Malta Corporate Tax
We can assist you to benefit from Malta’s Full Imputation & Refundable Tax Credit System, Double Taxation Relief. Read more to see how to best Set Up your Corporate Structure.
Matese Tax System
Malta’s EU membership has made the country a competitive jurisdiction for tax planning and corporate structures. Income Tax in Malta is charged on income from all sources and capital gains on the transfer of immovable property, securities and certain intangible assets. Companies are taxed at a flat rate of 35% which is also the maximum rate for individuals. Other taxes include VAT, stamp duty and customs and excise duty. Malta is the only EU member state with a full imputation system of taxation in force.
One of the key advantages of the Maltese income tax system is the full imputation system that applies to the taxation of dividends. Shareholders are entitled to a credit for the company tax paid on distributed profits and will qualify for a refund when the tax credit exceeds their tax liability. Under Malta’s full imputation system the shareholder will, upon distribution of dividends, be entitled to a refund of in part or in full of any advance tax levied on the distributing company. A resident shareholder will be taxable in Malta on the dividend income, including the refund, at personal rates.
The amount of the tax refund is set at 6/7ths of the advance corporation tax paid by the company and 5/7ths in the case of passive interest and royalties.
The refund is reduced to 2/3rds where the distributing company claims double taxation relief. With respect to participating holdings a full 100% refund applies. A participating holding “arises where a company holds at least 10% of the equity shares of a non-resident company”, or meets certain other criteria set out in the law. In addition to the considerable benefits of the full imputation system and the extensive network of double taxation treaties, Malta offers businesses other key benefits under its tax legislation, including the following:
As an EU member state, entities have access to the Parent-Subsidiary, Interest & Royalties, and Mergers Directives;
An exemption from tax on income derived by collective investment schemes;
Advance rulings issued by the Maltese Commissioner of Inland Revenue on international transactions that guarantee the tax provision for a minimum of five years and may be renewed for a further five year period;
An absence of “thin capitalisation” rules and no anti-controlled foreign corporation legislation;
No capital duty on share issues and exemption from duty on transfer of shares in, by or to companies having the majority of their business interests outside Malta;
The possibility for companies to denominate their share capital and their accounts in any convertible currency with the chosen currency then being used for payments of tax and tax refunds (where applicable) thus minimising exchange risks;
The possibility of migrating companies to and from Malta;
Relative ease of incorporation for non-regulated entities;
Low registration and maintenance costs;
A taxation scheme for groups of companies allowing offset of losses between group companies;
Malta Taxable Base
A company incorporated in Malta is chargeable to tax in Malta on a worldwide basis. A company incorporated outside Malta but which is controlled and managed in or from Malta would be resident in Malta for tax purposes and would, as a result, be subject to tax in Malta on:
Chargeable income arising in Malta;
Chargeable income arising outside Malta to the extent that such income is received in (remitted to) Malta;
Chargeable gains realised in Malta (chargeable gains realised outside Malta would not be taxable in Malta even if received in Malta).
Refundable Tax Credit System
Malta operates a full imputation system. As such, dividends distributed by a Maltese company carry a credit in favour of recipient shareholder/s which is equal to the amount of underlying tax paid by the Malta company on the profits out of which the dividend was distributed.
In addition, pursuant to a distribution of dividends by a Malta company out of underlying trading profits and/or qualifying passive income and capital gains, the recipient shareholder/s would be entitled to claim a refund of six-sevenths (6/7) of the Malta tax suffered at the level of the Malta company on its said profits.
Should the Malta company have claimed relief for double taxation (see below) in respect of foreign source profits out of which dividends were distributed, the Malta company’s shareholder/s would be entitled to a refund of two-thirds (2/3) of the Malta tax paid by the Malta company on the said profits.
A tax refund due from the Maltese revenue authorities is payable within fourteen (14) days following the day on which the refund becomes due and it would be subject to no further tax in Malta.
Double Taxation Relief
Relief for double taxation is available domestically in the form of:
Treaty Relief – generally available as an ordinary credit. Malta has a large and expanding double tax treaty network with 58 treaties currently in force (including treaties with all EU Member States and the United States of America);
Unilateral Relief – available in a manner essentially identical to treaty relief (extending, therefore, such relief in respect of income derived from non-treaty countries);
Flat Rate Foreign Tax Credit (‘FRFTC’) – available to a Maltese company as a notional tax credit for foreign tax deemed to have been suffered on qualifying foreign source income. The notional tax credit is equivalent to 25% of the relevant foreign source income and is computed by grossing up that income by the available credit, then charging the grossed up amount to Malta tax at the applicable rate of 35% and finally claiming the credit in the form of an ordinary credit (subject to certain stipulated maximum restrictions).
By combining domestically available double tax relief mechanisms with Malta’s full imputation and refundable tax credit systems, the combined overall effective Malta tax rate may typically be reduced from 35% to anything between 0% and 6.25%. The following table illustrates the manner in which such reduced combined overall effective Malta tax rates may be achieved:
Additional features of the Maltese tax system
A full Participation Exemption would typically apply when a Malta company holds at least 10% of the equity shares in a subsidiary or equity shares having an acquisition value of at least €1,164,000.
Access to the benefits of the EC Tax Directives.
No Malta tax is generally levied or otherwise withheld on dividends distributed by a Malta company.
No Malta tax is generally levied on capital gains realised pursuant to a disposal of shares in a Malta company.
No Malta tax is generally levied or otherwise withheld on outbound payments of interest or royalties.
Malta does not apply CFC rules, specific transfer pricing regulations or thin capitalisation restrictions.
Malta does not levy capital duties or wealth taxes.
No exit / entry taxes are levied in Malta on a shift of fiscal residence and / or corporate domicile.