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

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Malta’s Option to Treat Partnership as Opaque

Malta’s Option to Treat Partnership as Opaque as from Year of Assessment 2016

As from year of assessment 2016, the updated definition of “company” to the Income Tax Act has been extended to include any partnership en nom collectif and any partnership en commandite with its capital divided into shares, which would have elected to be treated as a company.

The definition of “dividend” has been updated to include distributions by a company to its shareholders or partners and any amount credited to the shareholders or partners. Consequently, the following change shall apply to partnerships electing to be treated, from a purely fiscal perspective, at par with companies:

  • The special residence rules applicable to companies will now be applicable to partnerships which elect to be treated as companies;
  • Such partnerships will no longer be considered transparent and instead of being subject to tax at the partners personal level, the partnership will be taxable on its income at the rate of 35%;
  • Upon distribution of dividends from allowable profits, tax paid at the partnership level is deducted in full from the partners’ tax liability, such that income taxed at partnership level is not taxed again at the partners’ level (The Full Imputation System on distribution of dividends);
  • Trading losses of such partnerships can be surrendered to other companies within the same group (group as defined by Malta tax laws);
  • An additional double taxation relief, the Flat Rate Foreign Tax Credit (FRFTC), which is exclusively available to companies will be also available to such partnerships;
  • Partners of such partnerships will be eligible to Tax refunds (up to 100%) under The Refundable Tax Credit System;
  • The Participation Exemption will also be available to such partnerships, whereby dividends and capital gains received by such partnerships will be exempt from Malta tax, provided certain conditions are met.

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