- Malta Trading Company Tax System Guide

A Low Tax EU Jurisdiction
5% Effective Corporate Tax Rate
0% Patent & Other IP T...
Excellence | Superb Client Service | Cost Efficient
info@acumum.com | www.acumum.com | Skype ID: acumum
Malta Office: +356...
Excellence | Superb Client Service | Cost Efficient
info@acumum.com | www.acumum.com | Skype ID: acumum
Malta Office: +356...
Excellence | Superb Client Service | Cost Efficient
info@acumum.com | www.acumum.com | Skype ID: acumum
Malta Office: +356...
Excellence | Superb Client Service | Cost Efficient
info@acumum.com | www.acumum.com | Skype ID: acumum
Malta Office: +356...
Excellence | Superb Client Service | Cost Efficient
info@acumum.com | www.acumum.com | Skype ID: acumum
Malta Office: +356...
Excellence | Superb Client Service | Cost Efficient
info@acumum.com | www.acumum.com | Skype ID: acumum
Malta Office: +356...
Malta’s International Legal & Advisory Firm
Uniquely Local. Uniquely International.
Located in the EU tax efficient jurisd...
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Malta Trading Company Tax System Guide - Acumum Legal & Advisory

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A comprehensive guide to Malta's tax system for Malta trading companies.
Malta an EU country has the lowest effective corporate tax rates at 5% in the EU - a 100% EU & OECD Legitimate Tax System

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Malta Trading Company Tax System Guide - Acumum Legal & Advisory

  1. 1. - Malta Trading Company Tax System Guide A Low Tax EU Jurisdiction 5% Effective Corporate Tax Rate 0% Patent & Other IP Tax Exemptions 100% Holding Company Participation Tax Exemption Over 70 Double Tax Treaties
  2. 2. Excellence | Superb Client Service | Cost Efficient info@acumum.com | www.acumum.com | Skype ID: acumum Malta Office: +356 2778 1700 260 Triq San Albert, Gzira, GZR 1150, Malta (EU) In addition to Malta’s corporate laws being based upon the UK Companies Act - providing settled, tried and tested corporate rules - as a member of the EU, Malta has adopted all EU tax directives which include the: following:  Parent-Subsidiary Directive - Participation Exemption (100% tax relief for income derived from subsidiaries)  Mergers Directive  Interest and Royalties Directive Full Imputation System Example Taxation of Malta Company Chargeable Income €100 Tax at 35% €35 Profit after taxation available for distribution €65 Taxation of the shareholder of Malta company receiving dividend Gross Dividend €100 Full Imputation System Tax deducted by ABC Ltd. €35 Malta is one of the few remaining countries that operates a full imputation system thereby avoiding economic double taxation. Net Dividend €65 Under the full imputation system, dividends paid by a Malta company carry a tax credit equal to the tax paid by the company on the profit from which the dividends are paid. Shareholders are then taxed on the gross dividend at the regular rates, but are entitled to deduct the tax credit attached to the dividend against their total income tax liability. As a Result:  No Maltese tax is paid by the shareholder on a distribution of dividends made by a Malta company  Shareholders receive full credit for any tax paid by the company on profits distributed as dividends – avoiding double taxation  Excess imputation tax credits are refundable. Uniquely Local. Uniquely International. Basis of Taxation Malta Incorporated Companies - are automatically deemed to be both resident and domiciled in Malta for tax purposes and are taxed on their worldwide income. Remittance Basis – companies incorporated under foreign laws are regarded as resident in Malta if their management & control are exercised in Malta and are taxed on a source and remittance basis ie. subject to tax on Malta source income (including capital gains) and on income arising outside of Malta (excluding capital gains) and only if remitted to Malta. Non Resident Companies – are taxable on chargeable income and capital gains arising in Malta, however a number of exemptions may apply in respect of certain income. Re-domiciled / Continued Companies - to Malta from another jurisdiction, from the date of re-domiciliation, are deemed to be resident and domiciled in Malta. The chargeable income of a company includes its taxable income and capital gains, is taxed at 35%, which is reduced by the application of tax refunds; providing for a corporate tax rate of 5%.
