The Maltese jurisdiction operates the full imputation system of taxation allowing any tax paid on chargeable income to be available as a credit in the hands of the recipient should the income be subject to further transfers. A number of other incentives, fully aligned with OECD principles as well as EU directives, are aimed towards attracting Foreign Direct Investment to the island and at the same time continue in the development and attractiveness of Malta as a financial services centre.
Tax REFUND SYSTEM
The standard corporate rate of tax in Malta is 35% of the chargeable income. Shareholders receiving distributions from a Malta Company are entitled to claim a refund of the Malta tax. Tax refunds also apply where a Company operates through an overseas branch in Malta.
The refunds available are:
6 / 7ths Refund: Applies to chargeable income sourced from trading activities. The effective rate of tax works out at 5%.
5 / 7ths Refund: Applies to income derived from passive interest and royalties. The effective rate of tax works out at 10%.
2 / 3tds Refund: Available where the Company has claimed double taxation relief. The refund depends on the type of relief availed of and is limited to the tax paid in Malta.
100% Refund: Applies to dividends and capital gains derived from a Participating Holding.
*Refer to the diagram
Event 1: Malta Trading Company chargeable income is taxed at 35%.
Event 2: Malta Trading Company declares a dividend and distributes such to its Holding / Shareholder.
Event 3: 6/7 of Corporation Tax is refunded by the Malta Government to the Holding / Shareholder. Holding applies for and Malta Government grants tax refund.
MALTA HAS BEEN ON THE OECD ‘WHITE LIST’ FOR GLOBAL STANDARDS IN TAX COOPERATION AND INFORMATION EXCHANGE FOR A NUMBER OF YEARS
Fiscal Incentives Part 2
Malta has been on the OECD ‘White List’ for global standards in tax cooperation and information exchange for a number of years and its fiscal regime is also fully EU compliant.
Dividends and Capital Gains derived from Shares held under a Participating Holding are Exempt from Malta Tax, at the option of the tax payer.
A 10% holding in a non- resident company held by a Malta resident entity may qualify as a “participating holding”. In the case where the shares held are less than the 10% threshold, such holding may still qualify as a “participating holding” if the Malta Company:
• is entitled at its option to purchase or has the first right of refusal on a disposal of the balance of the equity shares of the foreign company; or
• is entitled to be represented on the Board of Directors of the foreign company; or
• holds a shareholding exceeding € 1,165,000 or equivalent for an uninterrupted period of 183 days; or
• holds equity shares in the foreign company for the furtherance of the business of the Maltese company (not trading stock).
Income or gains derived by a company registered in Malta from a participating holding or form the transfer of such holding shall be exempt from tax.
This means that the dividends derived by a Malta company from a participating holding or any gains made by such company on the sale of shares in a participating holding will not attract any tax liability.
MALTA: DOUBLE TAXATION RELIEF
Malta does not impose any exit tax on outgoing dividends, interest and royalties regardless of the tax residence and status of the recipient. However, income received in Malta from foreign sources may be subject to foreign taxes. Malta has an extensive treaty network to mitigate the incidence of double taxation and also other forms of relief including Unilateral Relief and Flat Rate Foreign Tax Credit (FRFTC).
Malta’s domestic provisions relieve both juridical double taxation, through the various forms of relief explained below, and also economic double taxation mainly by the application of the full Imputation System.
Malta adopts a credit method of Double Taxation Relief in accordance with Article 23B of the OECD Model Tax Convention. In addition to Treaty Relief, which would be applicable if the foreign tax had been incurred in a jurisdiction with which Malta had concluded a Double Tax Treaty, Malta extends its relief provisions unilaterally through three other forms of credit.
INCOME TAX AND DUTY EXEMPTIONS ON TRANSFER OF SHARES
Any gains or profit accruing to or derived by any person not resident in Malta on the transfer of any shares on a company shall be exempt from tax, provided that such company does not own property in Malta. Furthermore acquisitions or disposal for any reason whatsoever of marketable securities by persons who are not resident in Malta shall be exempt from Duty. Marketable Securities included any shares, stocks, debentures, bonds and any interest in any Company or corporation and any documents representing the same.
• Tax exemption on interest, discount, premium or royalties accruing to or derived by any person not resident in Malta.
• Low rates of tax for individuals approved under the various tax programmes applicable toindividuals for applying residence in Malta.
• No Exit Taxes on repatriation of funds outside Malta
• No transfer pricing rules.
• No thin-capitalisation rules or debt to equity ratios.
• Procedure for redomiciliation of Companies into and out of Malta without the need of winding up.
MALTAHAS BEENON THE OECD ‘WHITE LIST’ FOR GLOBAL STANDARDS IN TAX COOPERATION AND INFORMATION EXCHANGE FOR A NUMBER OF YEARS
The information provided in this document is for information purposes only and should not be treated or interpreted as either investment, legal, tax or professional advice. Any views or opinions expressed herein are not intended and should not be construed as being investment, legal, tax or professional advice, but reflect ARQ In Tax Ltd views and opinion in relation to the particular theme and/or subject of the document. Since the information being provided is highly dependent on Governmental Policy, Law and Regulation, this material is subject to change without notice and recipients are urged to seek more specific and timely advice . ARQ In Tax Ltddoes not accept liability for any loss, whether direct or indirect that may be incurred by any recipient who acts solely on the basis of the information being provided.
ARQ In Tax Ltd – Company Registration number C68774 of Tower Business Centre, Level 1, Suite 5, Tower Street, Swatar, BKR4013, Malta is part of the ARQ Group Ltd. and is licensed by the Malta Financial Services Authority under the companies act of 1995.