Tax

MALTA Tax Efficient Solutions for Entrepreneurs, Business Owners and High Net Worth individuals!

• Forbes Magazine ranks Malta as the 5^th most tax beneficial jurisdiction in the world and as the best within the EU
• 11^th position in financial market development
• Financial services sector stand as a leading innovator in the Maltese economy
• Soundness of Maltese banks has been ranked in 10^th position
• Malta is in the 12^th position in the assessment carried out on the regulation of securities exchanges
• 8^th position on the strength of auditing and reporting standards
• International companies that have set up a base in Malta include: Aon Marsh, Munich Re, JLT Insurance, Heath Lambert, Heritage, Nissan, White Rock and Willis; BMW and Vodafone set up their insurance captive in Malta; AXA, Custom House, TMF; Deutsche Bank, Fortis

The combination of Malta’s tax system and its extensive double tax treaty network means that, with proper planning and structuring, investors can achieve considerable fiscal efficiency using Malta as a base.

• Only EU member state with full imputation system;
• Extensive network of double taxation treaties, plus benefits even when no bilateral treaty in force;
• Refundable tax credit scheme – on revenues as dividends to shareholders, resident & non-resident;
• Ideal tax residency status for individuals. One of the key advantages of Malta’s tax system is that it is a full imputation system, and has been so since 1948 when income tax legislation was first enacted. Malta is, in fact, the only EU member state with a full imputation system of taxation in force. Another key advantage is Malta’s extensive network of double tax treaties with almost all the important OECD countries.

All Maltese companies pay tax at the rate of 35% but, as with all imputation systems, shareholders receive full credit for any tax paid by the company on distributed profits. This means that profits taxed at a corporate level are not subject to further tax in the shareholder’s hands, and, depending upon the rate of tax applicable to the recipient of dividends, may trigger off the entitlement to a tax refund in the hands of the recipient. As a result, shareholders of a Maltese company should, upon a distribution of profits, be eligible to claim refunds of the Malta tax paid at the corporate level.

Malta grants relief from double taxation under the credit method on source-by-source and country-by-country bases. The Maltese tax regime governing double taxation relief includes not only treaty relief but also unilateral relief, and thereby ensures that income arising from overseas is not subject to double taxation, even if there is no double taxation agreement in existence.

In terms of domestic legislation, no withholding taxes are imposed on dividends, interest and royalties paid to non-residents, as long as various conditions are complied with. In addition, no Maltese tax is imposed on gains realised from transfers of corporate securities by non-residents, again as long as the relevant conditions are complied with, particularly that the sole or main assets of the company whose securities are being transferred do not consist of Maltese immovable property.

Overview of the System

Basically the system entitles for the company not pay any tax or for the shareholder to claim a refund which is equivalent to either: 2/3rds; 5/7ths; 6/7ths of the company income tax.

No Tax Payment: (In two situations)

1. Participation Exemption:  Where a holding of shares by a Maltese company (including a Maltese partnership en commandite with its capital divided into shares) in a non-Maltese entity (including companies and limited liability partnerships) qualifies as a participating holding, the Maltese company may claim a participating exemption from Maltese tax on income and (capital) gains derived from such participating holding.

2. Participating Holding: A participating holding arises where: · a Maltese company holds directly at least 10% (including right to at least 10% of the voting rights, the dividend rights and the rights to assets on a winding up) of the equity shares of a non-Maltese entity; or · where a Maltese company is an equity shareholder in a non-Maltese entity and is entitled to either sit on the Board or appoint a person to sit on the Board of the non-Maltese entity; or · where a Maltese company is an equity shareholder investing at least €1,165,000 for at least 183 days in a non-Maltese entity; or · where a Maltese company is an equity shareholder in non-Maltese entity and is entitled to, at its option, call for and acquire the entire balance of the equity shares not held by it; or · where a Maltese company is an equity shareholder in non-Maltese entity and is entitled to first refusal in the event of a proposed disposal, redemption or cancellation of all the equity shares in the non-Maltese entity not held by the Maltese company; or · where a Maltese company is an equity shareholder in a non-Maltese entity where the holding of such shares is for the furtherance of the business of the Maltese company and is not held as trading stock for the purpose of a trade.

Shareholder to claim a refund which is equivalent to either: 2/3rds; 5/7ths; 6/7ths of the company income tax.

5/7 refund: Where the income in question is made up of passive interest and royalties, the shareholders may claim a refund of 5/7 of the tax charged to the Maltese company, subject to a maximum of the tax actually paid to the Maltese tax authorities. Where interest and royalties have been subject to foreign tax at a rate of 5% or more, it will automatically no longer be considered passive, and therefore qualify for the 6/7 refund.

2/3 refund: Where passive income and royalties have been subject to a claim for double taxation relief, including the FRFTC, a refund of 2/3 of the Malta tax charged may be applicable. It may be more beneficial in some situations to claim FRFTC where other forms of tax relief are available to a Malta company. FRFTC stands for “The flat rate foreign tax credit”.

6/7 refund: This applies to trading companies whereas a foreign entity decided to reroute part of its management and control (back office) to Malta and therefore invoices its clients, pay its suppliers and carry bank transactions from Malta. Also there is nothing stopping the foreign entity in actually selling its services or products on the island, receiving the same tax treatment.

Check our Fact Sheets for more information!