Taxation in Malta
The combination of Malta’s tax system and its extensive double tax treaty network means that, with proper planning and structuring, investors can achieve considerable fiscal efficiency using Malta as a base. In a nutshell, these are the main benefits which Malta has to offer:
- Only European Union (EU) member state with full imputation system;
- Extensive network of double taxation treaties, plus benefits even when no bilateral treaty in force;
- Refundable tax credit scheme on revenues as dividends to shareholders, resident & non-resident;
- Ideal tax residency status for individuals. One of the key advantages of Malta’s tax system is that since 1948 it has adopted a full imputation system Malta is, in fact, the only EU member state with a full imputation system of taxation in force; and
- Malta’s extensive network of double tax treaties with almost all the important OECD countries.
Income Tax in Malta
Malta is the only country in the EU which has the full imputation system incorporated in its income tax legislation. With the full imputation system, profits taxed at the corporate level are not subject to further tax at the shareholder level, since the latter receive a full credit for any tax paid by the company on distributed profits.
The corporate income tax rate in Malta is 35% however upon a dividend distribution shareholders are entitled to an income tax refund on the tax paid at company level on the profits being distributed. The rate of refund depends on the nature of the profits being distributed and whether any double taxation relief has been claimed.
Furthermore, Malta adopts the participation holding regime and provides for a participation exemption on dividend and capital gains on investments satisfying certain conditions.
Basis of Taxation
Malta levies tax depending on a person’s residence and domicile. Companies incorporated in Malta are deemed to be resident and domiciled in Malta hence taxed on their worldwide income and capital gains. Companies which are not incorporated in Malta but whose management and control is exercised in Malta are deemed to be resident but not domiciled in Malta. Such companies are taxed only on the income arising in Malta and on foreign source income remitted (received) in Malta, excluding capital gains whether remitted or not. Companies which are neither incorporated in Malta nor are managed and controlled locally, are subject to tax only on income and capital gains arising in Malta.
Other taxes in Malta
Customs and Excise Duties
Since the concession of Malta in the EU, Maltese customs regulations follow European Union Customs Procedures. This means that goods imported from other EU member states are subject to VAT upon their release from Customs, whereas goods from outside the EU are subject to Customs and Excise Rules.
Value Added Tax
Value Added Tax (‘VAT’) legislation in Malta is based on EU VAT law. VAT is charged on supplies of goods and services taking place in Malta, on intra-community acquisitions, and on importations. The standard rate of VAT is 18%, however, a lower rate of 5% applies to printed material, confectionery items, and electrical supplies. A 7% VAT rate applies to holiday accommodations. No VAT is chargeable on exports and intra-community supplies, international transport, domestic passenger transport, food, pharmaceuticals, and the supply and repair of ships and aircraft. The sale and leasing of immovable property, banking, and insurance services, health, education, and broadcasting are exempt from VAT.
As a general rule, all persons (companies or individuals) undertaking a vatable supply in Malta are required to register for VAT.
Individuals are subject to income tax at progressive rates, up to a maximum rate of 35%. Individuals who are resident and domiciled in Malta are subject to income tax on their worldwide income and capital gains. Persons who are resident but not domiciled in Malta are subject to income tax on income arising in Malta and foreign income remitted to Malta. No income tax is chargeable on foreign capital gains, whether remitted or not. Non-resident individuals are taxed in Malta only on income arising in Malta.
The term ‘resident’ in Malta when applied to an individual refers to an individual who resides in Malta except for such temporary absences as the Office of the Inland Revenue may seem reasonable and not inconsistent with the claim of such individual to be resident in Malta.
The term ‘domicile’ is not defined in the Income Tax Acts but the Office of Inland Revenue considers an individual’s domicile to be the territorial unit that regulates such things as his/her marriage, succession and legal capacity in general.
Taxable persons in Malta are obliged to file an annual income tax return which comprises all the income subject to tax in that particular year. Married couples have the option to file a joint income tax computation which comprises of the income of both spouses. In the event that a married couple opts to file a joint tax computation, the tax can be calculated either on the total income of the couple at the married rates of tax or on the income of each spouse separately at the single or parent rates of tax.
Legal Framework in Malta
A Malta Company is the ideal vehicle for a number of activities, ranging from property ownership to the management of eCommerce activities and licensed financial services provision. Setting up a Malta Company usually takes 2 to 3 working days and the procedure is relatively easy. The Maltese legal framework offers a system in both Civil and Common Law models. While it is based on the civil law pattern in continental Europe, most administrative and fiscal legislation is constructed on the British model. Maltese company law which is governed by the Companies Act is mainly based on English Company Law and is in line with EU directives. Shipping companies are governed by the Merchant Shipping Act. The Companies Act defines the types of corporate entities or commercial partnerships which may be established.