An attractive corporate tax regime
Basis for taxation: Companies ordinarily resident and domiciled in Malta are subject to income tax on their worldwide income and on some chargeable capital gains.
Companies that are either resident or domiciled in Malta but not ordinarily resident and domiciled in Malta are chargeable to tax in Malta on (a) income and chargeable gains arising in Malta, (b) income arising outside Malta and remitted to Malta.
Residence: A company incorporated in Malta is considered to be resident and domiciled in Malta. A company incorporated outside of Malta is considered to be resident in Malta only if the management and control of its business is exercised in Malta.
Rates of tax: The standard rate of tax on income and chargeable gains is 35% (in line with the highest personal tax rate) - flat rates of tax are payable, by way of exception, on certain categories of income such as investment income, certain transfers of immovable property in Malta. The amount of tax payable by a company may be reduced via various forms of double tax relief, such as the Flat-Rate Foreign Tax Credit providing relief at a rate of 25%.
Malta operates a full imputation system of taxation: When a company distributes dividends out of profits on which it had paid tax, no further tax is due by the shareholders and a credit for the tax paid by the distributing company is available to the shareholders.
Allocation of profits: Companies are to allocate distributable profits to one or more of 5 tax accounts, depending on the nature/source of the profits: Foreign Income Account (FIA), Maltese Taxed Account (MTA), Final Tax Account (FTA), Immovable Property Account (IPA), and Untaxed Account (UA).
Tax refunds: Distributions of profits from either of the FIA or the MTA trigger refunds of Malta tax paid by the company. The effective tax rate after refund will generally range from 0% to 10%. The standard refund (e.g. generally for business profits) is 6/7 of the Malta tax (grossed up with any relieved foreign tax – subject to certain conditions – in relation to the MTA), going up to 100% in the case of profits derived from a participating holding and down to 5/7 on profits derived from passive interest and royalties. Where the company has claimed double tax relief on profits allocated to the FIA, a tax refund of 2/3 of the Malta tax paid (grossed up with any relieved foreign tax – subject to certain conditions) on the distributed profits may be claimed. Tax refunds are Malta tax exempt and payable within a statutory deadline of a few weeks.
Non-resident companies’ branches: A non-resident company with a Maltese branch may allocate the profits from the branch activities to the various tax accounts, thus enabling the company’s shareholders to operate the tax refund regime.
Participation Exemption: Income deriving from a participating holding (generally a 10% equity holding or partnership interest – there are alternative tests) in a non-resident entity or from the disposal thereof are exempt from tax (alternatively they may be taxed at 35% and the shareholder may, following distribution, claim a full refund of the Malta tax paid by the company thereon) – subject to certain anti-abuse provisions being satisfied. Malta’s holding company regime may thus offer an effective Malta tax rate of 0% either through the workings of the tax refund regime or, alternatively, at the level of the holding company through the Participation Exemption.
Withholding tax (WHT): There is (a) no WHT on outbound dividends, (b) no WHT on interest payable to non-residents (subject to certain conditions being satisfied), (c) no WHT on royalties (subject to certain conditions being satisfied), (d) no branch remittance tax.
Anti-avoidance rules: There are some general anti-abuse provisions. There are currently no thin capitalisation, transfer pricing or controlled foreign companies rules in force.
General: (a) no duty/tax is levied on the issue of shares; (b) duty exemptions relative to transfers of marketable securities may be obtained; (c) there are no wealth or capital taxes in force.