Taxation | Malta’s Attractive Tax System

Malta’s Tax System is a very beneficial one which makes the island your jurisdiction of choice. In fact, through a series of refunds, shareholders of Maltese companies suffer the lowest net effecitve tax rates in the European Union.

Furthermore, Malta’s Taxation System has received the approval of the European Commission upon the country’s accession to the European Union.

Malta’s Taxation System is beneficial for variety of reasons, including :

  1. Full Imputation System
  2. Participation Exemption or 100% Refund on Qualifying Income
  3. Series of other Refunds on Qualifying Income
  4. Over 60 Double Taxation Treaties
  5. No Thin Capitalisation Rules
  6. No Transfer Pricing Rules
  7. No CFC Rules

Corporate Tax Rate

Maltese companies are taxable on their world wide income at a rate of 35%.

Full Imputation System

The Maltese Tax System is based on a Full Imputation System whereby the Corporate Tax Rate of 35%, paid by the Company prior to the distribution of profits, is available as a Full Credit to shareholders upon receiving a dividend. That is, Shareholders are not subject to any further tax upon receiving a dividend from the company.

Participation Exemption or 100% Refund

A 100% tax refund may be claimed by a shareholder on the distribution of profits arising from a Participating Holding or from capital gains arising from its disposal, where the profits or capital gains have been subject to Malta corporate tax. The conditions are as follows :

  1. The holding is a participating holding
  2. The anti-abuse provisions are met

6/7ths Refund

If shareholders do not qualify for the Participation Exemeption or 100% Refund, they may have the option to claim a 6/7ths refund of the Malta tax suffered, which results in a net tax leakage of 5%.

Such a refund is only claimable on profits arising from trding income and/or capital gains, but not on profits arising through pasive interest and royalties.

Such a refund may be claimed even if Double Tax Relief has been claimed on the Malta source income, but not on the foreign source income

If the Maltese Company’s shareholders claim a refund on profits arising through foreign source income, then it will lose its right to claim the 6/7ths refund and will only be entitled to claim a 2/3 rds refund..

5/7ths Refund

Such a refund may be claimed by the shareholders of a Maltese Company whose income consists of Passive Income & Royalties. For such a refund to apply, the Maltese company is not entitled to claim Double Tax Relief on foreign source profits.

2/3rds Refund

If the Maltese company claims Double Tax Relief on foreing sourced profits, then the shareholders of the Maltese company will be entitled to a 2/3rds refund of the Malta tax paid.

Payment of Refund

The refund is paid by the Malta’s Inland Revenue department within 14 days from the last day of the month in which the request for the refund was made.

Double Tax Relief

Double tax relief is relief in the form of a credit granted on income which has already been subject to tax in another country. Relief from double taxation is granted to avoid further tax being suffered in Malta on dividends which have already been subject to tax in another country. There are 3 forms of double tax relief :

  1. Treaty Relief (Dependent on the Malta’s Double Taxation Treaty Network)
  2. Unilateral Relief
  3. Flat Rate Foreign Tax Credit (FRFTC)