Malta

INTRODUCTION AND BASIS OF TAXATION




A company which is incorporated in Malta is considered to be ordinarily resident and domiciled in Malta. Consequently, this company is subject to Maltese corporate taxation on its worldwide income at the standard rate of 35%. Since Malta adopts the full imputation system of taxation, when the dividends are paid to the shareholder there is a tax credit which is equal to the tax paid by the company on its profits. Since the highest tax rate for individuals is equal to the corporate tax rate in Malta, the full imputation system ensures that the shareholder is not subject to any further tax on dividends distributed to them from the Maltese company. According to tax legislation, the taxable base of a company depends on whether such company is resident and/or domiciled in Malta - permutations of which have different tax implications.

TAX ACCOUNTS AND REFUNDS

Malta has adopted a system of tax accounts. According to this system, profits are allocated to a series of taxed accounts, which are the following:

  • Final Taxed Account
  • Immovable Property Account
  • Foreign Income Account
  • Maltese Taxed Account
  • Untaxed Account

  • Depending on how the profit is allocated, one can be entitled to a refund. Not every account attracts a refund, and the amount of the refund varies from one taxed account to another. The following is a list of refunds available:

  • 6/7ths refund - This refund is normally due on profits earned from trading activities. This refund results in an effective rate of tax of 5%.
  • 5/7ths refund - This refund is normally due in respect of income derived from passive interest and royalties. This refund results in an effective rate of tax of 10%.
  • 100% refund - this applies for profits derived from a participating holding. This can be taken either in the form of a refund, or in the form of an exemption. Further detail about this refund/exemption can be found below.
  • 2/3rds refund - This applies to foreign passive income upon which double taxation relief has been claimed.

  • A Participation Holding can either be exempted (it claims a "participation exemption") or it can opt not to be exempted, but then later claim a 100% refund of tax. This exemption is aimed at income and/or capital gains, and exempts such income/capital gains which are derived by a company registered in Malta, which in its turn it derives from a company which is not resident in Malta.