Malta offers a highly effective fiscal regime which is in compliance with EU Law. Malta has also transposed all the EU directives into its domestic legislation.
Currency – Euro
Foreign Exchange Controls – No
Direct taxation is governed by the Income Tax Act (Chapter 123 of the Laws of Malta), the Income Tax Management Act (Chapter 372 of the Laws of Malta) and the respective Legal Notices. The full set of laws is published on the Government Website www.gov.mt.
Incorporation of a company in Malta automatically triggers tax residence in Malta. A company which is incorporated outside Malta is deemed to be tax resident in Malta when the management and control of the company is exercised in Malta.
BASIS OF TAXATION
World-wide basis of taxation: A limited liability company which is incorporated under Maltese law is taxable on a worldwide basis.
Remittance basis of taxation: A foreign company which is incorporated outside Malta but deemed to be tax resident in Malta is taxable on a remittance basis. Under the remittance basis of taxation foreign sourced income is taxable in Malta if such income is received in Malta.
Source Basis of Taxation: Foreign companies which are not deemed to be tax residence in Malta may still be taxable in Malta on any income and / or gains which are deemed to be sourced in Malta.
In general any income derived by a Maltese company is subject to tax in Malta. However, Article 12 of the (ITA) lists several types of income which is exempted from tax in Malta.
TAXATION OF DIVIDENDS
In general, all types of dividends received from local and foreign companies are taxable in Malta. Malta operates a wide participation exemption regime whereby under certain conditions, the company can opt to apply the participation exemption regime. Under the participation exemption regime, dividends are completed exempted from tax.
Conditions to apply participation exemption regime:
- The participation held by the Maltese company should be deemed to constitute a ‘participating holding’ as defined under Article 2 of the ITA.
- The participation held by the Maltese company should satisfy at least one of the anti-abuse provisions set-out in Article 12(1)(u) of the Income Tax Act.
TAXATION OF INTEREST AND ROYALTIES
Interest and royalties or any other similar income received by a Maltese limited liability company is considered to be taxable income.
PATENT BOX REGIME
Malta has introduced a Patent Box Regime which has come into force on the 1st of January, 2019. Further details on the Maltese Patent Box Regime can be found on a separate memo published by our firm. [Memo on Patent Box Regime]
Malta applies capital gains on:
- Any transfer of the ownership or usufruct of any immovable property or the assignment or cession of any rights over such property
- Any transfer of the ownership or usufruct of or from the assignment or cession of any rights over the following types of assets:
- Securities (including shares)
- Business permits
- Any other intellectual property
- Transfer of a beneficial interest in a trust
- Transfer of rights in a partnership
PROPERTY TRANSFERS TAX
Transfers of immovable property situated in Malta are subject to a transfers tax regime. This regimes taxes transfers of immovable property by way of withholding tax which is paid upon the registration of the transfer of the property. The applicable rate of withholding tax generally depends on the type property being transferred as well as the length of period which the property has been held before the transfer.
Assets used in business may be depreciated for tax purposes in accordance with the annual rates of wear and tear allowances stipulated in the law.
WITHHOLDING TAX ON DIVIDENDS, INTEREST AND ROYALTY PAYMENT TO NON-RESIDENTS
Malta does not levy any withholding taxes on the payments of dividends, interest and royalties to non-residents.
Tax losses can be carried forward indefinitely.
CORPORATE TAX RATE
The standard corporate rate of tax in Malta is 35%
Under certain conditions non-resident / non-domiciled shareholder/s of a Maltese company can claim refunds of corporate tax paid at company level. Four types of refund can be claimed:
- Full Refund
- 6/7ths refund
- 5/7ths refund
- 2/3rds refund
The type of refund which may be claimed depends on the type income on which the corporate tax has been paid.
The mechanism and application of the tax refund can significantly reduce the effective tax paid in Malta.
DOUBLE TAX TREATIES
Malta currently has a double tax treaty in force with: Albania, Andorra, Australia, Austria, Azerbaijan, Bahrain, Barbados, Belgium, Botswana, Bulgaria, Canada, China, Croatia, Cyprus, Curacao, Czech Republic, Denmark, Egypt, Estonia, Ethiopia, Finland, France, Georgia, Germany, Greece, Guernsey, Hong Kong, Hungary, Iceland, India, Ireland, Isle of Man, Israel, Italy, Jersey, Jordan, Korea, Kosovo, Kuwait, Latvia, Lebanon, Libya, Liechtenstein, Lithuania, Luxembourg, Malaysia, Mauritius, Mexico, Moldova, Monaco, Montenegro, Morocco, The Netherlands, Norway, Pakistan, Poland, Portugal Qatar, Russia, Romania, San Marino, Saudi Arabia, Serbia, Singapore, Slovakia, Slovenia, South Africa, Spain, Sweden, Switzerland, Syria, Tunisia, Turkey, United Arab Emirates, United Kingdom, United States, Ukraine, Uruguay, Vietnam.
