Before the 1994 amendments, double tax relief was only available in Malta under the domestic provisions of the Income Tax Act if the foreign tax had been suffered in a country with which Malta has a double tax treaty or in respect of British Commonwealth income tax. The present regime provides for two further systems of double tax relief in Malta:

• unilateral relief, and

• a flat-rate foreign tax credit.

For a list of Malta’s double taxation agreements, click here.

Unilateral Relief

Malta allows relief from double taxation on a unilateral basis where overseas tax is suffered on income received from a country with which Malta does not have a tax treaty. The overseas tax suffered is allowed as a credit against the tax chargeable in Malta on the gross amount. The credit shall not exceed the total tax liability in Malta on the receipt.

Unilateral relief for underlying tax suffered is available where the taxpayer is a Maltese company that holds more than 10% of the voting power of the overseas company paying the dividend.

When claiming unilateral relief, the recipient of the income must prove the following to the satisfaction of the Commissioner:

• that the income arose from overseas;

• that the income suffered overseas tax; and

• the amount of that tax.

Flat Rate Foreign Tax Credit

The flat-rate foreign tax credit is available to a Maltese company which receives income or capital gains from overseas allocated to its Foreign Income Account. A certificate from the auditor stating that the income falls
to be allocated to the Foreign Income Account is sufficient for this purpose.
The flat-rate foreign tax credit is calculated at 25% of the amount of the overseas income or gain received by the company, before deductions. The income plus the credit (less deductible expenses) is subject to full Maltese income tax with relief for the deemed credit.

Interaction of the Four Reliefs

The provisions regarding unilateral relief are available where double taxation relief under a double tax treaty and relief in respect of British Commonwealth income tax are not available to the person making the claim.

The provisions regarding the flat-rate foreign tax credit are applied where none of the other reliefs of double taxation is available. The interaction of the four reliefs is illustrated in Appendix 3 at the end of this document.