Malta - Company Taxation

Malta is a member of the EU and is therefore an attractive jurisdiction with low taxation for non-resident taxpayers.

Malta’s tax system is designed to:

• Promote international investment in Malta
• Support the development of financial services in Malta
• Ensure that company profits are not taxed twice - i.e. at company and again at shareholder level

Under Malta’s tax system, a company is considered resident if:

• It is incorporated in Malta or,
• In the case of a foreign body of persons, if its control and management are exercised in Malta.

All companies pay 35% on chargeable income; however tax paid by the company is then imputed to the shareholder in the event of a dividend distribution. As Malta operates an imputation system, there is no withholding tax on dividends.

The Refund System

Upon distribution of dividends, shareholders will be entitled to a refund of part or all of the tax paid by the company on the profits, out of which the dividends were paid.

The amount of the tax refund is set at 6/7ths of the tax paid by the company (5/7ths in the case of passive interest and royalties). This refund will be reduced where the distributing company would have claimed double taxation relief.

The resident shareholder will be taxable for the total amount of net dividend and refund received. The non-resident shareholder is not taxed in Malta.

When dividends received from a holding are distributed by a Maltese company to its shareholders, they are entitled to claim a refund of 100% of the tax paid on the distributed profits.

With regard to acquisitions of participating holdings made after January 2007, where the non resident company, having mainly passive income, is not resident or incorporated in an EU Member State or is subject to tax at a rate which is less than 15%, the following additional conditions must be satisfied:

• The shares in the non-resident company must not be held as a portfolio investment; and

• The non-resident company or its passive income must have been subject to tax at a rate which is not less than 5%.

Resident Shareholders

Resident individual shareholders will be subject to Malta tax on the dividend and tax refund at the personal tax rates while non-resident shareholders and resident corporate shareholders in receipt of the dividend and tax refund will not be subject to tax thereon.

As from 1 January, 2007 a participation exemption has also been introduced. This exempts dividends derived from participating holdings and gains derived from the disposal of such holdings. The participation exemption is also subject to the antiabuse provisions described above for participating holdings.

Where the participation exemption applies obviously the refund system in respect of participating holdings will not apply.

If the conditions to qualify as a participating holding or for the participation exemption to apply are not met the normal general tax system including the normal tax refunds will be applicable.

Holding companies and the participating exemption

Holding companies that derive dividend income or capital gains from a participating holding may apply for a participation exemption.

Alternatively, the Maltese holding company may elect to be subject and pay income tax and upon a distribution of profits the shareholder is entitled to claim a full refund of the company income tax.

Other Maltese Tax Benefits

• Malta does not levy any withholding taxes
• Malta has no capital duty and wealth taxes
• No stamp duties on share transfers in companies owned by non-residents
• Non residents are exempt from any capital gains on certain share transfers
• Malta has an extensive treaty network with 45 treaties in force
• As an EU Member State Malta has adopted the EU’s Parent-Subsidiary Directive and the Interest and Royalties Directive
• Under the re-domiciliation provisions it is possible to migrate companies into and out of Malta without the need of winding up
• No exchange control regulations exist and business may be conducted freely in any currency
• Malta’s financial services legislation and tax laws are complaint with EU directives
• Malta’s has strong and effective Money Laundering Laws and Regulations
• Malta’s legislation offers regulated professional trustees which may provide fiduciary and trust services