As a leading corporate services firm in Malta, CSB Group assists clients to benefit from Malta’s full imputation and refundable tax credit system and double taxation relief – with a view to achieving an optimal Malta tax exposure.
The Malta Income Tax System
Malta’s EU membership has made the country a competitive jurisdiction for tax planning and corporate structures. Income Tax in Malta is charged on income from all sources and capital gains on the transfer of immovable property, securities and certain intangible assets. Companies are taxed at a flat rate of 35% which is also the maximum rate for individuals. Other taxes include VAT, stamp duty and customs and excise duty. Malta is the only EU member state with a full imputation system of taxation in force.
One of the key advantages of the Maltese company income tax system is the full imputation system that applies to the taxation of dividends. According to the this system dividends distributed by a Maltese company generally carry a credit in favour of recipient shareholder/s (whether resident in Malta or otherwise) which is equal to the amount of underlying tax paid by the Malta company on the profits out of which the dividend was distributed.
The Tax Refund System
The amount of the tax refund is set at 6/7ths of the advance corporation tax paid by the company, and credited in favour of the shareholder through the imputation system.
The refund is reduced to 5/7ths in the case of passive interest and royalties, or 2/3rds where the distributing company claims double taxation relief.
With respect to participating holdings a full 100% refund applies. A participating holding “arises where a company holds at least 10% of the equity shares of a non-resident company”, or meets certain other criteria set out in the law. In addition to the considerable benefits of the full imputation system and the extensive network of double taxation treaties, Malta offers businesses other key benefits under its tax legislation, including the following:
As an EU member state, entities have access to the parent-subsidiary, interest & royalties, and mergers directives;
Malta’s Taxable Base
A company incorporated in Malta is chargeable to tax in Malta on a worldwide basis. A company incorporated outside Malta but which is controlled and managed in or from Malta would be resident in Malta for tax purposes and would, as a result, be subject to tax in Malta on:
- chargeable income arising in Malta;
- chargeable income arising outside Malta to the extent that such income is received in (remitted to) Malta;
- chargeable gains realised in Malta (chargeable gains realised outside Malta would not be taxable in Malta even if received in Malta).
Double Taxation Relief
Relief for double taxation is available domestically in the form of:
- Treaty Relief – available as an ordinary credit (subject to per-country and per-income limitations) equivalent to the Malta tax chargeable on income arising in a country with which Malta has a double tax treaty or the foreign tax suffered on that income, whichever is the lesser.
- Unilateral Relief – available essentially in a manner identical to treaty relief and, as a result, extending such relief in respect of income derived from non-treaty countries. Unilateral relief is extended to grant additional relief for underlying foreign tax suffered on profits out of which dividends are distributed by a non-resident company in favour of a Malta resident.
- Flat Rate Foreign Tax Credit (‘FRFTC’) – available to a Maltese company as a notional tax credit for foreign tax deemed to have been suffered on qualifying foreign source income (allocated to the company’s Foreign Income Account. The notional tax credit is equivalent to 25% of the relevant foreign source income and is computed by grossing up that income by the available credit, then charging the grossed up amount to Malta tax at the applicable rate of 35% and finally claiming the credit (that is, an amount equal to that originally grossed up) in the form of an ordinary credit (subject to certain stipulated maximum restrictions) which is set-off against the Malta tax due on the grossed up income as aforesaid.
|Foreign Source Income||1,000|
|Flat Rate Foreign Tax Credit||250|
|Grossed Up Income||1,250|
|Malta Tax @ 35%||437.50|
|Less Flat Rate Foreign Tax Credit||(250)|
|Malta Tax Payable (18.75%)||187.50|
Other Salient Features of Maltese Corporate Tax
- An exemption from tax on income derived by collective investment schemes;
- An absence of “thin capitalisation” rules and no anti-controlled foreign corporation legislation;
- No capital duty on share issues and exemption from duty on transfer of shares in, by or to companies having the majority of their business interests outside Malta;
- The possibility for companies to denominate their share capital and their accounts in any convertible currency with the chosen currency then being used for payments of tax and tax refunds (where applicable) thus minimising exchange risks;
- The possibility of migrating companies to and from Malta;
- Relative ease of incorporation for non-regulated entities;
- Low registration and maintenance costs;
- A taxation scheme for groups of companies allowing offset of losses between group companies