The corporate tax rate in Malta is set at 35% and companies incorporated in Malta are subjected to tax in Malta on their worldwide income.
This is irrespective of where the source of income is from and where it is received. The Maltese tax legislation also consists of processes that help eliminate double taxation.
A full imputation system applies to the taxation of dividends, where the distributing company’s tax is imputed as a credit to the shareholder receiving the dividend.
The country offers a highly efficient fiscal regime that eliminates double taxation on taxed company profits distributed as dividends. The tax system has been deemed compliant with EU non-discrimination principles by the European Commission. It has also gained approval from the Organisation for Economic Co-operation and Development (OECD).
Under the Malta Tax regime, a double taxation relief is available for the following:
Malta’s double tax treaties are primarily based on the OECD Model Convention. It grants corporations relief from double taxation through the credit method.
Under unilateral relief, overseas tax incurred on income received from a country where Malta does not have a tax treaty can be claimed as a credit against the tax due in Malta. The credit cannot exceed the total Maltese tax payable.
To claim unilateral relief, the recipient must prove to the commissioner that the source of income was from overseas and is subject to tax outside Malta. One must provide proof for the tax paid abroad. Unilateral relief is only available in cases where there is no double taxation relief.
The flat-rate foreign tax credit can be claimed by Maltese companies that receive income or capital gains from overseas allocated to the company’s Foreign Income Account.
The FRFTC is calculated at 25% of the overseas income or gain received by the company before allowable expenses.
The income, along with the credit less the deductible expenses, will be subject to total Maltese income tax with relief for the estimated credit (up to a maximum of 85% of the Malta tax payable).
Holding companies registered in Malta may apply for the Participation Exemption. The companies must receive dividend income or capital gains from a Participating Holding or from income arising from the disposal of that same holding. Consequently, the income will not be subject to income tax in Malta.
Malta’s Participation Exemption on capital gains extends to the domestic holdings of shares. Capital gains arising from the transfer of a participating holding in a Maltese company are also eligible for the exemption.
Participating holding arises when a company holds equity shares in a non-resident company. It could also be a qualifying committee that does not own immovable property and gives the right to vote. However, they receive a dividend and the right over assets upon the company’s liquidation.
Participating holding applies for:
As per the Malta tax structure, dividends resulting from a participating holding in an EU resident company is exempted from tax in Malta in all cases.
Tax on dividends received from a participating holding in a non-EU resident company are exempt in Malta provided the fulfilment of at least one of the following additional criteria:
If the Parent-Subsidiary Directive for the elimination of withholding taxes has been applied, additional conditions must be satisfied.
Upon receipt of a dividend, the shareholders would be eligible to claim a refund of the tax paid by the distributing company on income distributed as a dividend, depending on the type and source of income received.
The shareholder of the Malta company would be eligible to receive tax refunds as follows:
Malta has a trustee regime, and licensed trustees may hold shares in Maltese companies in a fiduciary capacity for and on behalf of subscribers.
Since Malta is a member of the European Union, it has access to the EU.
No tax is withheld upon the distribution of interest and royalties to non-resident beneficial owners of such income. The same applies to the distribution of dividends irrespective of the residence and nationality of the shareholders.
Besides the double tax relief, refunds and exemptions, the tax system in Malta offers more benefits to businesses.
Malta’s corporate tax structure makes setting up companies in the country feasible. The tax system invites foreign investors, allowing them to maximise benefits for business advantage.
Our experts in tax advisory and compliance at Endevio can guide you and your company through the tax benefits available in Malta. Additionally, our team offers company services that cover company set-up and accounting and auditing. Let us be your trusted partners in your corporate tax endeavors in Malta. Connect with us now.