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 :
Full Imputation System
Participation Exemption or 100% Refund on Qualifying Income
Series of other Refunds on Qualifying Income
Over 60 Double Taxation Treaties
No Thin Capitalisation Rules
No Transfer Pricing Rules
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 :
The holding is a participating holding
The anti-abuse provisions are met
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..
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.
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 :
Treaty Relief (Dependent on the Malta’s Double Taxation Treaty Network)
Flat Rate Foreign Tax Credit (FRFTC)