|Corporate Income Tax Rate (%)||35|
|Capital Gains Tax Rate (%)||35 (a)|
|Branch Tax Rate (%)||35|
|Withholding Tax (%)||0 (b)|
|Net Operating Losses (years)|
a) See Section B.
b) See Section F.
Taxes on corporate income and gains
Corporate income tax. Companies that are considered to be ordinarily resident and domiciled in Malta are subject to income tax on their worldwide income. Companies incorporated in Malta are considered resident in Malta. In addition, companies incorporated outside Malta are considered to be resident in Malta if management and control is exercised in Malta.
Rates of corporate tax. Income tax is the only tax imposed on the profits of companies. The standard rate of income tax is 35%.
Tax incentives. Tax incentives are offered in the Malta Enterprise Act and in regulations to the act, as well as in the Income Tax Act.
The Malta Enterprise Act has introduced a new set of incentives for the promotion and expansion of business, covering a wide range of sectors and activities. The incentives available under the act may be divided into six categories, which are described in the following six subsections. Other tax incentives available in Malta are discussed in the subsequent subsections. In the 2016 budget speech, the Minister for Finance announced several additional measures. At the time of writing, further details were expected to be published.
Access to finance. The Micro Guarantee Scheme provides eligible undertakings with a guarantee of up to 80% on loans of up to EUR100,000, which may be used to finance projects leading to business enhancement, growth and development. Soft loans (loans at lower interest rates) are available to manufacturing enterprises covering 33% of an approved project but they may not exceed 75% of the cost of plant, machinery and equipment. Loan interest subsidies and royalty financing are available for highly innovative projects.
Investment aid. Companies engaged in specified activities can benefit from tax credits regarding capital expenditure, job creation or reinvestment of profits derived from trade or business in an approved project.
Small and medium-sized business development. Grants are available for the creation and development of innovative start-ups and the development of forward-looking small and medium-sized businesses carrying on or intending to carry out an activity that may contribute to the economic development of Malta, provided that certain conditions are fulfilled. The Malta Enterprise Corporation also provides assistance regarding the hiring of experts and the use of information communications technology or e-business (the conduct of business through information technology systems). Grants under this scheme are currently not available or under review. Businesses should monitor any amendments.
Research and development and innovation programs. Fiscal incentives and cash grants are offered to stimulate innovative enterprises to engage in research and development.
Royalty income from patents. The scheme for royalty income from patents is aimed to encourage investment in research, knowledge creation and exploitation of intellectual property. Fiscal benefits are available to individuals and enterprises that own the rights to patented intellectual property and are receiving royalty income.
Enterprise support. Assistance is offered to businesses to support them in developing their international competitiveness, improving their processes and networking with other businesses.
Employment and training. The Employment and Training Corporation (ETC) is taking over and administering the employment and training incentives. Enterprises are supported in recruiting new employees and training their staff. These incentives help generate more employment opportunities and training activities.
Income Tax Act. The Income Tax Act provides for a deduction of 150% of research and development expenditure incurred.
Shipping. Maltese shipping law is modeled on British legal sources by incorporating measures containing a system of mortgages that provide excellent security. However, Maltese law also includes measures offering attractive fiscal packages to the shipping industry.
An organization qualifies as a shipping organization if it engages in one or more specified activities and if it obtains a license from the Registrar-General to enable it to carry on such activities. The following are the specified activities:
- The ownership, operation (under charter or otherwise), administration and management of a ship or ships registered as a Maltese ship under the Merchant Shipping Act and the carrying on of related financial, security and commercial activities
- The ownership, operation (under charter or otherwise), administration and management of a ship or ships registered under the flag of another state and the carrying on of related financial, security and commercial activities
- The holding of shares or other equity interests in Maltese or foreign entities that are established for any of the purposes stated in the law and the carrying on of related financial, security and commercial activities
- The raising of capital through loans, the issuance of guarantees or the issuance of securities by a company if the purpose of such activity is to achieve the objectives of the shipping organization itself or for other shipping organizations within the same group
- The carrying on of such other activities within the maritime sector that are prescribed in regulations
A shipping organization may be established as a limited liability company (public or private), a foreign corporate body that has established a place of business in Malta or another type of entity specified in the law.
