The Maltese Islands are a full EU member state since May 2004 and further to recent legislative changes, Malta Companies are EU compliant and EU approved. This renders Maltese company an excellent vehicle for international business, investment and financial services. Malta by far provides the most advantageous environment for European onshore business and investment, providing a favourable business and tax environment for shareholders of Malta registered companies.
International Trading & Holding Companies
Before 1st January 2007, Maltese law allowed the formation of International Trading Companies (ITCs) and International Holding Companies (IHCs) which restricted the tax advantages of Malta companies to non-resident shareholders. Maltese Income Tax legislation has been updated to remove the discrimination between local and non-resident shareholders and these changes have been approved by the European Commission.
New Company Tax System (2007 onwards)
The Maltese Company is an onshore company paying tax on a worldwide basis at the normal corporate tax rate of 35% with significant tax refunds to shareholders based on the imputation tax system and with the possibility of confidential beneficial ownership.
This presents favourable tax planning opportunities for:
- dividends received from a participating holding
- capital gains made from the disposal of a participating holding
- dividends from non-participating holdings
- trading income
- passive income (interest, royalties etc)
Maltese Companies are subject to the normal corporate tax rate applicable to all companies registered in Malta, at 35% on their worldwide income.
Malta operates the full imputation system of taxation whereby the tax paid by the company is available as a credit to the shareholders when distributions are made to them. Company tax of 35% is available as a credit to the shareholders upon receiving dividends from the company.
3) 6/7ths refund for active income
When dividends are paid by trading companies to the shareholders, these shareholders become entitled to claim refunds of 6/7ths of the Malta tax paid by the company. Taking into account such refunds, this results in an effective rate of Malta tax of 5%.
Shareholding may be held by individuals or through a Maltese parent.
The definition of a company has been widened to include an oversea branches (PEs) set up in Malta, companies which although not resident in Malta carry out activities in Malta and also companies which are neither incorporated nor resident in Malta provided that such companies are registered with the local tax authorities.
4) 100% refund for participating holdings / participating exemption
Under the Maltese tax system, the income and capital gains derived by a Maltese registered company from a participating holding, qualifies for a full refund of the Maltese tax paid by the company when distributions are made to company shareholders.
The latest amendments to Maltese tax laws have enhanced this tax treatment through the introduction of the notion of the participation exemption whereby such income may be exempted from Maltese tax provided certain conditions are satisfied.
Dividends derived from a participating holding acquired after 1 January 2007 by a Maltese company may qualify as a participation exemption provided certain anti-abuse provisions are satisfied.
In those instances where the participating holding qualifies as a participation exemption, the Maltese company has the option not to declare the income in its tax return resulting in no tax being payable in Malta.
If the company, however, elects to include the income from its participating holding in its tax return, it will then still qualify for a full refund of the tax paid by the Maltese company. The refund is payable by the fourteenth day following the end of the month in which the claim is made.
For companies having income derived from non participating holdings or from passive interest and royalties, the Maltese tax system still provides for refunds of the tax paid by the Maltese company when distributions are made to shareholders.
5) 5/7ths refund for passive interest and royalties
When distributions are made out of profits earned from passive interest and royalties, the shareholders of a Maltese company may claim a refund of five-sevenths of the tax paid by the company when distributions are made to them.
The six-sevenths and five-sevenths refunds only apply when the distributions are made by the company which did not claim any form of double tax relief. When dividends are paid out of profits allocated to the foreign income account and in respect of which profits the company has claimed double tax relief, the shareholders may apply for a refund of two-thirds of the tax paid by the Maltese company.
These statutory refunds (available since 1994) are legally guaranteed and are payable efficiently by the Inland Revenue Department to the shareholders within 14 days from the last day of the month in which the request made to the Department.
No withholding taxes, stamp duties or exchange control restrictions apply on distribution of the profits or dividends to the shareholders and there are no taxes or restrictions on the exportation of the dividends from the Malta company. Malta has:
- No thin-cap rules or debt : equity ratios
- No transfer pricing rules
- No withholding taxes on interest and royalties to non-residents
- No withholding tax on dividend payment
- No capital duties or wealth taxes
8) Access to Treaties & EU Directives
As an EU Member State Malta has adopted the EUs Parent-Subsidiary Directive and the Interest and Royalties Directive.
Malta has an extensive tax treaty network with 45 treaties in force and 12 initialled but not yet ratified;
Malta Companies VAT & Malta Companies Corporate Requirements