  3. 3. Excellence | Superb Client Service | Cost Efficient info@acumum.com | www.acumum.com | Skype ID: acumum Malta Office: +356 2778 1700 260 Triq San Albert, Gzira, GZR 1150, Malta (EU) Taxable income Expenses - incurred wholly and exclusively in the production of the income are deductible; excluding deductions relating to: amortisation including amortisation of goodwill, provision for bad debts, donations, pre-trading expenses and unrealised differences on exchange. Trading tax losses - incurred by the company may be carried forward indefinitely until offset against taxable profits. Capital losses - may not offset trading profits, but capital losses can be carried forward and offset against future capital gains. In addition trading losses may be offset against capital gains. Group Companies-Group Relief - trading losses incurred by one company may be surrendered to another company within the same group. A group for income tax purposes being, when:   each company is resident in Malta and not resident in any other country; and one is a subsidiary of the other or both are subsidiaries of the same parent company resident in Malta. The company surrendering the losses and the company receiving the losses (claimant) must have accounting periods that begin and end on the same dates. Group relief for a particular year may only be claimed with respect to losses incurred in that same year; however once losses are surrendered, the claimant company can continue to carry such losses forward indefinitely or until fully absorbed. Tax Accounting & Tax Refunds Maltese Corporate Tax Accounts - chargeable income is allotted to 5 different tax accounts, depending on the type of income and is an important aspect of the Maltese tax system as it determines the possibility of tax refunds upon a distribution of profits: Foreign Income Account (FIA) Profits attributed include: Trading or passive income which is not attributable to the FTA or IPA, is allocated to the FIA or the MTA depending on the source of such income: 1. Profits resulting from royalties and similar income arising outside of Malta and from dividends, capital gains, interest, rents, income or gains derived from a Participating Holding (PH), or from the disposal of such holding, and any other income derived from investments situated outside Malta, which are liable to tax in Malta and are receivable by a company registered in Malta 2. Profits resulting from investments, assets or liabilities situated outside of Malta to a company either licensed as a bank in Malta or in possession of a license granted under the provisions of the Financial Institutions Act 3. All profits or gains of a company registered in Malta, which are liable to tax in Malta and attributable to a PE (including a branch) situated outside of Malta 4. Profits resulting from dividends paid out of the foreign income account of another company registered in Malta Tax Refund Shareholders able to claim a refunds as follows: 2/3rds – 4.66% Tax Rate Applies to activities conducted by banks, financial institutions doing business outside of Malta or most foreign passive institutions on which double taxation relief is claimed The law does not allow the possibility of claiming 6/7 or 5/7 refunds on most foreign income (mostly passive) on which double taxation is claimed – in such situation the 2/3 refund applies Foreign tax paid can be taken into account for purposes of the refund, subject to the maximum refund not exceeding the Malta tax paid – this in effect means that even with this kind of refund there may be situations where there will be no Maltese tax leakage
  4. 4. Excellence | Superb Client Service | Cost Efficient info@acumum.com | www.acumum.com | Skype ID: acumum Malta Office: +356 2778 1700 260 Triq San Albert, Gzira, GZR 1150, Malta (EU) … continued… Foreign Income Account (FIA) Profits attributed include: Tax Refund 5/7ths Refund = 10% tax rate Refund applies to: 1. Profits derived from passive interest or royalties the refund due will be 5/7ths of the tax paid in Malta and where any foreign tax levied is less than 5% (gross of any double taxation relief claimed in Malta in respect of tax paid outside of Malta on the taxed profits). The term passive interest or royalties includes interest or royalties which are not derived, directly or indirectly, from a trade or business. 2. Where Maltese companies holding shares in a non -resident company do not qualify for a ‘participating holding’. The 6/7 refund is the normal refund applicable to companies in respect of trading activities. Applicable to, amongst others: Group Finance Structures Captive Insurers Companies; Gaming Companies and International buying and selling Companies Foreign tax paid can be taken into account for purposes of the refund calculation, subject to the maximum refund not exceeding Malta tax paid – this in effect means that there may be situations where there will be no Maltese tax leakage. 0% = 100% Tax Refund Participation Exemption Profits out of which the relevant dividend is distributed are derived (dividends and/or capital gains) by the Maltese company from a participating holding