If the activities of a shipping organization are restricted to the activities and related activities described above, the following favorable tax treatment applies:
- No income tax is imposed on the income derived from the shipping activities of a licensed shipping organization.
- No income tax is imposed on gains arising on the liquidation, redemption, cancellation or any other disposal of shares, securities or other interests, including goodwill, held in a licensed shipping organization owning, operating, administering or managing a tonnage-tax ship while the ship is a tonnage-tax ship.
- No income tax is imposed on interest or other income paid to a person with respect to the financing of the operations of licensed shipping organizations.
Income derived by a ship manager from ship management activities is deemed to be income derived from “shipping activities” and is exempt from income tax under the Income Tax Act if the following conditions are satisfied:
- The company maintains proper accounts relating to its shipping activities.
- The ship manager pays an annual tonnage tax to the Registrar-General.
For these purposes, “shipping activity” is the international carriage of goods or passengers by sea or the provision of other services to or by a ship as may be ancillary to such activities or associated with such activities, including the ownership, chartering or other operation of a ship engaged in all or any of the above activities or as otherwise may be prescribed.
Income derived by a licensed shipping organization from the sale or transfer of a tonnage-tax ship or from the disposal of a right to a ship, which when delivered or completed would qualify as a tonnage-tax ship, is exempt from tax. In 2012, the European Union (EU) Commission initiated a state-aid investigation into Malta’s tonnage tax system. This investigation is still ongoing.
Collective Investment Schemes or Funds. Collective Investment Schemes or Funds must be licensed under the Investment Services Act. Collective Investment Schemes usually take the form of corporate funds, including open-ended (SICAVs) and close-ended funds, or non-corporate funds, such as unit trusts.
The income of Collective Investment Schemes (other than income from immovable property located in Malta and investment income) is exempt from tax. In addition, prescribed funds are subject to withholding tax on their local investment income. These funds are subject to a 15% final withholding tax on bank interest received and to a 10% final withholding tax on other investment income received, such as interest on bonds and government stocks (units issued by the government to which the gen eral public is invited to subscribe). Under regulations issued by the Inland Revenue Department, prescribed funds are funds whose assets in Malta amount to 85% or more of their total assets. Capital gains derived by funds from disposals of investments and assets are also exempt from tax.
Capital gains derived by unit holders on disposals of their units in prescribed funds listed on the Malta Stock Exchange are exempt from tax. Unit holders in unlisted prescribed funds are subject to tax on their gains. Tax at 15% is withheld from the capital gains realized by resident investors on certain disposals of listed shares in non-prescribed funds. For nonresident Collective Investment schemes, the withholding tax provisions apply only if the Disposal of the shares is effected through an authorized financial intermediary. If the disposal of shares in nonresident non-prescribed funds is not effected through an authorized financial intermediary, no withholding tax is due and any capital gains must be disclosed by the resident investor in the individual’s tax return and taxed at the normal rates of income tax, up to a maximum of 35%.
Aviation income. Income derived from the ownership, lease or operation of aircraft and aircraft engines used in the international transport of passengers or goods (aviation income) is deemed to arise outside Malta regardless of whether the aircraft is operated from Malta. Consequently, a company that is incorporated outside Malta but managed and controlled in Malta (resident but not domiciled for income tax purposes, or a “non-dom co”) must pay tax on income derived from its aviation income on a remittance basis. Aviation income that is not received in Malta is not taxed in Malta. This implies that a non-dom co may control its Maltese tax liability through its remittances and that a non-dom co deriving aviation income that is not received in Malta is exempt from tax on its aviation income.
Capital gains. Income tax is imposed on capital gains derived from the transfer of ownership of the following assets only:
- Immovable property. However, capital gains on transfers of immovable property or rights over immovable property that are subject to the new Property Transfer Tax (see Property Transfer Tax) are exempt from income tax.
- Securities (company shares that do not provide for a fixed rate of return, units in Collective Investment Schemes and units relating to linked long-term business of insurance [life insurance contracts under which benefits are wholly or partially determined by reference to the value of, or income from, property]).
- Goodwill, business permits, copyrights, patents, trade marks and trade names.
- Beneficial interests in trusts.
- Full or partial interests in partnerships
In certain cases, value shifting and degrouping result in taxable capital gains.
