When creating a new taxation system, Malta was assisted by a global tax consultant, whose expertise allowed to create an EU-compatible, but yet pro-business environment. The main legislation is the Maltese Income Tax Act (Chapter 123 Laws of Malta), the Income Tax Management Act (Chapter 372) and the Value Added Tax Act (Chapter 406)
5% effective corporate profit tax, if companies are owned by non-residents or by residents without domicile in Malta. The unique structure complies with “subject to tax” regulations of double tax treaties: companies pay a profit tax of 35% and the recipient of dividends receive 30% or 6/7, if it is a corporation whose beneficial owners are not both resident and domiciled in Malta. In case of royalties and interest rates, there is sometimes a 5/7 refund, so the final tax rate is 10%.
Consolidated group income tax rules were introduced with legal notice 110 2019. Subject to some conditions, companies can form a group, submit a single tax declaration and pay only the 5%.
For legal entities, the local tax system in Malta defines 5 separate “accounts”, some of them have tax advantages: Final Taxed Account, Immovable Property Account, Foreign Income Account, Maltese Taxed Account and Untaxed Account. Revenues and expenses have to be allocated within the proper account.
Internationally, there are different options to eliminate double taxation: a double taxation relief based on a treaty, unilateral relief, Commonwealth relief and the FRFTC which is a flat rate foreign tax credit applicable in the Foreign Income Account subject to specific conditions (a 25% credit for foreign tax deemed to have been suffered)
In order to benefit from the exemption of provisional tax in case of a share transfer, a company that has mainly activities outside Malta has to file an application DDT10 with the Commissioner for Revenue (CfR). Periodically, an application for renewal is required
In the menu “Advisory” we offer clients to benefit from our know-how in international tax planning and international tax law.
Structures shall follow the business activities, so please look at our guidelines for Company Structures.
If there is a proper setup, it is important to avoid legal issues. So please consult our guidelines about Real Implementation
VAT registration is processed correct and rather quick by local authorities, so short after your company formations in Malta, the company establishment is finished and the business can start
Application of the Parent-Subsidiary Directive of the EU, according to which dividends from a subsidiary company can be received tax-free in the parent company, even across borders, if some conditions are met. Also the refund from dividend tax remains tax free in the holding. If the mother company is situated in a country that has rather unpredictable tax authorities, a corporate structure with an operative company, with a dividend feeder holding in Malta and with beneficial owners outside of Malta is an option. The holding might also be a limited partnership (k.s.) in Slovakia, which can receive dividends tax free from the Maltese subsidiary. Then private owners can legally and tax free take out the money from the structure, and such owners can reside in many countries. However, it is important to make sure that the holding has real activities by itself, so foreign tax authorities cannot qualify it as transparent.
The concept of “Residence without Domicile” offers tax advantages: In current practice, foreigners generally are deemed to have residence but not domicile in Malta (there are 3 concepts of domicile: domicile of origin, if someone is born as a Maltese, domicile of dependence, if a foreign woman marries a Maltese, and domicile of choice that requires an active declaration). Residents without domicile are subject to a minimum tax of 5000 € per year, if income outside Malta exceeds 35000 €.
Residents without domicile are only taxable on: income arising in Malta, income arising outside Malta and remitted to Malta, and profits from real estate in Malta. There is no tax on capital and residents without domicile can receive capital gains arising outside Malta and remit them to Malta (therefore separate bank accounts for income and for capital are recommended). Income created outside Malta that remains outside Malta is not subject to tax (if you use your foreign income to buy an apartment from a Maltese seller, ask him to open a bank account abroad, then it is him who remits the money to Malta and not you). However, capital gains arising in Malta are subject to tax for natural persons residing in Malta.
A resident without domicile can run a Maltese company with a foreign holding (in a country where there is no tax on receiving dividends and no tax on distributing dividends). The Maltese company pays income tax, the holding receives the refund and the full imputation system is applicable: dividends can be remitted to Malta tax free, because they are distributed from the holding to individuals out of originally taxed profits. Also the 5000 € minimum tax may be reduced by a credit for taxes already paid in Malta.
According to Maltese tax law, a corporation also can have the status of “Resident without Domicile” and therefore be subject to tax only on income earned in Malta or remitted to Malta. This is the case for example, if a company is registered in Cyprus and has management and control in Malta. Such a structure is favorable for passive income (interest or royalties), which are tax free if not remitted to Malta, because they are deemed to arise where the payer is located.
Similar benefits are possible using a partnership or a silent partnership. However it is important to define double taxation issues correctly in order to avoid a withholding tax in the source country.
The attractive shipping legislation in Malta (approved by the EU) allows shipping companies that own, charter or operate a qualifying ship to benefit from a tonnage tax system. This means Malta does not impose tax on income derived from shipping activities (including carriage of goods or passengers, chartering, ancillary services, but also sale/transfer of ownership, or the disposal of any rights connected with a tonnage tax ship.). There are tax benefits for ship financing, and income derived by a ship manager from ship management activities is treated as income derived from shipping activities and are exempt from tax.
In addition, there are VAT exemptions depending on the size and the use of the ship. Leasing of pleasure boats in Malta is subject to 18% Maltese VAT. However, the lessor can meet certain conditions so the VAT is charged only for the actual time that the yacht spends within EU territorial waters.
According to The Residence Programme Rules for citizens of the EU and Switzerland and according to the Global Residence Programme for non-EU citizens can transfer their residence to Malta and benefit from tax incentives, if they buy real estate for at least 275000€ or if they rent real estate for at least 9600 € per year. In addition, a fit and proper test is required. Then the tax on income earned outside Malta and remitted to Malta is 15%, and there is a minimum tax of 15000 € per year. There is also a program for high qualified individuals who then pay only 15% on their income earned in Malta.
Easy relocation of residence: Malta is a member of the EU, therefore EU citizens are entitled for a residence permit. Also, within the EU exit tax is not effective and a tax residence certificate is issued quickly.
Redomiciliation Rules: according to Maltese legislation, it is possible to apply the concept of residence without domicile to legal entities. If a foreign company (e.g. offshore) re domiciles to Malta, this offers additional tax advantages, because such an entity has limited tax liability in Malta and income arising outside Malta is not taxable in Malta. In addition, this structure creates credibility and opens the door to the EU, EU- directives and double tax treaties.
EU subsidies and Tax Credits as Investment incentive: under certain conditions, a percentage of the total amount that is invested in the first 3 years can be received as a tax credit.
For Block-chain technology, Malta introduces 2018 a new comprehensive regulation, similar to the one in the gaming industry. The Digital Innovation Authority certifies DLT platforms. According to the Technology Arrangements and Services Bill, there are certified Technology Service providers and Technology arrangements. This system works through administrators and auditors. Finally, a Virtual Financial Assets Bill deals with regulatory requirements of ICOs and blockchain applications (e.g. utility tokens, crypto currencies, exchanges).
Legal Documents and some Double Tax Treaties: Downloads & Links
(updated April 2020)