Malta has a straightforward tax regime with many of the popular taxes in other countries do not apply to Malta, there are no withholding taxes on dividends, interest and royalties, there is no trade, exit, or wealth tax, and even for capital gains tax, any chargeable gains are added to the other income of the company and charged to tax at the normal corporate rate of tax.
Consequently, other than VAT on goods and services which we cover in our section on value added tax, the two main forms of taxation are income tax and company tax which we cover in our relevant sections.
This makes Malta a highly desirable place to do business and our experts can advise you for every step of the way to ensure you are fully compliant and your tax liabilities are efficiently minimised.
Corporate tax
The corporate tax rate is 35%. The taxable income for companies which are both resident and domiciled in Malta includes worldwide income and certain capital gains. Companies which are either not resident in Malta or not domiciled here are subject to tax on any income and certain capital gains arising in Malta and on income arising outside Malta which is received in a Maltese bank account. Such companies are not subject to tax on any capital gains arising outside Malta. Taxable profits of each year are the profits reported in the company's audited financial statements adjusted by adding non-deductible expenses and by deducting exempt income.
Corporate income tax is levied on the following entities:
- Partnership with silent partners, the capital of which is divided into shares,
- A limited liability company, or any company constituted as such under any law in force in Malta,
- Any body of persons constituted, incorporated or registered outside Malta and of a nature similar to the aforementioned partnerships and companies,
- Any cooperative society duly registered as such in Malta, and
- Any fellowship, society or other association of persons, whether incorporated or unincorporated, and whether vested with legal personality or not. For partnerships not mentioned in (1), the tax is levied on the partners of the partnership and not on the partnership itself.
Malta has favourable tax planning opportunities for:
- Dividends received from a participating holding
- Capital gains made from the disposal of a participating holding
- Dividends from non-participating holdings
- Trading income
- Passive income (interest, royalties etc)
The full imputation system of taxation is operated here which means the tax paid by the company is available as a credit to the shareholders when any distributions are made to them. Company tax of 35% is available as a credit to the shareholders upon receiving dividends from the company. 6/7ths refunds for active income.
When dividends are paid by trading companies to the shareholders, these shareholders become entitled to claim refunds of 6/7ths of the Malta tax paid by the company. Taking into account such refunds, this results in an effective tax rate of 5%.
Shareholding may be held by individuals or through a Maltese parent. The definition of a company has been widened to include an oversea branch set up in Malta, companies which although not resident in Malta carry out activities in Malta and also companies which are neither incorporated nor resident in Malta provided that such companies are registered with the local tax authorities.
Withholding tax
There is no levy of withholding tax on dividends paid to shareholders, which is a very attractive for international businesspeople. Royalties are not subject to such tax either. Pursuant to the “investment income provisions”, certain investment income such as interest paid by Maltese-licensed banks and other public entities may be subject to a withholding tax of 15%. Investment income payable to a collective investment scheme (CIS) investing at least 85% of its total investments in Malta-based securities is taxed with such a tax at the rate of 10% with regard to corporate or government bonds and 15% with regard to bank interest.
Tax refunds to non-residents
There are tax refunds on distributed profits which have been taxed in Malta (with the exception of profits derived from real estate or profits subject to a final withholding tax). In order to qualify for a refund, the profits must be distributed either to non-resident shareholders or to a Maltese holding company wholly owned by non-residents. The rates of the tax refund are: 6/7 of the Maltese tax paid on the distributed profits (total corporate tax burden is equal to only 5% in this case); 5/7 of the tax paid when the dividend is distributed from passive interest or royalties; 2/3 of the tax paid when the dividend distributed is derived from foreign sourced income that was relieved from double taxation. This tax refund system is favourable in Europe and is particularly beneficial for international business people who want to minimise their corporate tax liabilities in a central location close to Europe, Africa and the Middle East.
What tax refunds are available in Malta?
There is a full imputation system available for tax relief of which we outline the main points below. We are at your disposal to explain more in depth this favourable tax regimes with you at any time and ensure that you achieve the maximum relief possible. We can go through possible scenarios based on your projected income and give you exact figures based on those projections.
There are various refunds permitted in our system.
- 6/7ths of the Malta tax
- 5/7ths of the Malta tax
- 2/3rds of the tax payable in Malta
Full refund of the tax payable in Malta
This is based on the principle that 35% tax has been paid on profits so dividends are not subject to further tax. Relief can be claimed on the following basis. If it is dividends then the relief is 6/7ths. If it is passive interest and royalties then it is 5/7ths. If it is passive income subject to a double tax relief mechanism then it is 2/3rds. If it is dividends from participating holdings then it is 100%. Points to note are that in the case of passive interest and royalties are part of the overall structure of the company then they are also subject to 6/7ths relief. In the case of participating holdings this relief is rarely used as you have the possibility to exclude it from taxation by applying the participation exemption.
Companies which empower their shareholder to claim a tax refund are no longer constrained to carry out trading activities only with persons outside Malta.
Since January 2007 an amendment to the system has opened up the doors for Maltese companies to have multiple holding and trading activities, both in Malta and abroad, without influencing the possibility of claiming for a reimbursement. These amendments have kept the full imputation system for profits distributed from a Maltese Taxed Account and a Foreign Income Account.
The legislative changes have also introduced new types of refunds and abolished the need to have a special status in order to validate a claim for refund. The new system entitles both resident and non-resident shareholders of companies registered in Malta on or after 1st January 2007 to claim the above refunds. It should be noted that these refunds are guaranteed by Law and are paid promptly by the Tax Authority within 14 days from the date on which the refund is requested.
If you need help with matters related to corporate taxation, get in touch today for a reliable, trustworthy and quick service.