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Corporate Tax Guide: Malta


The information is valid for the entire country except where indicated. For example, in the case of Malaysia, Labuan is part of Malaysia but has a special tax regime, so this is noted.
The corporate tax rate shown is the typical corporate tax rate that a domestic corporation owned by non-resident persons would pay. The tax rate does not include withholding tax on dividends, but does include a distribution tax shown separately if applicable. Certain countries have a low corporate tax rate, but charge an additional tax when a dividend is distributed. Because this tax is paid by the corporation, and not deducted from the amount of the dividend itself, it is not a dividend withholding tax. As a result, it typically cannot be reduced by an international tax treaty.
The basis of taxation for a corporation will typically be one of:
  • World income (i.e. income from all sources)
  • Territorial (i.e. only income from within the jurisdiction)
  • Territorial and remittance (income earned within the jurisdiction and income remitted into the jurisdiction)
Other basis of taxation are possible, and, if applicable, they are noted.
Companies that are both resident and domiciled in Malta are subject to income tax in Malta on their worldwide income and capital gains. Companies that are either resident or domiciled in Malta are subject to tax in Malta on income and capital gains arising in Malta and on foreign income that is remitted to Malta.
Where non-resident corporation carries on business in a country, business profits may be subject to corporate tax. In addition, a branch profits tax may apply in lieu of dividend withholding tax. This branch profits tax applies to the after tax profits, typically at a fixed percentage. An international tax treaty may reduce the rate of branch profits tax, typically to the rate provided for dividend withholding.
Branches of non-resident foreign entities are subject to tax in Malta on income and capital gains arising in Malta and are not subject to tax on a remittance basis.
The common forms of business entity are noted. In addition, the entities which are flow through entities for U.S. tax purposes are indicated.
Public and Private Limited Liability Companies, Partnerships en nom collectif and partnerships en commandite (the capital of which may or may not be divided into shares). Trusts and Foundations are also available under Maltese law. A Collective Investment Scheme (CIS) and a securitization vehicle may be set up under various forms.
Capital gains may be fully taxed, partially taxed or not at all. In certain countries, an exemption, called the participation exemption, will apply to exempt from tax a capital gain from disposition of a substantial holding of shares of a subsidiary. Where a participation exemption is applicable, it is noted together with a summary of the main conditions.
Gains on transfers of capital assets are aggregated with the company’s other income and charged to income tax. However, in the case of a transfer of immovable property situated in Malta, the tax would typically consist of a final tax of 8%, which is calculated on the market value or the transfer consideration of the immovable property, whichever is higher (other rates may apply in specific cases).
Participation exemption is available. Dividend income and capital gains derived from a Participating Holding (PH) are exempt from Malta tax subject to certain anti-avoidance rules.
Certain countries allow group taxation, otherwise known as consolidated tax filing. Here the tax returns of a group of corporations in the country may be combined together, which can be useful. If group taxation is permitted, it is noted along with the main conditions.
It is not possible for companies forming part of the same group to be taxed as one group of companies and prepare consolidated income tax returns. Group loss relief is, however, available in certain circumstances, provided certain conditions are satisfied. Furthermore, reliefs are available so that transfers of certain assets from one company to another (which companies form part of the same group of companies as defined) will not be subject to the payment of income tax on capital gains.
Countries offer various kinds of special exemptions and incentives. Examples are a reduced tax rate, a tax holiday, a tax credit on the purchase of equipment, special accelerated deductions for deprecation, incentives for R&D, and various others. Here the major items are noted.
  • The shareholders of a Maltese company can apply for a tax refund that is equivalent to either two-thirds (2/3), five-sevenths (5/7), six-sevenths (6/7), or 100% of the company income tax paid. Certain conditions apply.
  • Tax and other incentives granted to various activities including manufacturing, IT, aviation and maritime, logistics.
  • Imputation system of tax, which ensures that dividends received will not be subject to further tax at the level of the shareholder, thus eliminating economic double taxation.
