Malta Corporate Tax

  • Malta’s EU membership as well as the adoption of the Euro as Malta’s currency in 2008 have made Malta a jurisdiction of choice for investors, many of whom establish or relocate their business to Malta due to its advantageous corporate tax system.Malta’s stautus Malta’s tax system is composed of three pillars:
    • Full imputation system
    • Refundable tax credit system
    • Cross-border double taxation relief

Full Imputation Tax System

Companies are taxed in Malta at a flat rate of 35%.

Nevertheless, the combined overall effective rate of tax applicable in respect of income or gains in Malta may be reduced substantially by application of the domestic refundable tax credit system or participating holding regime.

Malta operates a full imputation system of taxation whereby the tax paid by the company is available as a credit to the recipient shareholders when distributions are made to them.

Refundable Tax Credit System

Malta law entitles all shareholders in receipt of dividends from profits of a company resident in Malta to claim a refund of part of the Malta tax paid on the profits out of which the dividend is distributed. Such a right is irrespective of the residence of the shareholder.

The tax refunds are categorised as follows:

  • Typically of 6/7ths of the Malta tax resulting in a tax rate of 5%.
  • 2/3rds of the Malta tax in the instance where double taxation relief has been claimed by the distributing company and the profits are distributed out of foreign source income, resulting in a tax rate of 2.5% to 6.25%.
  • 5/7ths, where the dividend income is paid out of profits consisting of passive interest or royalty income which is not derived directly or indirectly from a trade or business.

Cross-Border Double Taxation Relief

Malta law provides for three main forms of Double Taxation Relief of foreign-source income.

Treaty Relief

Treaty relief takes the form of a tax credit granted for foreign tax paid on income received from a country with which Malta has signed a treaty.

The amount of the credit is the lower of Maltese tax on the foreign income and the foreign tax paid. Where the foreign taxes are equal to or exceed the 35% Malta tax, no tax is payable in Malta.

Malta’s tax treaty network currently boasts over 70 jurisdictions, which are typically based on the OECD Model Tax Convention.

Unilateral Relief

Unilateral relief operates in a similar way to treaty relief but applies only where treaty relief is not available.

Unilateral relief is given by way of a credit against the Malta income tax liability of the Malta resident company in receipt of foreign source income.

The amount allowed as a credit cannot exceed the amount of tax payable in Malta on the double taxed income.

Flat Rate Foreign Tax Credit (FRFTC)

The FRFTC takes the form of a notional tax credit for foreign taxes considered to have been suffered on qualifying income.

The FRFTC is equal to 20% of the net amount received and is to be added to such amount.

Attributable expenses are deducted from this aggregate amount to arrive at the taxable income.

Where the FRFTC has been claimed, the effective Malta tax suffered will be between 2.49% and 6.25%.

Tax Refund Process

Upon a dividend becoming distributable, the shareholders of a Malta company may claim a refund of all or part of the Malta tax paid at the level of the company. Malta law stipulates that refunds are to be paid within 14 days from the day when the refund became due. The refund is paid in the same currency in which the tax is paid by the company, therefore eliminating any currency exchange risks.

 

No other taxes due

  • No withholding taxes due on the distribution of dividends, interest or royalties to shareholders.
  • No restrictions on the distribution of dividends from the Malta company.
  • The tax refund is received in the same currency of the company’s share capital.
  • No capital duties or wealth taxes.
  • No thin capitalisation or transfer pricing rules.
  • Companies which have more than 90% of their business interests outside Malta are exempt from stamp duty on sha

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For more information, please contact us on info@atomfs.com.mt or +356 2247 9000.