Taxation in Malta
Malta is far from a Tax Heaven, it is a very well know reputable EU jurisdiction that enjoys fully EU Approved laws and regulations. We will guide you on the benefits that International Investors in Malta can utilise. At NCMB Consulting we are experts in Maltese Tax, and have fully qualified Maltese Tax advisors to guide you on the most tax efficient way of doing business here. Tax in Malta for International and Foreign investors can be as low as 5% on income generated through their Maltese company, speak to use to guide you on your international tax planning.
The Maltese Company Taxation
Malta has been a full EU member state since May 2004 and further to recent legislative changes, Malta Companies are EU compliant and EU approved. This renders Maltese company an excellent vehicle for international business, investment and financial services. Malta by far provides the most advantageous environment for European onshore business and investment, providing a favourable business and tax environment for shareholders of Malta registered companies.
A Company registered in Malta is considered resident here, when it is foreign owned, if it’s management and control has to be done from Malta. All Maltese registered companies have to pay 35% tax on their profits but, this will be subject to Malta’s imputation tax system. Foreign owned companies in Malta have the option to apply for a refund upon distribution of a dividend to the shareholder on part of their tax paid and can result in Taxation of only 5%.
At NCMB Consulting we will guide each case accordingly to figure out their needs in order to plan their Taxation in Malta.
Who can apply for a TAX REFUND in Malta on the 35% paid:
All Maltese companies can apply for a tax refund. There are various types of refunds for various types of income generated in Malta. This all depends on the nature and source of this income. Most normal trading income is subject to a refund of 6/7ths, this results in an effective Tax rate of 5% on the trading profits. Passive income and royalties income is subject to a refund of 5/7ths and this will result in an effective Tax rate of 10%.
When using the double taxation relief or what is known as FRFTC, the income will be subject to a refund of 2/3rds.
6/7ths refund 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 rate of Malta tax 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 branches 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.
5/7ths refund for passive interest and royalties
When distributions are made out of profits earned from passive interest and royalties, the shareholders of a Maltese company may claim a refund of five-sevenths of the tax paid by the company when distributions are made to them.
The six-sevenths and five-sevenths refunds only apply when the distributions are made by the company which did not claim any form of double tax relief. When dividends are paid out of profits allocated to the foreign income account and in respect of which profits the company has claimed double tax relief, the shareholders may apply for a refund of two-thirds of the tax paid by the Maltese company.
What is a Participation Holding?
A Full Tax refund could be asked for Or a Total tax exemption could be given on any Capital Gains income or Dividend income derived form an entity that qualifies as a Participating Holding.
How do you qualify as a Participating Holding in Malta?
The Maltese entity has to hold shares in a non-resident company that is incorporated in the EU. The non-resident company must have been, subject to Tax of 15% and cannot have 50% of its income derived from Passive income or royalties. The shareholding that must be at least of 10% must carry certain rights that include; Right to dividends, right to votes, right to Assets on winding up of the entity.
Procedure for Refund
These statutory refunds (available since 1994) are legally guaranteed and are payable efficiently by the Inland Revenue Department to the shareholders within 14 days from the last day of the month in which the request has been fully approved by the Department.
For a Maltese resident company to hold a “participating holding” in a company incorporated abroad, it must hold at least 10% of the equity shares in the non-resident company. In the case of a shareholding of less than 10%, such holding may still qualify as a “participating holding” if the Malta Company:
holds 10% or more of the shares of the foreign company; or
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 EUR1,165,000 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).
At the option of the taxpayer, dividends and capital gains derived from a Participating Holding are exempt from Malta tax.
Light anti-abuse provisions apply if the Participating Holding is acquired after 1/1/2007:- the foreign subsidiary must:
be resident or incorporated in an EU country or territory; OR
be subject to any foreign tax of at least 15%; OR
not have more than 50% of its income derived from passive interest or royalties;
Where none of the conditions set out above are satisfied then both of the following two conditions must be satisfied for the income to be eligible for the participation exemption:
the equity holding by the company registered in Malta in the body of persons not resident in Malta is not a portfolio investment and for this purpose the holding of shares by a company registered in Malta in a body of persons not resident in Malta which derives more than fifty per cent of its income from portfolio investments shall be deemed to be a portfolio investment; AND
the body of persons not resident in Malta or its passive interest or royalties have been subject to any foreign tax at a rate which is not less than 5%.
Malta Double Taxation Treaties (DTT)
Malta has over 70 Double Taxation with:
Austria, Belgium, Bulgaria, Cyprus, Croatia, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, U.K. Albania, Croatia, Guernsey Iceland, Norway, Isle of Man, Jersey, Lichtenstein, Moldova, Montenegro, Norway, San Marino, Serbia, Switzerland, Ukraine.
Australia, Bahrain, Barbados, Canada, China, Curacao, Egypt, Georgia, Hong Kong, India, Israel, Jordan, Korea (Rep.), Kuwait, Lebanon, Libya, Malaysia, Mauritius, Mexico, Morocco, Pakistan, Qatar, Russia, Saudi Arabia, Singapore, South Africa, Syria, Tunisia, Turkey, U.A.E., Uruguay, U.S.A.
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