  • Participation exemption, which ensures that dividends and capital gains derived from a participating holding will not be subject to income tax.
  • Income or gains derived by a company registered in Malta, which are attributable to a permanent establishment situated outside Malta or to the transfer of such a permanent establishment, are exempt from income tax.
  • Interest and royalty income derived by non-resident companies are exempt from income tax.
Many countries have thin capitalization rules which limit or deny the deduction of interest expense in certain circumstances. For example, if debt exceeds three times equity, a proportionate amount of interest expense may not be deductible. Limitations take various forms, restricting the interest expense deduction to a percentage of profit, deeming the debt to be equity and the interest to be a payment of dividends, and various other rules which may blend of these principles. Where a country has thin capitalization rules, they are briefly described.
Malta has, so far, not enacted thin capitalisation rules and a company can be entirely funded with debt (apart from the minimum share capital), thus incurring interest, which is allowed as a deduction for income tax purposes, provided such interest has been incurred in the production of the company’s income.
Many countries have transfer pricing rules. They very often follow the OECD guidelines and the arms length principle. Some countries have specific rules which apply in certain cases. In addition, some countries allow for a selection of the most appropriate transfer pricing methodology in the circumstances, while other countries follow a hierarchy of methods, with the CUP method (comparable uncontrolled price) often ranking first. The transfer pricing rules are briefly explained.
Malta does not have any specific transfer pricing rules; however, it has certain provisions in its income tax legislation that regulate transactions between related parties.
Many countries tax passive income earned in controlled foreign corporations (CFC’s) on an imputation basis while active income is not taxed. Such CFC rules are usually complex and vary significantly in what is considered passive income, and how foreign tax paid is taken into account. Some countries approach CFC rules on the basis of whether or not the foreign corporation is resident in a low tax jurisdiction or a tax haven. This may be done through a black list of countries.
The general overview of CFC rules is described in simple terms.
Malta has, so far, not enacted any CFC rules.
Profits repatriated by way of dividends from a subsidiary to a parent company are typically taxed in one of three ways:
  • The dividends are exempt of tax.
  • The dividends are deductible from taxable income, but not fully (90%, for example, of the dividend is deductible).
  • The dividend is taxable, grossed up to the pre-tax amount, and a foreign tax credit claimed for foreign taxes paid.
The applicable method is noted.
Profits that were subject to tax or relieved from tax by way of tax credits can be repatriated by way of dividends to persons (including holding companies) that are resident in foreign jurisdictions. No tax will be withheld by the Maltese tax authorities in view of the imputation system of tax applicable to dividends paid by Maltese companies where the tax paid at the corporate level is imputed in full towards the shareholders’ tax liability.
Most countries allow a foreign tax credit based on a formula, typically net foreign income over the net income times taxes payable. This limits the foreign tax credit to roughly the domestic tax otherwise applicable to the foreign income. There are numerous variations and technical rules in the details of foreign tax credit calculations. Where a foreign tax credit is allowed, the general principles are described.
Malta offers various forms of relief from double taxation. To date, Malta has signed more than 70 double taxation agreements based on the OECD Model Convention. Malta has also adopted unilateral provisions in its income tax legislation, which grants an ordinary tax credit with per-country and per-source limitations that may apply. Where no double tax treaty exists and unilateral relief provisions are not applicable, a notional flat rate foreign tax credit of 25% will be applicable to companies, provided certain conditions are satisfied. In order to be able to claim this notional tax credit, companies must be specifically empowered by their Memorandum and Articles of Association to receive foreign income. Malta also has a Commonwealth income tax relief, which is, however, a very limited form of relief from double taxation and is applicable on a reciprocity basis with respect to income or gains that would have been subject to tax in Commonwealth countries and by residents of such countries.
14. Losses
Losses typically can be carried forwards for a period of years, and sometimes can be carried back. Losses may be segregated into capital losses and non capital losses.
