Maltese Tax System
Malta operates a full imputation system of taxation whereby shareholders in receipt of dividends from a Maltese registered company may credit the 35% tax paid by the company against their own Maltese income tax liability or obtain a refund of tax where shareholder tax is less than the 35% tax paid by the company.
Persons who are resident and domiciled in Malta are subject to tax on their worldwide income. The transfers of shares are mainly exempt from transfer duties for international business.
Find out more-
There are no thin capitalization rules, controlled foreign corporation legislation, transfer pricing or capital or wealth tax rate of 35% (progressive rates apply to individuals).
Persons who are resident but not domiciled in Malta are only taxed on income arising in Malta or on income (not including capital gains) which although arising outside Malta is remitted to Malta. This may give rise to very attractive tax planning opportunities for expatriates and resident non-domiciled companies.
-
Double Taxation Relief
Double taxation relief (DTR) is provided, under an applicable treaty or unilaterally, in the form of an ordinary credit for foreign taxes suffered on foreign income. This applies both for resident companies and registered branches of foreign resident companies.
The ordinary credit applies to both withholding and underlying tax (for dividends) of direct subsidiaries and 10% (participation in) sub-subsidiaries to all tiers. Thus, if foreign taxes exceed the Malta tax charge (35%), no further Malta tax is payable. An alternative form of DTR, the Flat Rate Foreign Tax Credit (FRFTC) is also available whereby foreign income is deemed to have suffered foreign tax of 25% of foreign income received. The application of this DTR method can reduce tax suffered to between 7.47% and 18.75%
-
FRFTC
The FRFTC may be claimed on income allocable to the foreign income account (FIA income) if the company is empowered to receive FIA income. (FIA income consists of royalties and similar income arising outside Malta; income/gains derived from a participating holding, dividends, interest, rents, capital gains and other income derived from investments situated outside Malta; profits of permanent establishments; profits from foreign assets/liabilities of Malta licensed banks and financial institutions and profits of Malta licensed insurance companies related to risks situated outside Malta.)
Tax Refunds
Perhaps the characteristic that sets apart the Maltese tax system from other tax systems is the possibility given to shareholders to claim a cash refund of the tax paid by a Maltese company following a distribution of profits. Duly registered shareholders of Maltese companies in receipt of a dividend may typically claim, from the Commissioner of Inland Revenue, a partial refund of 6/7ths of the tax paid by the company. After the refund is received, the effective tax suffered in Malta is 5%. If a credit for foreign tax of 5% or more is claimed, the incidence of Maltese tax is eliminated.
6/7ths Refund Practical example:
Profit of the company:
€1,000,000
TAX:
€350,000
Dividend distribution to
shareholder:
€239,000
Refund (6/7ths of 350):
€300,000
A 5/7ths and a 2/3rds refund may also apply in specific circumstances depending on the nature of the income of the distributing company and whether double taxation relief is claimed on that income. A 100% refund may also be claimable in particular circumstances (see participation exemptions below).
Refunds of tax may be claimed irrespective of the activity conducted and whether the source of the income derived by the distributing company is in Malta or outside Malta, with the exception of profits derived from immovable property.
Total funds received by a shareholder:
Net Dividend:
€650,000
Tax Refund:
€300,000
TOTAL:
€950,000
Effective TAX: