Malta Corporate Tax and Double Taxation Treaties

Corporate Tax Malta

Malta offers a highly efficient corporate income tax regime that avoids double taxation on taxed company profits distributed as dividends. Malta companies are taxed at a rate of 35%. However, a full imputation system applies to the taxation of dividends under which the tax paid by the company is imputed as a credit to the shareholder receiving the dividend.

This means that profits taxed at a corporate level are not subject to further tax in the shareholder’s hands, and, depending upon the rate of tax applicable to the recipient of dividends, may trigger entitlement to a tax refund in the hands of the recipient of taxable profits.

As a result, shareholders of a Maltese company should, upon a distribution of profits, be entitled to claim a tax refund of 6/7ths of the relevant tax paid in respect of trading income and 5/7ths of the relevant tax paid in the case of passive interest and royalties.

This leads to effective tax rates of 5% in respect of trading income and 10% in respect of passive interest and royalties. The refund is reduced to 2/3rds where the distributing company claims double taxation relief.

Malta’s participation exemption regime relieves 100% of the income tax both on the dividends derived from a participating holding (where a company holds directly at least 5% of the equity shares of a non-resident company or meets certain other criteria) and on capital of such income or gains from the transfer of part or all of a participating holding. These provisions also apply to all forms of partnerships.

Alternatively, instead of claiming this participation exemption, a company can choose to pay tax at the normal tax rate and then receive a full refund of the tax paid upon a distribution of dividends.

Any gains or profits derived by non-residents on a disposal of shares in a Malta-resident company are exempt from tax in Malta if the beneficial owner of the gain or profit is not resident in Malta and the company does not, directly or indirectly, control immovable property situated in Malta.

Malta does not levy any withholding taxes on outbound dividends, interest and royalties.

Double Taxation Treaties Malta

Successive Maltese governments have negotiated Double Taxation Agreements (DTAs) with important trading partners and emerging countries, to encourage the growth of international trade including financial services. Once income tax act is concluded, double taxation relief is available under the terms of the respective tax treaty, which will override any contrary under Malta’s domestic tax legislation.

Malta has built an extensive network of DTAs with over 80 countries around the world. Most of Malta’s treaties are based on the OECD Model Convention, which provides for the allocation of taxing rights to one or the other treaty countries. When Malta is to tax credit the country of residence and the other treaty country is to tax at source, the taxpayer can claim a credit for foreign tax paid against tax paid in Malta.

Malta’s tax regime also provides for unilateral double taxation relief to be given for foreign income even where there is no double taxation agreement in place. This unilateral relief ensures that income arising from overseas is not subject to double taxation.

Malta does not levy any withholding taxes on dividends, interest and royalties paid to non-residents, subject to certain conditions. In addition, no Maltese tax is imposed on capital gains realised from transfers of shares by maltese companies to non-residents, provided that the sole or main assets of the company whose shares are being transferred do not comprise immovable property situated in Malta.