc.
So for that reason I expect to be hiring someone. I will probably also need some sort of AML/KYC checks, even if no formal financial license is required. I don't want my services to be abused for money laundering.
At the same time, as long as that's not the case, I'd obviously like the expenses as low as possible.

 

[JustAnotherNomad]

You are not claiming to be from UK, [...] nobody will know that you are operating from Hungary.

Lol, you do realize that that's exactly what I meant? People should be able to do all kinds of due diligence on the company, there should be no surprises. Especially with a UK address, I would expect someone to drop by the office address to check it out.

If what you are looking for is full trasnparency and potentially high costs but immediate trust and the best banking in the world then go to Switzerland. Yes, it's not EU but its network of DTT, parent-subsidiary directive application and the use of EU IBAN system would be a great choice for a financial service.

I guess it could be an option. But it seems like both the startup and operating costs are quite high. 20k/100k minimum capital, expensive accounting, and I've heard that even the government fees are high.

If instead for whatever reason being in a EU state is a must for you i would consider Netherlands.

Why?

 

[Marzio]

Why

Cyprus and Malta, unlike Netherlands, have rather bad reputations, and geographically they are not ideally located.

You can setup a BV with 900€.

Dutch banks and payment gateways do not have the same concerns that other countries have and this could be a big benefit.

Dutch companies could take advantage of the many double taxation agreements that the Netherlands are part of, which means distributing tax free dividends to UAE.

Dutch BV pays 15% on the first 245K taxable profits and 25% on taxable profits exceeding 245K but i guess this is the price to pay to manage a company from a super reputable country.

 

[Mr Gus]

Cyprus and Malta, unlike Netherlands, have rather bad reputations, and geographically they are not ideally located.

You can setup a BV with 900€.

Dutch banks and payment gateways do not have the same concerns that other countries have and this could be a big benefit.

Dutch companies could take advantage of the many double taxation agreements that the Netherlands are part of, which means distributing tax free dividends to UAE.

Dutch BV pays 15% on the first 245K taxable profits and 25% on taxable profits exceeding 245K but i guess this is the price to pay to manage a company from a super reputable country.

distributing tax free dividends is going to change..

From 2024 there will be a 25% withholding tax on dividends in the following situations;

• A jurisdiction with a statutory tax rate lower than 9%
• A jurisdiction that is included on the European Union (EU) list of non-cooperative jurisdictions
• Another jurisdiction if the entity allocates the dividends to a permanent establishment in a jurisdiction with a statutory tax rate lower than 9% or in a jurisdiction that is included on the EU list of non-cooperative jurisdictions

 

[JustAnotherNomad]

Wow, that's bad.

 

[Marzio]

Wow, that's bad.

Well in that case you could make the BV the general partner of a CV (dutch limited partnership) and your UAE company the limited partner so that all the BV after tax profits will flow tax free to UAE through CV.

If it works for Uber, it will work for you too.

 

[Marzio]

From 2024 there will be a 25% withholding tax on dividends

Didn't know about those changes! Bunch of f*****s!

 

[Sols]

I guess I should be able to solve that with a local nominee director?

That’s a start but it won’t go all the way. Financial institutions are aware of nominee directors and they are not deemed nearly as good as having your own directors.