Malta Company - Taxation

Introduction to the taxation of a Malta company

A limited liability company may be incorporated in Malta for the purpose of carrying on any activities in Malta or internationally, and whether such activities are of a ‘trading‘ or ‘holding‘ nature. Such limited liability companies can therefore trade in any sector and may hold assets whether tangible or intangible, and whether movable or immovable.

Malta Companies - Jurisdiction to Tax

In terms of Malta law, a company which is incorporated in Malta is deemed to be resident for tax purposes in Malta and would be taxable in Malta on a worldwide basis, irrespective of where its management and control is situated.

A company incorporated outside of Malta may still be considered tax resident in Malta where it is management and controlled in or from Malta. Such company‘s liability to tax would be limited to chargeable income or gains earned in, derived from or realized in Malta. Foreign source gains would not be taxable in Malta.

Rate of Tax applicable to a Malta Company

There is no corporate taxation in Malta and companies are subject to income tax at the flat rate of 35% (equal to the marginal rate at which individuals are taxed). The combined overall Malta effective tax rate can however be lowered by virtue of the refundable tax credit or by application of the participation exemption.

Taxable income of a Malta Company

A Malta company‘s taxable income would include gains or profits derived from a trade or business, dividends, premiums, interest or discounts; rents, royalties and other profits arising from property, any charge, annuity or annual payment, and certain chargeable capital gains.

Participation Exemption

A Malta company in receipt of income (dividend income) derived from a ‘participating holding‘ (typically an equity holding of 10% in a non-resident entity although other conditions may be fulfilled), or gains derived from the disposal of shares in a participating holding, may at its option exempt such profits (participation exemption).

Shareholders of Malta Companies - Dividend income - The Full Imputation System

Malta operates a full imputation system for the taxation of dividends whereby a shareholder (whether an individual or a corporate entity) in receipt of a dividend distributed by a Malta company would suffer no further tax. It follows that Malta therefore applies no withholding tax on dividends in terms of its domestic law.

Shareholders of a company registered in Malta are generally also entitled to a refund of all or part of the tax paid on the profits out of which such dividend was distributed. Such refunds of tax have are applicable to all shareholders in Maltese companies regardless of their legal form of status, or tax residence or otherwise of the shareholders.

Refunds of Tax applicable to a Malta Company

A shareholder in receipt of a dividend paid out of profits of a company registered in Malta would be generally be entitled to claim a refund of part or all of the tax suffered by the company on the said profits.

Such refund would typically be of 6/7ths of the Malta tax paid on the profits out of which the company has distributed the dividend. The refund can however differ based on whether the dividend is distributed out of active or passive income and whether double taxation relief has been claimed by the company on the said profits.