If a person acquires or increases a partnership share, a transfer of an interest in the partnership to that partner from the other partners is deemed to occur, and is accordingly subject to tax.
For purposes of the capital gains rules, “transfer” has a broad definition that is not restricted to sale. It also includes any assignment or cession of any rights, reduction of share capital, liquidation or cancellation of units or shares in Collective Investment Schemes and other types of transactions. The definition does not include inheritance.
Transfers that are exempt from tax include the following:
- Donations to philanthropic institutions
- “Emphyteutical” grants for periods of less than 50 years (the Civil Code defines “emphyteusis” as a contract under which one of the contracting parties grants to the other, in perpetuity or for a time, a tenement for a stated annual rent or ground rent, which the grantee agrees to pay to the grantor, either in money or in kind, as an acknowledgment of the tenure)
- Transfers of chargeable assets between companies belonging to the same group of companies
- Transfers by nonresidents of securities in Maltese companies that are not primarily engaged in holding immovable property in Malta
- Transfers of securities listed on the Malta Stock Exchange as well as transfers of units relating to linked long-term business of insurance if the benefits derived by the units are wholly determined by reference to the value of, or income from, securities listed on the Malta Stock Exchange
- Transfers by nonresidents of units in Collective Investment Schemes
Rollover relief for assets used in business is also available if the asset has been used in the business for at least three years and if it is replaced within one year by an asset used only for a similar purpose.
Taxable capital gains are included in chargeable income and are subject to income tax at the normal income tax rates. Capital losses may be set off only against capital gains. Trading losses may be carried forward to offset capital gains in future years.
Provisional tax of 7% of the consideration or of the value of the donation must be paid by a seller on the transfer of property if the transaction is subject to the capital gains regime. The Commissioner for Revenue may authorize a reduction in the rate of provisional tax if it can be proved that the capital gain derived from the transaction is less than 20% of the consideration. Pro vision al tax paid is allowed as a credit against the income tax charge.
If a company transfers property to its shareholders, or to an individual related to a shareholder, in the course of a winding up or distribution of assets, who own all of the share capital of the company transferring the property, the transfer is exempt from tax if certain conditions are satisfied.
Property Transfer Tax. In 2014, the Property Transfer Tax system was overhauled and the standard withholding tax rate was reduced from 12% to 8%. Property Transfer Tax is imposed on the value of the property transferred. The new regime also provides for several other applicable tax rates in certain circumstances. Broadly, these rates apply in the following circumstances:
- 2% if the immovable property being transferred was the trans-feror’s sole ordinary residence and if the transfer is made not later than three years from the date of its acquisition
- 5% if the immovable property being transferred does not form part of a project and is being transferred within five years from the date of its acquisition or if it is located in Valletta and was restored and/or rehabilitated, as approved by the Malta Environment and Planning Authority and certified to be satisfactory on completion by the authority before 31 December 2018, and it is transferred within five years after 31 December 2018
- 10% if the immovable property being transferred was acquired before 1 January 2004 or if the property is a restored property located in an urban conservation area other than Valletta
For disposals of inherited immovable property, the following rates apply:
- 7% of the transfer value if the immovable property was inherited before 25 November 1992
- 12% of the difference between the transfer value and the acquisition cost in all other cases
Securitization. The total income or gains of a securitization vehicle is realized or deemed to arise during the year in which such income or gains are recognized for accounting purposes. For purposes of calculating the chargeable income or gains of the securitization vehicle for income tax purposes, the following expenses are deductible:
- Relevant expenses provided under Article 14 of the Income Tax Act
- Amounts payable by the securitization vehicle to the originator or assignor
- Premiums, interest or discounts with respect to financial instruments issued or funds borrowed by the securitization vehicle
- Expenses incurred by the securitization vehicle with respect to the day-to-day administration of the securitization vehicle
Tax is chargeable on any remaining total income of the securi-tization vehicle, and a further deduction of an amount equal to the re maining total income may be claimed at the option of the securitization vehicle, subject to certain provisos and anti-abuse provisions.
Administration. The year of assessment is the calendar year. Income tax for a year of assessment is chargeable on income earned in the corresponding basis year, which is generally the preceding calendar year. A company may adopt an accounting period other than the calendar year, subject to approval by the Inland Revenue Department.
