Taxation in Malta
The Maltese tax system subjects persons to tax on the basis of domicile and residence- not citizenship. The grant of Maltese citizenship to a non-domiciliary of Malta does not in itself, cause the beneficiary to acquire a new domicile of choice in Malta. However, should the beneficiary consider this to be advantageous, one may carry out such a transfer by demonstrating an intention to reside in Malta indefinitely and definitely on the basis of a day count of 183 days.
Individuals who are resident and domiciled in Malta are taxed on their worldwide income. Personal income is taxed at progressive rates with the highest bracket capped at 35%.
Persons who move their residence to Malta but whose domicile of origin, or by choice, is outside of Malta are not subject to tax on worldwide income but are subject to tax when income and/or capital gains arise in Malta. Income arising outside of Malta is only taxed if such income is remitted to Malta. Foreign capital gains are not subject to tax in Malta, even if remitted to Malta. For any special tax residency programmes available, please contact MCAS for further details.
A Maltese Company is considered to be ordinary resident and domiciled in Malta for tax purposes and is therefore subject to tax at the standard rate of 35% on its worldwide income.
Malta adopts the full imputation system of taxation whereby tax paid by a company in Malta is, on distribution of dividends, imputed to the shareholder as a tax credit against the shareholders’ tax liability. The full imputation system thus avoids the incidence of double taxation upon the distribution of a dividend to the shareholder.
For tax purposes, a company registered in Malta is required to allocate its distributable profits to five separate tax accounts, depending on the source of income:
- Final Tax Account (FTA)
- Immoveable Property Account (IPA)
- Foreign Income Account (FIA)
- Maltese Tax Account (MTA)
- Untaxed Account (UA)
A shareholder in receipt of a dividends distributed by a Maltese company out of profits which have been allocated to its MTA or FIA is entitled to claim a refund of the Malta tax on those profits, provided that the shareholder is duly registered for this purpose. The amount of refund depends on the nature of the income derived by the distributing company:
Passive interest or royalties shall mean ‘ interest or royalty income which is not derived, directly or indirectly, froma trade or business, where such interest or royalties have not suffered any foreign tax directly, by way of withholding, or otherwise, at a rate of tax which is less than 5%’.
A company deriving foreign source income may utilise the Flat Rate Foreign Tax Credit (FRFTC) by increasing the net foreign source income or gains by 25% and then deducting the FRFTC from the Malta tax.
Participation Exemption Regime
A Maltese company in receipt of dividend income or capital gains derived from a ‘participation holding’ or from the transfer of such holding, may at its option exempt such profits. A participation held by a Maltese company would constitute a ‘participating holding’ if at least one of the conditions indicated in the relevant legislation is fulfilled.
Instead of claiming a participation exemption, the Maltese company may opt to pay tax at the standard corporate income tax rate of 35%. Upon a subsequent distribution of dividends by the company, the shareholders of the Maltese company may claim a full-refund (100%) of the Malta tax paid.
In cases where a holding does not qualify as a participating holding, such income or gains will be taxed at 35%, however a shareholder in receipt of dividend may claim a refund of the Malta tax paid on the said profits. The refund is generally of 6/7ths of the Malta tax paid, however the refund may be reduced to 5/7ths or 2/3rds.
The fact that Malta does not levy any withholding tax on dividend distributions and does not effectively levy tax on income from certain types of participations has made Malta an attractive location for a holding company. In practice, holding companies may be used to implement a series of international tax planning techniques. For more detailed information, please contact MCAS.