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Take a Deep Dive into Malta's Taxation System

Malta has a well-established taxation system designed to be efficient and effective. The combination of Malta’s tax system and its extensive double tax treaty network (over 70) means that investors can achieve significant fiscal efficiency using Malta as a base with proper planning and structuring. 
 
Businesses in Malta benefit from applying the full imputation system and the refundable tax credit scheme on profits distributed to shareholders. Malta also offers an ideal  tax residency status for individuals  through several  schemes to benefit non-residents  to base their tax status locally.    
 

In this article, we're going to discuss:


Individual Taxation in Malta
 

Income Tax – Personal and Corporate   

Personal Taxation in Malta   

The tax liability of individuals depends on their residence, ordinary residence and domicile. Malta has a progressive tax system, with tax rates ranging from 0% to 35%. The higher the income, the higher the tax rate will be.  
 
Persons who are ordinarily resident and domiciled in Malta are subject to income tax in Malta on their worldwide income and certain capital gains. Persons who are either not ordinarily resident in Malta, or are not domiciled in Malta, are subject to Maltese income tax on their income arising in Malta and on their foreign income (but not foreign capital gains) received in Malta.
 
Temporary residents in Malta do not pay tax on the income or capital gains arising outside Malta, whether remitted or not but are only charged tax on income earned in Malta.   
 
 
The tax rates for resident individuals opting to be taxed on the single rates are as follows. Married individuals can also opt for a single computation and use the following tax rates:   
 
 
Taxable income (€) Rate (%) Subtract (€) 

up to 9,100 

9,101 – 14,500 

15 

1,365 

14,501 – 19,500 

25 

2,815 

19,501 – 60,000 

25 

2,725 

60,001 and over 

35 

8,725 

 

Malta enables married couples to file a joint tax computation whereby their partners’ incomes are aggregated, and tax on the global income is calculated.   

The tax rates for married couples are: 

Taxable income (€) Rate (%) Subtract (€) 

up to 12,700 

12,701 – 21,200 

15 

1,905 

21,201 – 28,700 

25 

4,025 

28,701 – 60,000 

25 

3,905 

60,001 and over 

35 

9,905 

 

Individuals are subject to tax on income arising in a calendar year (the basis year). Such income is assessed by tax in the year following the year in which it occurs (i.e. the year of assessment).   

For example, the income for the year ending 31 December 2022 is assessable to income tax in 2023. Tax on employment income is paid under the FSS system, whereby the employer deducts tax payments from wages paid to the employee.   

Income from any trade or business will be subject to tax after deducting those business expenses which are wholly and exclusively incurred in the production of the income.   

In the context of employment income, expenses are deductible only to the extent that they are wholly, exclusively and necessarily incurred in the performance of the duties of the employment or office. Fringe benefits payable to employees are taxable together with other employment income.   

Concerning dividends, in general, Malta operates a full imputation system under which dividends paid by a resident company carry a tax credit equivalent to the tax paid by the company on its profits.   

Shareholders are taxed on the gross dividend at the applicable tax rates but are entitled to deduct the tax credit attached to the dividend against their total income tax liability. This tax may be treated as a final tax at the taxpayer’s option.   

Interesting read:

Corporate Taxation in Malta

A company which is a resident of Malta pays tax at the corporate tax rate of 35%.

A company incorporated in Malta is considered both resident and domiciled in Malta and therefore taxable on a worldwide basis on its income and certain capital gains. On the other hand, a company incorporated outside Malta but managed and controlled in Malta would only be considered as resident in Malta (‘Non-Domiciled Company). Accordingly, such a company will only be taxable in Malta:  

  • On all chargeable income earned in or derived from Malta;   
  • On all chargeable gains realised in Malta; and   
  • On all chargeable income arising outside Malta to the extent that such income is remitted to Malta.   

Upon receipt of dividend distribution and if certain conditions are satisfied, the shareholders of the Maltese company may be entitled to claim a refund of Maltese tax attached to such dividend distribution. This may have the effect of significantly reducing the effective tax charged in Malta. 