Companies with a January to June accounting year-end must file their income tax returns by 31 March (extended if filed electronically) of the year of assessment. Companies with other accounting year-ends must file their income tax returns within nine months after the end of their accounting year (extended if filed electronically).
A self-assessment system applies in Malta. The Inland Revenue Depart ment issues an assessment only if it determines that a greater amount of income should have been declared or that the company omitted chargeable income from its tax return.
Companies must make three provisional payments of tax, generally on 30 April, 31 August and 21 December. The provisional payments are equal to specified percentages of the tax due as re ported in the last income tax return filed with the Commissioner for Revenue on or before 1 January of the year in which the first provisional tax payment is due. The percentages are 20% for the first payment, 30% for the second and 50% for the third. Companies must pay any balance of tax payable on the due date for submission of the income tax return for that year of assessment.
Penalties are imposed for omissions of income, and interest is charged for late payments of tax. The Inland Revenue Department pays interest on certain late refunds.
Advance Revenue Rulings. Advance Revenue Rulings may be ob tained from the Inland Revenue Department on certain transactions, activities and structures. Rulings survive any change in legislation for a period of two years. In all other circumstances, rulings are binding for five years. Renewals may be requested.
Allocation and distribution of profits. The distributable profits of a company are allocated to five tax accounts in the following order:
- Final Tax Account
- Immovable Property Account
- Foreign Income Account
- Maltese Taxed Account
- Untaxed Account
The Final Tax Account contains distributable profits that have been subject to a final tax. The Immovable Property Account contains profits connected with immovable property located in Malta. The Foreign Income Account contains, broadly, foreign-source passive income and foreign-source active income attributable to a permanent establishment located outside Malta. The Maltese Taxed Account contains profits that are not included in the Final Tax Account, Immovable Property Account or Foreign Income Account. The Untaxed Account contains an amount of profits or losses that is calculated by deducting the total sum of amounts allocated to the other accounts from the total amount of profits shown in the profit-and-loss account for that year.
The Full Imputation System applies to distributions from the Immovable Property Account, Foreign Income Account and Maltese Taxed Account. Under this system, the tax paid by the company is imputed as a credit to the shareholder receiving the dividends. Profits allocated to the Foreign Income Account and the Maltese Taxed Account result in tax refunds under the Refundable Tax Credit System (see Refundable Tax Credit System).
Refundable Tax Credit System. In 2007, the Maltese House of Representatives passed a law that implemented an agreement with the EU relating to a refundable tax system for all companies distributing dividends to shareholders. The imputation system under which the tax paid by a company is essentially treated as a prepayment of tax on behalf of the shareholder has been retained but a new refund system is introduced. The new refundable tax system applies both to profits allocated to a company’s Maltese Tax ed Account and to profits allocated to its Foreign Income Account and is available both to residents and nonresidents.
A person receiving a dividend from a company registered in Malta from profits allocated to its Maltese Taxed Account or its Foreign Income Account that do not consist of passive interest or royalties may claim a refund of six-sevenths of the tax paid by the distributing company on the profits out of which the dividends were paid. As a result of the introduction of the new system, the dividend recipient receives a full imputation credit plus a refund of six-sevenths of the tax paid by the distributing company.
Distributions of profits derived from passive interest or royalties or profits derived from a participating holding in a body of persons that does not satisfy the anti-abuse provision (see Participation exemption and participating holding system) do not qualify for the six-sevenths refund. Instead, they qualify for a refund of five-sevenths of the tax paid by the company.
The six-sevenths and five-sevenths refunds apply to distributions made by companies that do not claim any form of double tax relief. Dividends paid out of profits allocated to the Foreign Income Account with respect to profits for which the distributing company has claimed any form of double tax relief (double tax treaty relief, unilateral relief or the flat-rate foreign tax credit; see Foreign tax relief) are entitled to a refund equal to two-thirds of the tax that was suffered by the distributing company gross of any double tax relief. However, for the purposes of this calculation, the amount of tax suffered by the company is limited to the actual tax paid in Malta by the distributing company.
The refundable tax system is extended to shareholders of foreign companies that have Maltese branches. Tax paid in Malta by branches on profits attributable to activities performed in Malta is refunded when such profits are distributed.
