How is a Malta Company Taxed?
HOW IS A MALTA COMPANY TAXED?
A company incorporated in Malta is deemed to be ‘ordinarily resident and domiciled‘ in Malta for tax purposes and would be taxable on its income and chargeable gains in Malta on a worldwide basis, irrespective of where its management and control is situated.
What is the Tax Rate applicable to a Maltese company?
A Malta company registered in Malta is subject to Maltese advance corporate income tax (ACIT) on the taxable profits derived by such Maltese company at the rate of 35%. The combined overall effective Malta tax rate can however be lowered substantially either by virtue of the refundable Malta tax credit or by application of the participation exemption available to Maltese companies.
What is a Maltese Participating Holding Company?
A full tax refund is available to a Malta company holding a participating interest in another non-resident company. A holding by a Maltese company in a non-resident company qualifies as a participating holding as described in the Maltese Income Tax Act if any of the following is satisfied:
o The holding by the Malta company is of 10% (minimum) of equity share-capital;
o The Malta company has a minimum investment of €1,164,000 which it holds for an uninterrupted period of 183 days;
o It holdsThe Malta company holds one or more equity shares with the option of acquiring the balance;
o It holdsThe Malta company holds one or more equity shares which together offer the right of first refusal in the event of a disposal, redemption or cancellation of the balance;
o The Malta company holdsIt holds one or more equity shares and an entitlement to sit on the Board of Directors of such non-resident entity or to appoint a person on such Board;
o The Malta company holdsIt holds one or more equity shares in furtherance of its business but not as trading stock for the purpose of a trade.
Where none of the above conditions are satisfied, two cumulative conditions must be met by a company registered in Malta which qualidies for a participating holdings, namely:
o The equity holding held by the Malta company in the non-resident entity must not be a portfolio investment; and
o The non-resident entity or its ‘passive interest or royalties‘ must be subject to foreign tax at a rate of at least 5%.
What is the Maltese Full Imputation System?
Malta operates a full imputation system for the taxation of dividends received by a Maltese company. A shareholder in receipt of a dividend distributed by a company registered in Malta would be entitled to claim a tax credit equal to the amount of underlying income tax paid by the distributing company on the profits out of which the dividend was distributed. Hence no further tax would be payable at the level of the shareholder.
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.
Which are the Maltese Tax Refunds?
A shareholder in receipt of a dividend paid out of profits allocated to the Maltese Taxed account or the Foreign Income Account of a company registered in Malta would be entitled to claim a refund of part or all of the tax suffered by the company on the said profits. The refunds apply as follows:
o Full (100%) refund – this is available upon receipt of a dividend paid by the Maltese company out of the profits derived from a participating holding;
o 6/7ths refund – this is available to the non-resident shareholders of a Maltese company, thereby resulting in an effective tax rate of 5%;
o 5/7ths refund – this applies upon receipt of a dividend distributed out of profits which constitute passive interest or royalties;
o 2/3rds refund – this applies upon receipt of a dividend out of profits allocated to the Foreign Income Account and upon which the Maltese company has claimed double taxation relief.
Other Taxes in Malta
No stamp duty or capital gains areis levied on the transfer of shares in a Maltese company.