Trade losses may be carried forward indefinitely to be set off against any other income including capital gains. On the other hand, capital losses may also be carried forward indefinitely but may only be set off against capital gains. Carryback of both capital and trading losses is not permitted. Only trading losses may be surrendered between members of the same group of companies. Certain restrictions apply with respect to the carryforward of losses, in particular with respect to income or gains derived from immovable property situated in Malta when such income or gains are derived from construction works and transfers of property situated in Malta between related parties.
It is not practical to list all of the tax treaties which a country has in a simple guide like this. Accordingly, a link is provided in each case to the tax treaties.
Some countries have entered into Tax Information Exchange Agreements (TIEA).
Treaties are more and more containing provisions that limit benefits (LOB provisions).
  • Income Tax Treaties: 73 in force, 3 signed but not yet in force
  • TIEA: 5 in force, 1 signed not yet in force
  • LOB provisions: One with the U.S.
Withholding tax rates vary considerably from treaty to treaty, and countries may have domestic exemptions applicable in certain circumstances (for example copyright royalties, interest paid to arm’s length persons, etc.). A table shows the typical rates but cannot adequately summarize all of the details. The applicable treaty should be consulted.
Interestarm's length0%0%
Rental Real EstateRental income paid to non-residents is subject to a withholding tax of 35% in the case of non-resident companies and 25% in the case of other persons. A reduced tax rate of 15% may apply in other cases at the option of the beneficiary.Rental income paid to non-residents is subject to a withholding tax of 35% in the case of non-resident companies and 25% in the case of other persons. A reduced tax rate of 15% may apply in other cases at the option of the beneficiary.
Rent – OtherTax on rental income paid to non-residents on other assets and that is subject to tax in Malta will be subject to a withholding tax of 35% in the case of non-resident companies and 25% in the case of other persons.Tax on rental income paid to non-residents on other assets and that is subject to tax in Malta will be subject to a withholding tax of 35% in the case of non-resident companies and 25% in the case of other persons.
Management FeesTax on management fees paid to non-residents and that are subject to tax in Malta will also be subject to a withholding tax of 35% in the case of non-resident companies and 25% in the case of other persons.Tax on management fees paid to non-residents and that are subject to tax in Malta will also be subject to a withholding tax of 35% in the case of non-resident companies and 25% in the case of other persons.
Some countries allow for the selection of year-end while other countries specify a particular year-end which all business entities must have. Normally the taxation year cannot exceed 12 months. Where it can exceed 12 months, this is noted.
Companies may opt to have any month as their accounting year-end.
Company profits are assessable in the year on the basis of the financial year immediately preceding the year of assessment.
This is the due date for filing a tax return. Where extensions are available, this is noted.
Companies that have an accounting year-end in a month that falls within one of the first 6 months of the calendar year must file their income tax returns by March of the following year. On the other hand, companies that have an accounting year-end that falls within one of the last 6 months of the calendar year have 9 months to file their income tax returns. The Maltese tax authorities will usually give a 2-month extension to such deadlines to companies that file their income tax returns electronically.
The typical tax instalment requirements are noted.
A provisional tax system is in place. There are 3 payments to be effected in April, August and December of each year. The date on which the first installment falls due depends on the accounting year-end of the company. If the company has a December year-end, the first installment will fall due in April. On the other hand, if a company has an October year-end, the first installment will fall due in December. The benchmark year of assessment will be the last year for which the company has filed (or should have filed) its income tax return. The first provisional tax installment will amount to 20% of the tax in the benchmark year of assessment, while the second and third provisional tax installments will amount to 30% and 50% respectively.
This is the date when the corporate tax owing for the year must be paid. It may be different from the tax return filing due date.
Tax is due by companies not later than 9 months from the end of the accounting year-end. Companies that have a majority of their business interests situated outside Malta will typically have 18 months from the end of their accounting year-end to pay their tax liability.