Persons must register with the Commissioner for Revenue to benefit from the tax refunds described above.
Participation exemption and participating holding system. Before 1 January 2007, profits derived from a participating holding were taxed at the rate of 35%. On distribution of such profits to nonresident shareholders, such shareholders were entitled to receive a full refund of the tax paid by the company. Effective from 1 January 2007, the Maltese income tax system exempts from tax in – come and capital gains derived by a company registered in Malta from a participating holding or from the disposal of such holding. This exemption is referred to as the participation exemption. At the option of the shareholders, a full refund may still be obtained.
Effective from 2013, the participation exemption is extended to branch profits. This applies to income and gains derived by a company registered in Malta that are attributable to a permanent establishment (including a branch) located outside Malta or that are attributable to the transfer of such permanent establishment, regardless of whether such permanent establishment belongs exclusively or in part to the particular company, including a permanent establishment operated through an entity or relationship other than a company.
A holding in another company is considered to be a participating holding if any of the following circumstances exist:
- A company holds directly at least 10% of the equity shares of a company whose capital is wholly or partly divided into shares, and such holding confers an entitlement to at least 10% of any two of the following:
— Right to vote.
— Profits available for distribution.
— Assets available for distribution on a winding up. The Commissioner for Revenue may determine that the above provisions are satisfied if the minimum level of entitlement exists in the circumstances referred to in the proviso to the definition of “equity holding.” See below for the definition of “equity holding.”
- A company is an equity shareholder in another company, and the equity shareholder company may at its option call for and acquire the entire balance of the equity shares not held by that equity shareholder company to the extent permitted by the law of the country in which the equity shares are held.
- A company is an equity shareholder in a company, and the equity shareholder company is entitled to first refusal in the event of a proposed disposal, redemption or cancellation of all of the equity shares of that company not held by that equity shareholder company.
- A company is an equity shareholder in a company and is entitled to either sit on the board or appoint a person to sit on the board of that company as a director.
- A company is an equity shareholder that holds an investment representing a total value, as of the date or dates on which it was acquired, of a minimum of EUR1,164,000 (or the equivalent sum in a foreign currency) in a company and that holding in the company is held for an uninterrupted period of not less than 183 days.
- A company is an equity shareholder in a company, the holding of such shares is for the furtherance of the equity shareholder’s own business, and the holding is not held as trading stock for the purpose of a trade.
A holding of a company in a body of persons or a collective-investment vehicle that provides for limited liability of investors constituted, incorporated or registered outside Malta, that is not resident in Malta and that is of a nature similar to a partnership en commandite (limited partnership) and whose capital is not divided into shares constituted under the Companies Act, is deemed to constitute a participating holding if it satisfies the provisions of any of the six bullets above.
For the purposes of the above rules, an “equity holding” is a holding of the share capital in a company that is not a property company if the shareholding entitles the shareholder to at least any two of the following rights (equity holding rights):
- Right to vote
- Right to profits available for distribution to shareholders
- Right to assets available for distribution on a winding up of the company
The terms “equity shares,” “equity shareholder” and “equity shareholding” are construed in accordance with the above definition.
The Commissioner for Revenue may determine that an equity holding exists even if such holding is not a holding of the share capital in a company or does not consist solely of such a holding of share capital, provided that it can be demonstrated that at any time an entitlement to at least two of the equity holding rights exists in substance.
A “property company” is a company that owns immovable property located in Malta or any rights over such property, or a company that holds, directly or indirectly, shares or interests in a body of persons owning immovable property located in Malta or any rights over such property.
A company or body of persons carrying on a trade or business that owns immovable property located in Malta or rights over such property is treated as not owning the immovable property or rights over such property if all of the following conditions are satisfied:
- The property consists only of a factory, warehouse or office used solely for the purpose of carrying on such trade or business.
- Not more than 50% of its assets consist of immovable property located in Malta.
- It does not carry on an activity from which income is derived directly or indirectly from immovable property located in Malta.
The application of the participation exemption is subject to an anti-abuse provision. The participation exemption applies to participating holdings if the body of persons in which the participating holding is held satisfies any one of the following three conditions:
- It is resident or incorporated in a country or territory that forms part of the EU.
