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A Brief Guide to Malta Taxation and Legislation

 

Basic Tax Information

Companies registered and domiciled in Malta must pay taxes based on their global income. How such entities are taxed looks at the net profit, balancing that against losses/expenses and depreciation. Entities are permitted to carry a loss forward to offset against potential profits in the following tax year(s). There are no time limits on doing this.

If the company is part of a group, they may take advantage of an available group relief provision for allowable losses which they surrender towards the company making the loss claim.

Company Tax Incentives in Malta

Due to EU membership, Malta is now an attractive country for foreign investment with favourable methods for corporate structuring and tax planning in Europe. One of the main things attracting investors to Malta today is the approach to dividend payment and tax.

Tax Refunds in Malta

Malta has a standard 35% corporate tax rate, chargeable against a company’s income for each fiscal year. When dividends are distributed to shareholders, they then become eligible to claim a tax reimbursement on the organisation’s profits. However, they may also apply for tax refunds where the organization operates in Malta as an overseas branch. The permitted refunds are as follows:

  • 100% refunds apply to those entities entitled to something called the participation exemption
  • 66% refund (two thirds) refund apply where the company claims double taxation relief, depending on the type for which they have applied. This is strictly limited to taxes the entity paid in Malta
  • 85% (six-sevenths) refund is due on profits earned through stock trading. Effectively, this tax rate is around 5%
  • 71% (five sevenths) refund is due from taxes paid on passive interest that are not eligible for participation exemption. This includes such things as royalties. Effectively, the tax rate is around 10%

Share Dividends

The company requires 35% of the gross payout when allocating dividends to shareholders. A shareholder may choose not to declare his/her dividend if their tax liability falls within the 35% personal tax rate (the highest within Malta). They are also permitted to apply for a refund of any tax that the company pays. Essentially, the resident carries a tax credit system against any shares they hold.

Malta is a full European Union member, having joined in 2004. This allowed them to enjoy and offer the tax-related benefits of EU member states. Malta also has several tax treaties with other countries which were drawn up by OECD with variations on standard tax treaty models. There are some cases where a double tax treaty does not apply. In these instances, Malta permits unilateral relief on income where tax is paid within another jurisdiction.

The Maltese government’s tax system does not tax interest, royalties or dividends. There is also no Transfer Pricing or CFC legislation in Malta.

Double Tax Treaties

Malta has successfully negotiated many double-tax treaties which are available to all Maltese companies except offshore companies (those incorporated under the Malta Financial Services Centre Act). All available treaties in Malta, except for the Swiss Treaty, adhere to conventions of OECD tax treaty models. Domestic legislation in Malta ensures that the Double Tax Treaties receive priority to mitigate problems of determining which treaties apply.

Value Added Tax

VAT is payable on many things in Malta, based on the goods’ taxable value:

  • Imported Goods. The Comtroller of Customs collects VAT on imported goods when those goods are released. There may also be duty applicable to imports in other circumstances while other imports are exempt completely from VAT.
  • What the EU called “Intra-Community Acquisitions” – goods supplied by one business in a member state to another business in another member state. These always apply unless it is on goods exempt from the payment of VAT
  • Goods and services produced in Malta intended for use in business

A standard rate of 18% VAT normally applies but there are exceptions where the rate may be reduced to 7% or 5%. Malta has a Commissioner for VAT who is responsible for the system’s administration.

Legislation and Jurisdiction in Malta

Malta’s complex legal system was founded in two general principles: Anglo-Saxon common law, and the Napoleonic code. It has a hybrid system heavily based on the British system of legislation and based firmly on case law while maintaining flexibility for arbitration and other systems of conflict resolution. Today, Malta has a legislative framework that is robust, accessible, and flexible. This makes Malta an attractive proposition, renowned internationally as a good place to do business through a versatile and modern approach. As Malta is an EU member, it is fully compliant with EU Directives. It joined the EU in 2004 and the OECD in 2005. Since then, the country has sought to attract businesses to the country through a quality over quantity approach.

The country has also enacted some of the strictest money laundering laws in the world, with other laws such as insider dealing and professional secrecy regulation fully compliant with EU regulation and directed by international standards. The Malta Financial Services Authority is the country’s sole regulator, responsible for supervising all licensed activity within its remit which includes all finance and credit institutions, insurance, trusts, and investments. It also administers a Company Registry and International Tax Unit for an efficient turnaround for incorporations, and fast and efficient maintenance of services.

Banking in Malta

The European Central Bank determined that Malta’s banking infrastructure is one of the most resilient within the trading bloc:

  • Several years in a row, the Maltese banking structure has demonstrated average solvency at double the average rate across the EU
  • There is an average capital buffer of 16.2% which was far higher than other countries in the bloc. Second-placed Lithuania was 10.1%
  • Malta experienced little impact during the financial crisis. Further, it was listed tenth in the World Economic Forum’s competitiveness index

Analysts believe Malta’s robust banking frameworks make it so resilient and high-performing, continuing to experience significant growth while many other countries struggled. In the last decade, Malta has gone from four retail banks to 24 foreign-owned or private credit institutions, and 15 more licensed financial institutions in Malta, some of which include well-known international finance brands. Today, Malta also offers multiple trade finance banks who offer specialist trading services.

Commercial banks in Malta may hold accounts in many denominations; most offer full-service internet banking with secure transaction processing while some offer online viewing only. In some cases, customers may access banking details anywhere in the world. The range of banking services in Malta include both personal and corporate Visa, AmEx, and MasterCard.

Individuals and non-resident companies are legally permitted to open and administer bank accounts. Interest is exempt on savings and deposits placed in local banking service. Crucially, no exit tax applies to income or capital.

We are able to assist both residents and non-residents, organisations and bodies with all relevant formal procedures to set up a bank account and engage other financial services in Malta.