Maltese Companies are onshore companies paying tax on a worldwide basis at the normal corporate tax rate of 35% having significant tax refunds to shareholders based on the imputation tax system and with the possibility of confidential beneficial ownership.
This system presents a favorable scenario in terms of tax planning for:
- Passive Income
- Dividends from non-participating holdings
- Capital gains made from the disposal of a participating holding
- Trading income
- Dividends received from a participating holding
Imputation System and Tax Rate
Malta operates a full imputation system of taxation. In such a system the tax paid by the company is available as a credit to shareholders when distributions are made to them.
Maltese Companies are subject to the normal corporate tax rate applicable to all companies registered in Malta namely 35% on their worldwide income.
6/7ths Refund for Active Income
When trading companies pay dividends to shareholders, they become entitled to claim refunds of 6/7ths of the Malta tax paid by the company. This results in an effective Malta tax rate of 5%.
100% Refund/Exemption for Participating Holdings
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 the shareholders. Such income may be exempted from Maltese tax provided a number of conditions are satisfied.
In those circumstances where a 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 such company chooses 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.
The Maltese tax system still provides for refunds of the tax paid by the Maltese company when distributions are made to the shareholders when such companies have income derived from non-participating holdings or from passive interest and royalties.
For a Maltese resident company to hold a “participating holding” in a company incorporated abroad, it must hold at least 10% of the equity shares in the non-resident company. In the case of a shareholding of less than 10%, such holding may still qualify as a “participating holding” if the Malta Company:
- holds 10% or more of the shares of the foreign company; or
- is entitled at its option to purchase or has the first right of refusal on a disposal of the balance of the equity shares of the foreign company; or
- is entitled to be represented on the Board of Directors of the foreign company; or
- holds a shareholding exceeding EUR1,165,000 or equivalent for an uninterrupted period of 183 days; or
- holds equity shares in the foreign company for the furtherance of the business of the Maltese company (not trading stock).
At the option of the taxpayer, dividends and capital gains derived from a Participating Holding are exempt from Malta tax.
Light anti-abuse provisions apply if the Participating Holding is acquired after January 1st 2007 namely the foreign subsidiary must:
- be resident or incorporated in an EU country or territory; OR
- be subject to any foreign tax of at least 15%; OR
- not have more than 50% of its income derived from passive interest or royalties;
Where none of the conditions set out above are satisfied then both of the following two conditions must be satisfied for the income to be eligible for the participation exemption:
- the equity holding by the company registered in Malta in the body of persons not resident in Malta is not a portfolio investment and for this purpose the holding of shares by a company registered in Malta in a body of persons not resident in Malta which derives more than fifty per cent of its income from portfolio investments shall be deemed to be a portfolio investment;
- the body of persons not resident in Malta or its passive interest or royalties have been subject to any foreign tax at a rate which is not less than 5%.
5/7ths refund for Passive Interest and Royalties
Shareholders of a Maltese company may claim a refund of 5/7ths of the tax paid by the company when distribution is made when said distributions are made out of profiles earned from passive interest and royalties.
Both the 6/7ths and 5/7ths refund only apply in the case of distributions made by the company on which no form of double tax relief was claimed. 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 2/3rds of the tax paid by the Maltese company.
The Maltese tax system is such that in the case of the distribution of the profits or dividends to the shareholders no withholding taxes, stamp duties or exchange control restrictions apply. Furthermore there are also 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 and no capital duties or wealth taxes.