Taxation of Maltese Funds
Malta is the only EU Member State to operate a full imputation system. This implies that tax paid by the company will essentially remain a prepaid tax on behalf of the tax liability of shareholders. Under the Maltese system, a company registered in Malta pays tax on its profits.
However, when the company distributes its profits to the shareholders, notwithstanding their residence, the shareholders are entitled to receive a refund of a substantial part of the tax paid by the distributing company.
The taxation of Collective Investment Schemes in Malta is regulated by provisions contained in the following laws:
- The Income Tax Act;
- The Income Tax Management Act;
- The Collective Investment Scheme (Investment Income) Regulations.
The tax treatment of CISs depends on the type of fund. Maltese law draws a distinction between prescribed and non-prescribed funds. This distinction is important in establishing whether and how tax is to be charged on investment income, capital gains and dividend distributions. The main properties of each class may be classified as follows:
Formed under the Laws of Malta
Any fund which does not qualify as a prescribed fund – This includes overseas funds as well as Maltese funds having more than 15% of assets situated outside Malta).
Over 85% of the fund‘s assets are situated in
An overseas UCITS scheme registered in accordance with foreign law.
The classification may be changed if there is an alteration in the proportion of assets situated in Malta. It is important to note that the change in classification is up to the discretion of the Commissioner of Inland Revenue.
The timing of the classification of the funds has great relevance for tax purposes. When a fund is reclassified from a non-prescribed to a prescribed fund, subsequent disposals will suffer withholding tax. Alternatively, when a prescribed fund is reclassified as a non-prescribed fund, the tax liability will be calculated as if the fund were always a non-prescribed fund. In this scenario no relief will be given for gains originating before the re-classification.
Since the charging of withholding tax depends on whether the fund is prescribed or otherwise, CISs should inform payers, such as banks, of their status as authorised by the Commissioner of Inland Revenue. Furthermore, CISs may not opt to receive investment income which is not charged the appropriate withholding tax.
Withholding taxes may apply depending on the type of fund. In the case where taxes are charged, recipients have the right to choose not to have a deduction of the withholding tax. However, this would not be possible in the following cases:
- If the investment income consists of capital gains;
- If the payer is an authorised financial intermediary (AFI);
- If the recipient is a Collective Investment Scheme.