|Tax summary:||A Malta company is taxed on profit on its worldwide income at a headline rate of 35%. Upon declaration of a dividend distribution, non-resident shareholders may claim a refund of up to 6/7ths, reducing the effective tax to as low as 5%. Consolidation permits further administrative and cash flow efficiency.|
|Main advantage:||Fully compliant tax liability management|
|Applies to:||Malta Companies with non-resident ultimate shareholders; restrictions apply.|
|Is it Mandatory?||No, this tax method is optional|
Malta Tax Refund System
A company established in Malta is required to consider all its income, wherever this arises in the world, for the calculation of corporate income tax. In cases where tax has already been paid abroad, reductions to the Malta tax liability may apply.
The headline rate of Malta corporate tax is 35% on operating or net profit. Upon the declaration of a dividend of the remaining 65% profit, shareholders may claim a refund on all or part of the corporate tax liability.
Malta’s tax refund system applies to both resident and non-resident shareholders in respect of the tax on profits arising from both domestic and international activities, with the exception of profits arising directly or indirectly from immovable property located in Malta. Resident shareholders do not normally apply for the tax refund as the dividends would then be taxable in their hands as individuals at the same top rate of 35%.
Malta Tax Refund Rates
The amount of refund varies depending on the nature and source of the company income and generally will apply as follows:
- 100% of the Malta tax paid where income or gains are derived from an investment which qualifies as a Participating Holding.
- 5/7ths of the Malta tax paid, where the income received by the company is passive interest or royalties or income from a Participating Holding which does not fall within the safe harbours or satisfy the anti-abuse provisions. This leaves a net tax leakage of 10%.
- 2/3rds of the tax payable in Malta, where income has benefited from double taxation relief, resulting in net tax of c. 12%.
- 6/7ths of the Malta tax in all other cases, providing the net tax leakage of 5%.
Malta Tax Refund is Approved
Malta’s tax refund system that offers a low effective tax rate was implemented in 1954 and in recent years has been assessed and approved by both the EU Commission and the EU Code of Conduct Group.
Malta Tax Consolidation
As from year of assessment 2020, it is possible to simplify the corporate income tax calculation and allow for consolidated tax reporting. Qualifying Malta companies and their shareholders may considerably improve their cash flow management and reduce administrative burden where these are entitled to tax refunds.
Under the consolidation rules, a Malta company that elects to be treated as part of a fiscal unit will not need to pay the full 35% corporate income tax which subsequently could be claimed back in full or in part by its shareholders. The tax refund due to the shareholders will be considered when calculating the final tax liability of the consolidated fiscal unit and shall be paid by such unit’s principal taxpayer. Moreover, the attractive consolidated tax rate will be applied even if the members of the fiscal unit do not distribute the dividends out (as is required now to avail of the tax refund).
The application of these rules is optional.