Company in Malta

Malta is an EU Member State with
an Exceptionally Advantageous Tax Regime

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Malta Tax Incentives

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Malta Tax Incentives – Complete Breakdown

In preparation for Malta’s accession to EU Membership in 1 May 2004, a series of legislative measures were enacted to the main provisions regulating income tax in Malta mainly to the Income Tax Act and to the Income Tax Management Act.

The end result is a simplified, effective and transparent tax system in place that is fully EU, OECD and FATF compliant, blending the benefits of an onshore, fully-regulated jurisdiction with investor-friendly incentives.

All companies resident in Malta are subject to income tax on company profits at a rate of 35%. However, this is subject to Malta’s full imputation tax system, wherein tax paid by a company in Malta is, on the distribution of a final dividends, imputed to the shareholder as a tax credit against the shareholders’ tax liability. Therefore, a shareholder will, upon a distribution of the dividend, be entitled to a refund in part or in full of any advance tax levied on the distributing company.

The full imputation tax credit thereby renders Maltese companies highly efficient tax vehicles, with a number of applicable refunds to shareholders possible: (6/7ths refund, 5/7ths refund and 2/3rds refund). Effective Tax leakage in Malta on Net Trading Income can be of only 5% or less, in some case 0%. Contact us to help you setup in the most beneficial way according to your needs.

View Malta Full Imputation Tax System for a more detailed illustration.

The income of a Maltese company is divided into five (5) different tax accounts – as follows:

(i) Final Taxed Account

The Final Tax Account includes distributable profits that have suffered tax, including the following:

  • Profits after tax resulting from income which has been charged to tax under the investment income provisions;
  • Profits that are exempt under Maltese law and where the distribution of such profits by the company to the shareholders is exempt from tax;
  • The amount of chargeable income, the tax chargeable of which has been relieved from payment by any tax credits where the distribution of such profits is exempt from tax in the hands of the shareholders;
  • Dividends paid out of profits allocated to the final tax account of another company;
  • The profits after tax derived from the transfer of immovable property;
  • Any profits after tax which under the provisions of Maltese Law are not subject to tax when such profits are distributed by a company to any person and where upon such a distribution no person is entitled to claim any tax credit in respect of any tax paid on such profits;
  • Profits resulting from income or gains in respect of which the Participation Exemption may and has been applied;
  • Profits resulting from any grant or subsidy where the distribution of such profits is exempt from tax in the hands of the shareholders;and
  • Profits after tax derived from rental income received by the Housing Authority

(ii) Immovable Property Account

The Immovable Property Account includes distributable profits that have suffered tax, including tax derived (directly or indirectly) from immovable property situated in Malta and include:

  • Profits or gains from the transfer of immovable property;
  • Net profits or gains deemed to have been derived from immovable property;
  • Gross amounts which are deemed to have been derived from immovable property;
  • Annual Market Rent

(iii) Foreign Income Account

The Foreign Income Account includes distributable profits that have suffered tax, including profits resulting from royalties and similar income arising outside Malta and includes:

  • Profits resulting from royalties and similar income arising outside Malta and from dividends, capital gains, interest, rents, income or gains derived from a Participating Holding or from the disposal of such holding, and any other income derived from investments situated outside Malta, which are liable to tax in Malta and are receivable by a company registered in Malta;
  • Profits resulting from investments, assets or liabilities situated outside Malta, and licensed as a bank in Malta or in possession of a licence granted under the provisions of the Financial Institutions Act;
  • All profits or gains of a company registered in Malta, which are liable to tax in Malta and attributable to a Permanent Establishment (including a branch) situated outside Malta, and for these purposes “profits or gains” shall be calculated as if the Permanent Establishment is an independent enterprise opertaing in similar conditions and at arm’s length;
  • Profits resulting fom dividends and paid out of the foreign income account of another company registered in Malta;
  • Profits or gains resulting from a company registered in Malta under the Insurance Business Act

(iv) Maltese Taxed Account

The Malta Tax Account includes distributable profits that have suffered tax and have not been allocated to the foreign income account, which have suffered tax or which have been exempt from tax and where the distribution of such profits by the company is also exempt from tax in the hands of the shareholders.

(v) Untaxed Account

Any profits which represent the total distributable profits or the total accumulated losses, deducting therefrom the total sum of the accounts allocated to other taxed accounts.

In summary, Malta is a fully-regulated, onshore Jurisdiction blending the EU acquis communitaire in a flexible, robust and sophisticated legislation, and retaining the following benefits:-

