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

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

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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%.

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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

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… 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

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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 -

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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

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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.
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