  5. 5. Excellence | Superb Client Service | Cost Efficient info@acumum.com | www.acumum.com | Skype ID: acumum Malta Office: +356 2778 1700 260 Triq San Albert, Gzira, GZR 1150, Malta (EU) Maltese Taxed Account (MTA) Profits attributed include: Tax Refund Trading or passive income which is not attributable to the FTA or IPA, is allocated to the FIA or the MTA depending on the source of such income. Profits of a company that are not included in the FIA and: 1. which have suffered - Same as with Foreign Income Account (FIA) tax; or 2. (ex. trading profits that have been subject to tax in Malta) which have been exempt from tax under the provisions of any Maltese law and where the distribution of such profits by the company is also exempt from tax in the hands of the shareholders. (This requirement has ceased to apply with effect from year of assessment 2008) Final Tax Account (FTA) Profits attributed include: Tax Refund 1. Income subjected to a final withholding tax 2. Profits arising from capital gains on Malta located real estate which has suffered the property transfers tax – are subject to 12% tax of sales value 3. Certain investment income and certain tax free profits 4. Certain Business Promotion Act profits. - No tax refund Any distributions from this account: 1. Do not carry imputation tax credits 2. Are not subject to tax in the hands of the recipient, and 3. Do not need to be disclosed in the relevant tax return Immovable Property Account (IPA) Profits attributed include: Malta located real estate not subjected to the final withholding tax, rents, accommodation revenue by hotels and similar establishments’ management fees and annual rental value of immovable property in Malta construction and project management other prescribed activities. Tax Refund - No tax refund - Untaxed Account (UA) Profits attributed include: 1. Total distributable profits (or losses) – profits (or losses) allocated to other tax accounts = untaxed account 2. Includes income or gains which were exempt from tax Tax Refund - No tax refund -
  6. 6. Excellence | Superb Client Service | Cost Efficient info@acumum.com | www.acumum.com | Skype ID: acumum Malta Office: +356 2778 1700 260 Triq San Albert, Gzira, GZR 1150, Malta (EU) Relief of Double Taxation Elimination of Exchange Risk Malta grants relief for double taxation on the basis of the ordinary credit method on a sourceby-source and country-by-country basis using 4 types of tax relief: As income tax is paid in the same currency as the company’s share capital, which is also the currency in which the company prepares and submits its audited financial statements and is the currency that the tax refund is paid out, this serves to eliminate any currency exchange risks     treaty relief unilateral relief (if no Malta tax treaty exists) commonwealth relief flat-rate foreign tax credit (FRFTC) When is the Tax Refund Paid Out? In terms of the provisions of the income tax legislation, a tax refund must be paid by the Inland Revenue Department within 14 days from the end of the month in which it falls due. The FRFTC is a notional tax credit equivalent to 25% of the income, for foreign taxes paid on income allocated to the Foreign Income Account (FIA). The income upon which the FRFTC is claimed is grossed up by the amount of the available credit. The grossed up income less any allowable expenses is subjected to 35% tax – the taxpayer is then entitled to a credit against the tax so determined, amounting to the amount by which the income was grossed up, but the credit cannot exceed 85% of the tax payable. A tax refund is considered to fall due when the company’s audited financial statements (showing the dividend distribution) and a complete and correct income tax return are submitted to the tax authorities, the tax liability is paid in full and an application for refund