Companies incorporated in Malta are subject to tax at the rate of 35% on their worldwide income and capital gains. Various fiscal incentives are available to both companies and their shareholders upon distribution of a dividend.
Double taxation relief
Malta provides relief from double taxation under its comprehensive double taxation treaty network.
Till date Malta has concluded more than 72 double taxation agreements for the avoidance of double taxation.
Malta’s treaties are largely based on the OECD Model Convention and grants relief from double taxation using the credit method. Other methods for the relief from double taxation are available under Maltese income tax legislation.
Full Imputation System
Malta operates the full imputation system whereby the tax paid by the distributing company is imputed towards the shareholders’ tax liability upon receipt of a dividend, meaning that no further tax is due by the shareholder upon receipt of a dividend.
Holding Companies in Malta
Holding companies registered in Malta that are in receipt of dividend income or capital gains from a ‘participating holding’ or from income arising from the disposal of that same holding, may apply for a participating exemption and consequently the dividend income will not be subject to income tax in Malta.
Distribution of Interest and Royalties
No tax is withheld upon the distribution of interest and royalties to non-resident beneficial owners of such income.
No tax is withheld upon the distribution of dividends irrespective of the residence and nationality of the shareholders.
Since Malta is a member of the European Union, it has access to EU directives such as:
- the EU Parent Subsidiary Directive: the aim of this directive is to set a common system of taxation applicable in the case of parent companies and subsidiaries of different Member States;
- the Merger Directive: the objective of the Merger Directive is to remove fiscal obstacles to cross-border reorganizations involving companies situated in two or more Member States;
- the Savings Directive: aims at implementing the European Union withholding tax, requiring member states to provide other member states with information on interest paid to achieve effective taxation of the payments in the member state where the taxpayer is resident for tax purposes; and
- the Interest and Royalties Directive: the purpose of this directive is to set a common system of taxation applicable to interest and royalty payments made between associated companies of different Member States.
Other Features of the Maltese Tax System
There are a number of other provisions that makes the Taxation System in Malta an attractive one:
- no thin capitalization rules;
- flexible transfer pricing rules;
- no withholding taxes on remittances of dividends, interest and royalties to non-residents;
- advance rulings on international transactions;
- share capital, accounting and tax can be denominated in a foreign currency;
- possibility of migration of companies to and from Malta;
- no capital duties - low registration fees;
- relative ease of incorporation for non-regulated entities;
- low registration and maintenance costs.