Changes to fiscal rules include the following:
Amendment to the applicability of the participation exemption to bring it in line with recent amendments to the Parent-Subsidiary Directive
An amendment has been effected to the applicability of the participation exemption on dividends derived from a participating holding in order to implement the provisions of article 1(1) of EU Directive 2014/86/EU. This Directive was adopted by the European Council recently in order to curb misuse of the Directive through double non-taxation typically arising in the case of hybrid instruments.
The participation exemption applicable to dividends derived from a participating holding will continue to apply. However, where such profits benefit from the exemption from withholding tax set out in article 5 of EU Directive 2011/96/EU, 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.
Option for partnerships and EEIG to elect to be treated as a company for the purposes of the Income Tax Acts
Partnerships and European Economic Interest Grouping 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 d 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.
Removal of deadline for the claim of refunds on profits distributed by the former “International Trading Companies”
Prior to the amendments brought about by the Budget Implementation Act, 2015, the shareholders of international trading companies had until 31 December 2014 in order to claim refunds in respect of profits earned by the company prior to 31 December 2010. Such deadline has now been removed.
Amendments to the definition of marketable security for stamp duty purposes
The definition of “marketable security” for stamp duty purposes has been restricted to an exhaustive list unlike the previous non-exhaustive list in the Duty on Documents and Transfers Act. A “marketable security” is now only treated as being the holding of share capital in a company and any document representing the same. Thus, the transfer of debentures, bonds, notes, and any other interest in a company will no longer be subject to stamp duty.
Increase in the stamp duty rate on insurance policies
The minimum duty chargeable on policies of insurance has increased from €11 to €13.
Amendments to the definition of ‘foreign income account’
With effect from year of assessment 2016, a company which is licensed as a bank or as a financial institution and which derives profits or gains from investments, assets or liabilities situated outside Malta, must be specifically empowered to receive such income or gains in order to allocate its profits derived therefrom to the so called “Foreign Income Account” and benefit from the relevant tax refunds associated with profits allocated to this account. Such empowerment clause would typically be provided for in the Memorandum and Articles of Association of the company.
Clarification in relation to the Remittance Basis of Taxation
The tax rules have been clarified to the effect that the remittance basis of taxation shall not be available to individuals who are not resident or not domiciled in Malta but are married to an individual who is ordinarily resident and domiciled in Malta. The remittance basis of taxation will remain applicable to individuals who are not resident or not domiciled in Malta and who are not married to a person who is both ordinarily resident and domiciled in Malta.
Flat Rate Foreign Tax Credit to apply to companies which opt to allocate profits to the Immovable Property Account
Companies which opt to allocate all their profits to the Immovable Property Account rather than to the different tax accounts may, as from year of assessment 2015, still benefit from the Flat Rate Foreign Tax Credit on income which would have been allocated to the foreign income account had such election not been exercised by the company provided that the relevant criteria for claiming the credit are met.
Changes to the Property Transfer Tax System
The Budget Implementation Act has brought changes to the charge of tax on the transfer of immovable property situated in Malta.
Transfers of immovable property situated in Malta are now subject to a final withholding tax ranging between 5% – 10% of the market value of the property and depending on when the property was acquired by the transferor. A number of exceptions continue to apply, including opt out provisions from the final withholding tax system in limited cases. Furthermore, exemptions from tax remain applicable in certain transfers of immovable property.
For more information or advice please contact Dr. Stephen Attard.