on a prescribed form, together with the dividend certificate, is submitted by the shareholder or his attorney or representative. The examples below illustrate the mechanics of the full imputation system applicable in Malta and the related tax refunds: Passive Income Company Having PH Having PH claims FRFTC No PH claims FRFTC Passive interest and Royalties Trading Income EUR EUR EUR EUR EUR 1,000 1,000 1,000.00 1,000 1,000 - 250 250 - - 1,000 1,250 1,250.00 1,000 1,000 350 437.5 437.5 350 350 - 250 250 - - 350 187.5 187.5 350 350 1 1000 1000 1000 1000 Tax charged at 35% 350 350 350 350 350 Credit for tax at source 350 350 350 350 350 full full 2/3rds 5/7ths 6/7ths Refund to shareholders 350 87.5 125 250 300 Effective tax rate 0% 0% 6.25% 10% 5% Profit before tax Gross up for the FRFTC Tax thereon at 35% Credit for FRFTC Tax Payable Shareholder Gross dividend received
  7. 7. Excellence | Superb Client Service | Cost Efficient info@acumum.com | www.acumum.com | Skype ID: acumum Malta Office: +356 2778 1700 260 Triq San Albert, Gzira, GZR 1150, Malta (EU) Advance revenue rulings Capital Gains Formal Rulings A provisional tax rate of 7% on capital gains is levied at the time of transfer on gains arising from the transfer of securities, business, goodwill, a beneficial interest in a trust and intellectual property rights. Capital gains are added to the taxpayer’s income for the year and tax is charged on the total amount. An Advance Revenue Ruling from the International Tax Unit of the Inland Revenue Department provides certainty. Although not mandatory, it does provide certainty as to the tax authorities’ interpretation, as well as serves to preserve the same tax treatment for two years should there be a change in legislation which may affect the company or its tax treatment.     Provides certainty on the legal application to a specific transaction Binding on Inland Revenue for 5 years – renewable for a further 5 year period Survives a change in law for 2 years Issued within 30 days of application. Transfers of Malta located real estate are subject to a final withholding tax of 12% of the transfer value (or of the gain thereof). Alternatively, a transferor of Malta real estate may, in certain circumstances, opt to be taxed at the standard rates on the gain arising on the transfer rather than be subject to the final withholding tax. The provisional tax paid will be allowed as a credit against the tax due; excess credit is repaid by way of refund. Exemption An exemption from capital gains tax exists for transfers made between companies in the (i) same group or (ii) companies controlled and beneficially owned - 50% – directly or indirectly by the same shareholders. Informal Revenue Guidance     Not expressly regulated in terms of law In the form of a letter of guidance from Inland Revenue Creates a legitimate expectation for taxpayer to rely upon Considered by the Inland Revenue Department as binding No tax is levied in respect of non – Malta residents – if not owned directly or indirectly, or act on behalf of individuals who are ordinarily resident and domiciled in Malta) arising from the transfer of shares in a company – excluding (Malta located) real estate companies. Tax Accounting & Tax Refunds Companies are subject to tax in every assessment year on income arising in the previous calendar or financial year; normally 31st December, but that can be changed – subject to the approval of the Inland Revenue. ACUMUM Legal | Tax | Corporate | Accounting - Malta's International Law Firm & Advisory Boutique
  8. 8. Malta’s International Legal & Advisory Firm Uniquely Local. Uniquely International. Located in the EU tax efficient jurisdiction of Malta, Acumum Legal & Advisory employs Maltese, UK & international lawyers & tax accountants - with extensive on-location & off-shore international experience. Providing appropriate, cost effective, bespoke solutions. Taxation Corporate & Company Formation Financial Services Licenses Gaming Aviation Insurance Licenses Intellectual Property Trusts & Foundations Maritime & Yachts Telco, Tech, Media Estate & Wealth Management Arbitration & Litigation Immigration & Residency Divisions Compliance Accounting, Tax & Back Office Outsourcing Excellence | Superb Client Service | Cost Efficient info@acumum.com | www.acumum.com | Skype ID: acumum Malta Office: +356 2778 1700 Guidance Purposes Only 260 Triq San Albert, Gzira, GZR 1150, Malta (EU) © Acumum

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