This is the period after which the tax department cannot in normal circumstances reassess a taxation year. It is sometimes referenced to the end of the taxation year and sometimes to the date of the first assessment of that taxation year.
Action for the payment of tax, additional tax, interest or any penalty may be taken during any time from the date on which it becomes due and payable up to 8 years from that date or, where an assessment has been made, from the date on which that assessment becomes final and conclusive. The running of the above-mentioned period is interrupted by a demand note served through registered post by the Commissioner, or by any judicial act filed by the Commissioner before the expiration of such period demanding the payment of the amount claimed.
If a country has exchange controls, this is noted, together with the main requirements.
Malta does not have any exchange controls in place.
23. VAT
A VAT tax system typically provides that the supply of goods and services is classified as taxable, tax exempt, or zero rated. Where a business is engaged in an activity which is taxable, it must charge VAT on its revenue, and can claim a refund of VAT on its expenditures. Where the activity is exempt, it does not charge VAT on its revenue, and cannot claim back VAT paid. Where the entity is engaged in activities which are zero rated (typically agriculture, food services and exports), then it can claim back VAT which it has paid on its expenditures, and does not charge VAT on its revenue.
If a country has a typical VAT system, this is noted. If a country has no VAT system but a sales tax system, this is indicated. Some countries may have a mixture, and taxes may apply at different levels (federal and state for example).
Malta is an EU member state and has its VAT legislation based on the EU Directives. The standard rate is 18%, while reduced rates of 5% and 7% apply on certain goods and services.
Stamp duty, or land transfer tax, can apply on such things as the transfer of shares, land, or the issuance of bonds or debentures. This is described together with the applicable rates.
Stamp duty is typically charged on transfers of immovable property and marketable securities. The standard rates are Eur5 for every Eur100 or part thereof in the case of immovable property, and Eur2 for every Eur100 or part thereof in the case of shares (this is increased to Eur5 where the value of the immovable property held by the company is at least 75% of the value of the company’s fixed assets and immovable property held as current assets).
If capital tax is payable, this is described. Capital tax may apply in specialized industries, such as banking and insurance, even if a country does not generally apply a capital tax to corporations.
Malta does not have a wealth or capital tax.
Where significant, other taxes are noted.
Payroll tax, social security contributions.
Anti-Avoidance Rules take many forms, the most common ones are a general anti-avoidance rule, treaty shopping limitations, the requirement for economic substance (or a business purpose in carrying out transaction) and specific anti-avoidance rules for particular purposes. A very brief overview of the anti-avoidance rules is described.
Malta does not have detailed anti-avoidance rules; however, it has some specific anti-avoidance rules that apply in particular circumstances. Malta has a very wide anti-avoidance provision in its income tax legislation, whereby the tax authorities can ignore any transaction if they are of the belief that such a transaction or transactions has/have been entered into with the main motive of reducing, evading, avoiding or postponing liability to tax.
Where a non-resident person holds shares of a corporation established in the country listed, the capital gain which results may be taxable or not taxable depending on the circumstances and, possibly, the existences of an international tax treaty. The general rules are noted.
In general, the sale of shares is subject to tax. However, a number of exemptions apply, including the participation exemption mentioned above and the sale of shares by non-residents provided the company is not a property company. A property company is a company that typically owns immovable property situated in Malta, with some exceptions that may apply.
Where a corporation is acquired through the purchase of shares, sometimes a step up is allowed so that the cost of its assets can be revalued. The main rules are briefly summarized.
The possibility to step up the value of assets situated outside Malta is available to persons who change their residence and/or domicile to Malta, and to companies that are registered in Malta and result from a cross-border merger.
In some countries, rulings are commonly used (and sometimes even required). In other countries the system is either unavailable or not commonly used except in special circumstances.
Rulings may be requested from the Maltese tax authorities. They are valid for a period of 5 years or 2 years should there be a change in the legislation (whichever is the earlier). Such rulings may be renewed for a further period of 5 years.
31. Other
Other important aspects of the tax system are noted.
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