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Corporate Taxation in Malta

Dividend Income & Disposal of Participating Holdings  

A Malta company, in receipt of dividends from a participating holding in a non-resident entity other than a property company, may, at its option:   

Apply a participation exemption such that the dividend income would be exempt from tax in Malta; or   

Opt to pay the tax at 35%, and the shareholder will be eligible for a 100% refund of tax upon receipt of a dividend.   

The same options would be available concerning capital gains or other profits derived from the transfer by a Malta company of a participating holding in either a resident or a non-resident entity which is not a property company.   

The Malta company is deemed to have a participating holding in an entity if it holds at least 5% of the equity shares in that entity, or it made a minimum equity share investment representing a total value of €1,164,000 and held the same for an uninterrupted period of not less than 183 days.   

Equity shares are shares which entitle the holder to any two of the following rights:   

(i) Voting rights;   

(ii) Dividend rights; and   

(iii) An entitlement to assets available for distribution in the event of a winding-up.   

In the case of dividend income, the holding would also need to satisfy the below conditions:  

  1. It is resident or incorporated in an EU country or territory;   
  2. Is subject to any foreign tax at a rate of at least 15%; or   
  3. Derives less than 50% of its income from passive interest or royalties.   
  4. It is not a portfolio investment and has been subject to at least 5% tax.  

Tax Incentives in Malta

Shipping organisations are exempt from income tax on income derived from shipping activities as defined in the Merchant Shipping Act. Instead, they are subject to an annual tax based on tonnage.   

Income derived from the ownership, leasing or operation of an aircraft used in the international transport of passengers or goods is deemed to be sourced outside Malta. It is not subject to tax in Malta in the hands of a resident non-domiciled person, provided that such income is not received in Malta. 

Withholding Taxes  

Malta does not levy withholding taxes on outbound dividends, interest or royalty payments. In addition, capital gains arising on the transfer of shares in Malta companies by non-residents are exempt from Maltese tax.  

Duty on Documents Exemption  

Companies with more than 90% of their business interest outside Malta and owned by non-resident shareholders may apply for duty on documents exemption. This means that no stamp duty is levied on the transfer of shares on any new non-resident buyers of the shares.  

A company holding a certification of this exemption may also benefit from certain tax compliance advantages.  

Tax Procedures in Malta

The income tax year is the calendar year (year of assessment). Corporate profits are assessable based on the immediately preceding accounting year (basis year). For example, the profits of the year ending on 31 December 2021 (basis year) are assessable to income tax in 2022 (year of assessment).   

A company with a December financial year end typically must file its annual tax declaration within nine (9) months for its year-end. A two (month) extension is applicable for electronic filings.  

A company would typically need to pay its tax liability within nine months for the company year-end unless it is in a position of duty on documents exemption, in which case, the tax payment would be allowed up to 18 months after the company’s year-end.  

After the second year of operation, the company would typically be required to pay provisional tax payments in three instalments throughout the year in advance of its tax liability for the year. 

Value Added Tax (VAT) in Malta   

Malta VAT is levied on the supply of goods and services made in Malta for consideration by a taxable person acting as such, on intra-Community and new means of transport and excise goods, as well as on importations acquisitions. Malta VAT Legislation, as EU Member State, is in line with EU Directives and Regulations, save any derogations agreed with the EU on accession.   

A standard rate of 18% applies to all taxable supplies of goods and services, all importations and intraCommunity acquisitions of goods which are not expressly taxable at other rates or exempt from VAT.   

Goods and services outlined in Schedule 8 of the VAT Act are taxed at a reduced rate of either 5% or 7%.   

The zero rate applies to those goods and services outlined in Schedule 5 Part 1 of the VAT Act, which deals with supplies of goods and services that are exempt from credit.   

The zero rate is, in general, applied to exports and like transactions; international goods traffic; intra-Community supplies, international transport and ancillary services; certain supplies by brokers or other intermediaries; supplies of sea vessels, aircraft, gold, food, pharmaceutical goods; certain transport services and supplies of goods onboard cruise liners.

Malta is well known for its attractive taxation system, which significantly benefits businesses and individuals. However, navigating the Malta tax system can be complex, and it is crucial to seek professional advice to ensure that you comply with regulations.