  • Friendly and investor-friendly Tax Authorities, always keen at helping foreign investors;
  • Possibility to obtain Advance Tax Rulings – binding on the Commissioner of Inland Revenue for two years from date of issue, or from change in law. Renewable for further periods of five years;
  • Tax only payable at the earlier of 18 months after year-end, or when a dividend is paid;
  • Tax losses may be carried forward indefinitely;
  • Full imputation tax system allows foreign tax paid to be taken into account for purposes of refund calculation, subject to the maximum refund not exceeding Malta Tax paid. Effectively, it is possible to envisage situations of 0% Maltese tax being suffered by the Maltese company;
  • No capital gains or income tax on the liquidation of participations or the liquidation of the Malta Holding Company itself.
  • No net worth taxes (as mentioned before no capital gains taxes) during the life of the Malta Holding Company;
  • Attractive Permanent Establishment (PE) rules and generous PE provisions available in the DTT Network;
  • No exchange controls;
  • Stamp duty exemptions for non-resident-owned companies in most cases;
  • No thin capitalisation, anti-CFC and similar rules;
  • Flexible transfer pricing considerations;
  • Invoices from offshore companies are acceptable in Malta Companies’ books and payments to offshore companies bear no withholding tax (tax planning point);
  • No specific substance requirements;
  • There is added commercial value and monetary benefits due to the ability to register for EU VAT in Malta;
  • No obligation for the Holding Company (or right) for VAT registration & compliance.
  • Trading in securities in Maltese companies by non-resident shareholders is tax exempt, provided the Maltese Company owns no immovable property in Malta;
  • The foreign beneficial owners of Malta Companies, Branches and Partnerships are not liable to additional tax on dividends or profits over and above the amount paid or payable by the respective legal entities;
  • Low personal tax rates that reach a maximum of 35% for income of person ordinary resident, 15% for returning migrants and individuals qualifying under the Permanent Residence Scheme;
  • No capital gains tax or net worth taxes except with respect to Real Estate situated in Malta;
  • Beneficial use of EU Directives that have been transposed into the Malta Tax Legislation;
  • Wide and exceptionally beneficial Double Tax Treaty Network;
  • Mergers, Takeovers and other Re-Organizations can take place within groups without tax consequence;
  • Unilateral tax relief is granted to all Malta Companies for foreign tax suffered irrespective of the absence of a double tax treaty;
  • Tax losses are carried forward indefinitely and can also be surrendered as group relief;
  • Interest deduction for borrowing costs provided;
  • Low registration fees on the establishment of companies;
  • Very low expense level (fees) for financial and professional service provision compared to other EU Jurisdictions. The difference is more evident in the case of professional service and/or recurring costs (administration, accounting & tax compliance) are estimated to be at 35- 40% of Western European rates. Note: One could very easily be misled by the low quoted start up costs for major European Jurisdictions as to the final total costs which can be considerable if one calculates recurring costs.

EU Directives, Malta’s Double Tax Treaty Network

Beneficial use of EU Directives enacted into Malta Law (effectively “copied” – transposed into Malta Law and their benefits extended to residents of Third Countries):

  1. Parent / Subsidiary Directive (no withholding tax on payment of dividends, no transitional period [immediate effect], no minimum participation [shareholding limits], no minimum holding period, dividend exempt subject to conditions, tax credit for tax withheld abroad);
  2. Interest / Royalties Directive (no withholding tax on interest paid to non-residents, no transitional period [immediate effect];
  3. Merger Directive (involves resident and Non-Resident Companies, leads to elimination of the tax consequence of any reorganisation, merger, division, transfer of assets, and exchange of shares).

Malta has a wide and beneficial Double-Tax Treaty (DTT) Network. There are currently 50 DTTs in force and several others being negotiated. The existence of these treaties, combined with the low overall tax paid by Malta Companies, offer significant possibilities for international tax planning through the island.

A significant number of double tax treaties concluded by Malta, lowers or eliminates foreign withholding taxes on dividends, interest and royalties or capital gains paid out from or arising in the contracting states, some also include particularly beneficial tax sparing credit provisions for dividends, interest and royalties.

In conclusion, the Malta Tax System Enables:

  • The extraction of foreign sourced dividends, at mitigated or zero rates of foreign withholding tax (owing to the use of the Parent Subsidiary Directive or the Use of Double Tax Treaties if the Directive is not applicable);
  • The distribution of available profits to non-resident shareholders at zero rates of dividend withholding tax, irrespective of jurisdiction or the absence of a DTT (even to offshore jurisdictions).
  • Allows for the realisation of capital gains from the disposal of shares in foreign companies at zero rates of corporation and capital gains tax on the gains”, irrespective of holding period and shareholder percentage and no capital gains tax on the liquidation of the Holding Company itself.

Malta (Group) Finance & Royalty Companies

Apart from the generic features of the tax system, the DTT Network and the adoption of EU Directives, other important features of the tax system beneficial to Malta (Group) Finance & Royalty Companies are the following:

Important Features of Malta (Group) Finance Companies:

  • Absence (under a Double Tax Treaty or the Interest and Royalty Directive) of interest withholding tax;
  • Low overall tax burden;
  • Possibility of deducting interest expenses from taxable income;
  • Absence of thin capitalisation rules or their inapplicability in the case of “back to back” financing;
  • Absence of interest withholding tax in connection with interest paid on loan financing irrespective of jurisdiction or the absence of a DTT (even for interest payments to offshore jurisdictions);
  • Reasonable level of “margin” required by tax authorities;
  • Low expense level for professional / financial fees.

Important Features of Malta Royalty Companies:

  • Absence or reduction (under a Double Tax Treaty or the Interest and Royalty Directive) of withholding tax on royalties paid to the Malta Company;
  • Low overall tax burden;
  • Tax deduction of royalty payments;
  • Effective tax depreciation of investments in intellectual property;
  • Absence of withholding tax on royalty payments irrespective of jurisdiction or the absence of a DTT (including to offshore companies) for rights used outside Malta – the usual case;
  • Neutral VAT treatment;
  • Reasonable level of “margin” required by tax authorities;
  • Effective protection of intellectual property rights by Legislation and the participation of Malta in international agreements;
  • Low expense level for professional / financial fees.

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