Most of the Malta’s double tax treaties are modelled on the OECD Model Convention.
DOUBLE TAX RELIEF
Maltese tax law allows for four types of relief from double taxation:
- Double tax treaty relief
- Unilateral Relief
- Commonwealth income tax relief
- Flat-rate foreign tax credit
Malta introduced Controlled Foreign Company legislation and has become effective as from tax periods commencing on 01st January 2019; CFC legislation has been introduced as part of the implementation of the ATAD Directive.
CFC legislation applies when the following two conditions are met:
- The taxpayer by itself, or together with its associated enterprises holds a direct or indirect participation of more than 50% of the voting rights, or owns directly or indirectly more than 50% of capital or is entitled to receive more than 50% of the profits of that entity; and
- The actual corporate tax paid by the entity/permanent establishment is less than 50% of the tax that would have been ‘charged’ on the entity or permanent establishment in terms of the ITA
If the participation in an entity held by a Maltese company falls within the scope of the CFC Regime, the non-distributed income of the participation should be included in the taxable income of the Maltese company.
CFC legislation will not apply for an entity or permanent establishment:
- with accounting profits of no more than EUR 750,000 and non-trading income of no more than EUR 75,000; or
- of which the accounting profits amount to no more that 10% of its operating costs in the tax period.
INTEREST DEDUCTIBILIY LIMITATION
The interest limitation rules aims to discourage artificial debt arrangements designed to minimise aggressive tax planning. In general, the rules stipulate that exceeding borrowing costs shall be deductible in the tax period in which they are incurred only up to thirty per cent (30%) of the taxpayer’s earnings before EBITDA. Certain rules apply for Groups. An exemption from the general rule applies for borrowing costs which do not exceed €3,000,000.
A Maltese taxpayer shall be subject to capital gains on the following unrealised gains:
- Transfers of assets from the taxpayer’s head office in Malta to the taxpayer’s permanent establishment in another EU Member State or in a third country;
- Transfers assets from taxpayer’s permanent establishment in Malta to the taxpayer’s head office or permanent establishment in another EU Member State or in a third country
- Transfers of tax residence from Malta to another EU Member State or to a third country;
- Transfer of business carried on by its permanent establishment in Malta to another EU Member State
GENERAL ANTI-ABUSE RULE (GAAR)
The ATAD implementation has introduced a general anti-abuse rule which contemplates that the tax authorities shall ‘ignore an arrangement or a series of arrangements which, having been put into place for the main purpose or one of the main purposes of obtaining a tax advantage that defeats the object or purpose of the applicable tax law, are not genuine having regard to all relevant facts and circumstances’. For these purposes, an arrangement or series thereof shall be regarded as non-genuine to the extent that they are not put into place for valid commercial reasons which reflect economic reality.
Malta does not have any structured transfer pricing rules.
BENEFICIAL OWNERSHIP DISCLOSURE
Companies and entities (including trusts and foundations) have the obligation to report to the Malta Business Registry the identity of the beneficial owners. The identity of the beneficial owners is accessible by the public.
ADVANCE REVENUE RULINGS
It is possible to seek advance revenue rulings from the Maltese tax authorities on:
- The application general anti-avoidance provisions to a specific transaction
- The whether a specific participation qualifies as a ‘participating holding’
- The tax treatment of any transaction which constitutes international business
- The tax treatment which concerns any financial instrument
- The tax treatment arising on a merger, de-merger, division, amalgamation or re-organisation
Tax Consolidations will be applicable as from 01st January, 2020. A separate memo on this subject prepared by our firm can be found on this link:
TAX DISPUTE RESOLUTION MECHANISM
Malta has fully implemented into its domestic law the EU Directive (COUNCIL DIRECTIVE (EU) 2017/1852) on tax dispute resolution mechanisms in the European Union.
The standard VAT rate in Malta is 18%
For more information, kindly contact:
Franco Falzon C.P.A. LL.M
T: +356 2010 7771 (office)
M: +356 9989 5679 (mobile)
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