Malta company taxation

Income tax in Malta is governed by the Tax Acts, consisting of the Income Tax Act and the Income Tax Management Act, together with their respective subsidiary legislation. Malta has become an internationally recognised jurisdiction of choice for an increasing number of multinational groups seeking efficient holding structures. Malta has a growing network of double taxation treaties and agreements which are based on the OECD Model Convention.

Maltese Companies are liable to tax in Malta on their worldwide income and are taxed at a standard rate of 35% on profits. When certain conditions are met, the shareholders of a Maltese company shall be entitled to certain tax credits and refunds of all, or part of the tax paid by the company on its profits which can reduce the overall tax liability to between 0% and 10%. This depends on the source and nature of income stream.

Maltese Tax Acts adopt the full imputation system of taxation, whereby any income tax paid by the company is credited in full to the shareholder upon a dividend distribution. This setup will avoid any double taxation of corporate profits.

Furthermore, Malta’s 100% participation exemption relieves income tax both on the dividends derived from a participating holding and on gains derived from the transfer thereof. Basically:

► 0% on dividends received from a Participating Holding where:

    ♦ foreign entity registered or tax resident in an EU jurisdiction;OR
    ♦ income of foreign company does not consist of more than 50% of passive interest and royalties;OR
    ♦ profits of foreign entity are subject to tax at the rate of at least 15%;OR
    ♦ holding in foreign entity not a portfolio investment and passive interest and royalties of said foreign entity have suffered tax of least 5%.

► 0% on capital gains made from the disposal of a Participating Holding [where the entity is not a Property Company];

► 10% tax leakage on dividends received from a participating holding which does not satisfy the conditions listed above.

The effective tax rates applicable on other income which is not derived from participating holdings is:

► 5%-6.25% on all dividends from non-participating holdings;
5% on trading [6/7ths refund - available in all other cases except where MaltaCo receives 'passive interest or royalties' or claims double tax relief in respect of its income from investments outside Malta];
10% on passive (interest, royalties etc) [5/7ths refund - available when MaltaCo receives 'passive interest or royalties' which are not derived from trade or business and have suffered tax at a rate less than 5%];
0% to 6.25% - where double tax relief is claimed [the 2/3rds refund applies only in scenarios where MaltaCo claims double tax relief in respect of its income from investments outside Malta. Double tax relief is not limited to tax treaty relief but also refers to unilateral relief provided by Malta as well as Flat Rate Foreign Tax Credit];

Flat rate foreign tax credit a credit of tax of 25% which is deemed to have been paid outside Malta calculated on the net foreign income received and allocated to the Foreign Income Account, restricted to 85% of the Maltese tax payable on the relevant foreign source income.

It is also significant to note that Malta does not levy any withholding taxes on outbound dividends or interest, nor on any liquidation proceeds.