- It is subject to a foreign tax of at least 15%.
- It does not derive more than 50% of its income from passive interest or royalties.
If none of the above conditions is satisfied, both of the following two conditions must be fulfilled:
- The equity holding by the company registered in Malta in the body of persons not resident in Malta is not a portfolio investment. For this purpose, the holding of shares by a company registered in Malta in a company or partnership not resident in Malta that derives more than 50% of its income from portfolio investments is deemed to be a portfolio investment.
- The body of persons not resident in Malta or its passive interest or royalties has been subject to a foreign tax of at least 5%.
In addition, Malta has also incorporated the recent amendments to the EU Parent-Subsidiary Directive. Consequently, effective from 1 January 2016, the participation exemption on dividends does not apply if the relevant profits were deductible to the distributing company in the other EU member state.
The participation exemption applies only to gains or profits derived from transfers of holdings in companies resident in Malta. For this purpose, transfers encompass a wide scope of transactions, including, among others, assignment, sale, emphyteusis (a contract under which one of the contracting parties grants to the other a tenement in land for stated rent), sub-emphyteusis, partition, donation and transfer of assets by a company to its shareholders, in the course of winding up of the company or in the course of a distribution of assets to its shareholders in accordance with a scheme of distribution.
Foreign tax relief. Under tax treaty provisions and the domestic law, a tax credit against Maltese tax is granted for foreign tax suffered. The amount of the credit is the lower of Maltese tax on the foreign income and the foreign tax paid.
Maltese companies may also reduce their tax payable in Malta by claiming double tax relief with respect to British Commonwealth income tax.
Unilateral tax relief, which is another form of double tax relief, applies if treaty relief is not available and if the taxpayer has proof of the foreign tax suffered. The unilateral relief is also available for underlying tax.
Another form of double tax relief is a flat-rate foreign tax credit (FRFTC), which may be claimed by companies that have a special empowerment clause in their Memorandum and Articles of Association. The empowerment clause requirement applies to companies resident in Malta before 1 January 2007 and is effective from 1 January 2011. Companies, other than companies subject to the empowerment clause requirement, can currently claim the FRFTC. A company resident in Malta before 1 January 2007 could claim the FRFTC without an empowerment clause until 1 January 2011. The FRFTC, which is equivalent to 25% of the net income received (before any allowable expenses), applies to all foreign-source income that may be allocated to the Foreign In come Account. An auditor’s certificate stating that the relevant income is foreign-source income is sufficient evidence that profits may be allocated to the Foreign Income Account. The FRFTC is added to chargeable income and credited against the Maltese tax charge. The credit is limited to 85% of the Maltese tax due before deducting the credit.
The interaction of the four types of double tax relief not only ensures that tax is not paid twice on the same income; it also re – duces the overall effective rate of the Maltese tax.
Determination of trading income
General. Chargeable income is the net profit reported in the companies’ audited financial statements, subject to certain adjustments.
Expenses incurred wholly and exclusively in the production of income are deductible.
Expenses that are not deductible include the following:
- Amortization of goodwill
- All types of provisions
- Voluntary payments
- Expenses recoverable under insurance
- Pretrading expenses (except for expenditure incurred with respect to staff training, salaries or wages and advertising within the 18 months preceding the date on which the company begins to carry on its trading activities)
- Unrealized exchange differences
- Other expenses that are not incurred in the production of income
Inventories. Inventories are normally valued at the lower of cost or net realizable value in accordance with generally accepted ac counting principles.
Tax depreciation (capital allowances). Tax depreciation allow ances include initial allowances and annual wear-and-tear allow ances.
Initial allowances are granted at a rate of 10% with respect to new industrial buildings and structures.
Wear-and-tear allow ances for plant and machinery are calculated using the straight-line method. Industrial buildings and structures are also depreciated using the straight-line method.
The following are the minimum number of years over which the principal categories of plant and machinery may be depreciated.
|Computers and electronic equipment||4|
|Furniture, fitting and soft furnishings||10|
* The cost of non-commercial motor vehicles is limited to EUR14,000.
The annual straight-line rate for industrial buildings and structures, including hotels, is 2%. The Minister of Finance has announced that companies may start claiming wear-and-tear allowances for offices.
