Malta’s tax legislation provides for a number of benefits which can be derived by companies and their shareholders. The tax rules can lead to a tax burden in Malta which is significantly reduced or completely eliminated in certain cases, and the following are some of the key tax benefits which Malta can offer.
1. Imputation system of taxation
Malta’s imputation system avoids double taxation at the level of the company and its shareholders since tax is paid by the company on account of the liability of the shareholders to pay such tax. Unlike many European and other countries, shareholders do not pay tax when they receive dividends from the Malta company but can claim a credit for the tax paid by the company.
2. Tax credits and refunds
Significant tax refunds can be claimed by shareholders of a Maltese company on receipt of dividends from the company. Although the Maltese company would pay tax at the corporate rate of 35%, the effective tax leakage in Malta after refunds to shareholders can be reduced significantly depending on the source of income of the Maltese company and any foreign tax incurred by it.
3. Participation Exemption
Malta’s participation exemption does not require any minimum holding period where a Maltese company holds more than 10% of the interests in a non-Maltese entity. It is applicable in relation to any dividend income or capital gains arising on the holding and eventual disposal of a participating holding of equity shares in a non-Maltese company or partnership. The holding must satisfy a number of alternative criteria, including a minimum 10% holding or a minimum investment of €1,164,000 or equivalent in the non-Maltese entity. There is also an anti-abuse test which is to be satisfied, and the safe harbours include the holding of shares / interests in entities which are incorporated or resident in the European Union, or the holding of shares / interests in entities which have less than 50% of their income being derived from passive interest or passive royalties.
As a result of a recent amendment to Maltese tax laws, where profits of a Maltese company benefit from the exemption from withholding tax set out in the EU’s Parent Subsidiary Directive, the participation exemption would only apply to the extent that such profits are not deductible by the relevant subsidiary distributing the dividend in that other EU Member State. The same applies to a permanent establishment situated in Malta of a parent that is established in another EU Member State.
4. Branch exemption
Maltese companies may claim an exemption from Maltese tax in respect of any profits which are attributable to a branch / permanent establishment of the company outside Malta.
5. Non-domiciled but Malta resident companies
Maltese incorporated companies are taxable on their worldwide income. However, a non-Maltese company which is tax resident in Malta is liable to tax on a source and remittance basis only. In recent years, various companies which are incorporated and domiciled in another jurisdiction have taken up Maltese tax residence. In such a case, no Maltese tax is payable if the non-Maltese company has passive income (e.g. royalties through licensing of IP rights) and the relevant passive income is not remitted to Malta.
6. Group transfers
No Maltese tax should be payable on any intra-group transfer of assets of a company subject to satisfaction of a few straightforward conditions.
7. Transfers of shares in Maltese companies
An exemption from Capital Gains Tax should be available to non-resident shareholders transferring shares in a Maltese company as long as the company does not itself own real estate in Malta. A statutory form confirming the exemption and backed by a certification of a Maltese auditor is filed at the Inland Revenue, and no provisional or other tax is paid by the shareholders.
This exemption is also applicable where there is a value shift as a result of the issue of new shares by the Maltese company and a consequential deemed transfer by the existing shareholders to any new shareholders who subscribe to shares issued by the company.
8. Withholding Tax
No Maltese withholding tax is payable on any interest or royalties payable by the Maltese company to non-resident persons who do not have a permanent establishment in Malta. This exemption applies as long as the beneficial owner of the interest or royalties is not owned and controlled by, directly or indirectly nor acts on behalf of an individual or individuals who are ordinarily resident and domiciled in Malta.
No Maltese withholding taxes are chargeable on payment of dividends by the Maltese company to its shareholders
9. Stamp Duties
A stamp duty exemption can be obtained (upon satisfaction of certain straightforward conditions) by a Maltese company following is incorporation, and the exemption will apply in respect of the transfer of any shares issued by or held by the Maltese company.
Following a recent amendments to Maltese tax laws, partnerships and European Economic Interest Groupings may elect to be treated as a company for all purposes of the Income Tax Acts with effect from year of assessment 2016. Such election may be made irrespective of whether the income derived by the partnership consists of income during the course of a trading activity or from a passive activity. The election is to be made within 60 days from the setting up of the partnership, but transitory arrangements have been agreed to with the Inland Revenue in respect of foreign partnerships which were already in existence prior to the enactment of the changes in law.
11. Securitisation Vehicles
Malta has specific rules on the tax treatment of securitisation vehicles that enable securitisation vehicles established in Malta to eliminate tax leakage. Such tax neutrality can be achieved through a combination of the general provisions on deductibility of expenses under the Income Tax Act and further deductions under the Securitisation Transactions (Deductions) Rules. The securitisation vehicle can opt to wipe out all of its chargeable income by making use of those deductions, resulting in no income tax being payable in Malta. Thus, there are generally no Maltese tax implications for originators participating in a securitisation transaction with a Maltese securitisation vehicle as long as such originators are themselves not tax resident in Malta.
12. Other benefits
Malta does not have any thin capitalisation rules, and it does not have any specific transfer pricing rules.
It is possible for a Maltese company to re-domiciled and be continued under the laws of another jurisdiction without having to wind-up its assets and liabilities. In such a case, no Maltese exit taxes are payable.
Malta has a wide Tax Treaty network with more than 65 Treaties currently in place, and more Treaties are being negotiated with other countries. Furthermore, as Malta is a member of the European Union, source country withholding taxes on payment of royalties can be reduced or eliminated in terms of the EU’s Interest and Royalties Directive.