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Tax Law in Malta
Malta’s tax system is considered one of the most advantageous in the world as the benefits that come with registering a company in Malta are multiple.
Let’s start with Malta’s tax legislation which offers numerous of incentives to shareholders of a Maltese company either the income arises from their investments, any trading activities or from a Maltese company or a company registered outside Malta.
The Income Tax Management Act and subsidiary legislation is governing tax in Malta.
This tax is levied on income and some specific kinds of capital gains for natural and legal persons, but there is no specific legislation for natural and legal persons.
A Maltese company can be excluded from double taxation due to Malta’s double tax treaty extensive network. This means that a Maltese company can be approved for a relief from double taxation when the income of the company would normally have been entitled to tax in a foreign jurisdiction. Income, in this case will not be entitled to tax twice in two jurisdictions.
In case when income is received from investments or it’s a matter of dividends from trading activities then the company is eligible to a refund of the tax paid by the companies. The precondition for this refund is that dividends should come from profits of the foreign income account or the Maltese taxed account. Profits related to the foreign income account arise outside Malta and can be dividends, interest, income or gains which are derived from a joining holding or from the disposal of such holding. Tax refunds could also be available to shareholders that receive dividends from their foreign companies which are distributed from profits arising in Malta through an oversea branch which is registered in Malta
In case when the income arises from a participating holding which is eligible for a participation exemption can also be excluded from the tax return and consequently be tax free.
Once a shareholder receives dividends from a company the shareholder can claim a refund in the value of 6/7th of the total tax paid including the overseas tax. The total tax refund is limited to the tax rate paid in Malta wich is 35%. With other words the trefund will be 6/7 of 35%. This refund is available irrespective of whether business was carried out in Malta or not, further easing the burden of taxes imposed on the company.
If the profits are raised from passive interest or royalties then Maltese tax refund is reduced to 5/7ths of the total tax paid of 35%.
Any income that doesn’t directly or indirectly come from a trade or business and which is eligible to tax pays at a rate which is less than 5%.
Natural or legal persons that are both resident and domiciled in Malta, are taxed on their overall taxable income and capital gains which is obtained in Malta and other countries are taxed at 35%.
On the other hand if an individual is resident but not domiciled in Malta he/she pays tax as above with the difference that capital gains obtained abroad but received or sent to Malta are not taxable.
In the case of non-residents in Malta then just the income and the capital gains which are obtained in Malta are subject to tax in Malta.
It should be noted that a company is domiciled in Malta if it was incorporated there. If a foreign company transfers its head office to Malta the company is still considered as a foreign company and not domiciled. In such case the company is considered as a resident for tax purposes. The foreign company is therefore taxed only on income and capital gains that are obtained in Malta and on profits that comes to Malta from abroad. This fact unseals up stimulating tax planning prospects.
Tax for company groups
In regards to company groups, if one company is subsidiary to the other then both companies are considered to belong to the same group and if one subsidiary company of the group faces operating losses then it can be assigned to one or more companies within the same group. The assignment can be partial and can be arranged up to 12 months after the end of the year in which there have been operating losses. The assignment may be free or subject to charges.
For above system to be applied it is provided that the companies are resident in Malta. It should also be noted that the assigned losses can’t be re-assigned or transferred to another company.
The tax year for both companies must match and belong to the same group for the whole year.
Tax for investment income
When it’s matter of income from investment, there are particular requirements for provision for a 15% withholding tax on the income paid to Maltese residents, with few exceptions:
- Interests paid a local or foreign bank, bonuses or discounts paid from the Maltese government
- Capital gains arising from the sale of shares or Collective Investment Schemes units
The beneficiary has the option to choose whether to receive the gross income and include it in their taxable earnings or not.