Capital allowances are generally subject to recapture on the sale of an asset to the extent the sale proceeds exceed the tax value after depreciation. Any amounts recaptured are added to taxable in come for the year of sale or are used to reduce the cost of a re placement asset. To the extent sales proceeds are less than the asset’s depreciated value, an additional allowance is granted. Capital allow ances on assets for which investment allowances have been granted are not recaptured, and no additional allow ances described in the preceding sentence are granted.
Groups of companies. A company that is part of a group of companies may surrender losses to another member of the group. Two companies are deemed to be members of a group of companies for tax purposes if they are resident in Malta and not resident in any other country for tax purposes, and if one of the companies is a 51% subsidiary of the other or both are 51% subsidiaries of a third company that is resident in Malta. A company is considered to be a 51% subsidiary of another company if all of the following conditions exist:
- More than 50% of the subsidiary’s ordinary shares and more than 50% of its voting rights are owned directly or indirectly by the parent company.
- The parent company is beneficially entitled to receive directly or indirectly more than 50% of profits available for distribution to the ordinary shareholders of the subsidiary.
- The parent company is beneficially entitled to receive directly or indirectly more than 50% of the assets of the subsidiary available for distribution to the ordinary shareholders of the subsidiary in the event of a liquidation.
The group company surrendering the losses and the group company receiving the losses must have accounting periods that begin and end on the same dates, except for newly incorporated companies and companies in the process of liquidation.
Relief for losses. Tax losses incurred in a trade or business may be carried forward indefinitely to offset all future income. Unabsorbed tax depreciation may also be carried forward indefinitely, but may offset only income derived from the same source. A carry-back of losses is not allowed.
Other significant taxes
The following table summarizes other significant taxes.
|Nature of tax||Rate (%)|
|Value-added tax; standard rate||18|
|Stamp duty on various documents and transfers of ownership|
|Sales of real property||5|
|Transfers of marketable securities||2|
|Life insurance policies||0.1|
|Other insurance policies||11|
|Excise duty, on various commodities including cigarettes, soft drinks and beer; although levied on producers or importers when they distribute the products for general consumption, the duty is ultimately borne by consumers because it is
included in the price of the products
Foreign-exchange controls. When Malta became a member of the EU, it abolished foreign-exchange controls and introduced some reporting obligations under the External Trans actions Act.
Anti-avoidance legislation. Maltese law includes no specific transfer-pricing rules. However, it does contain general anti-avoidance provisions to prevent the avoidance of tax through arrangements that are solely tax-motivated. Under these provisions, the Inland Revenue Department may ignore an arrangement and add an amount to chargeable income if it establishes that a transaction has the effect of avoiding or postponing tax liability.
Debt-to-equity rules. Malta does not impose any debt-to-equity requirements.
Treaty withholding tax rates
Under Maltese domestic tax law, dividends, interest, discounts, pre miums and royalties paid to nonresidents are not subject to with holding tax. Interest and royalties paid to nonresidents are exempt from income tax in Malta if they are not effectively connected with a permanent establishment in Malta through which the nonresidents engage in a trade or business.
Under Malta’s tax treaties, the maximum tax rates applicable to dividends paid by Maltese companies to persons resident in the other treaty countries do not exceed the tax rate payable by the recipient companies in Malta.
The following table provides the maximum withholding tax rates for dividends, interest and royalties under Malta’s tax treaties.
|Dividends||Required percentage for major shareholding|
|Rate for minor shareholding||Rate for major shareholding||Interest||Royalties|
|Czech Republic||5||5||– (a)||0||5|
|Hong Kong SAR||0||0||– (a)||0||3|
|Isle of Man||0||0||– (a)||0||0|
|Saudi Arabia||5||5||– (a)||0||05/07/17|
|Slovak Republic||5||5||– (a)||0||5|
|United Arab Emirates||–||–||– (a)||0||0|
|United Kingdom||–||–||– (a)||10||10|
|United States (b)||15||5||10||10||10|
|Non-treaty countries||0||0||– (a)||0||0|
a) Not applicable.
b) These are the general rates, but other rates may apply in specified circumstances.
Malta has signed tax treaties with Mauritius and Ukraine and a protocol with Belgium, but these agreements are not yet in force.