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Malta's Participation Exemption

Malta's Participation Exemption

Malta is fast becoming the jurisdiction of choice for an increasing number of multinational groups seeking an efficient holding structure. Malta applies a 100% participation exemption regime. The participation regime applies to dividends and capital gains derived from a participating holding or from the transfer of part or all of such participating holding.


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A participating holding is found where a company resident in Malta holds equity shares in another entity and the former:  

  1. Holds directly at least 5% of the equity shares in a company, body of persons or collective investment scheme, which holding confers an entitlement to at least 5% to any two of the following rights:
    i.    Right to vote;
    ii.   Right to profits available for distribution;
    iii.  Right to assets available for distribution on a winding up; or
  2. Is an equity shareholder and is entitled to purchase the balance of the equity shares or has the right of first refusal to purchase such shares or is entitled to sit as, or appoint, a director on the Board; or
  3. Is an equity shareholder which holds an investment of a minimum of €1.164 million (or the equivalent sum in another currency) and such investment is held for an uninterrupted period of at least 183 days; or
  4. Holds the shares or units for the furtherance of its own business and the holding is not held as trading stock for the purpose of a trade.



While it is most common for a participating holding to be held in a company, Malta’s participation exemption is also extended to holdings in other entities, such as a partnership or European Economic Interest Grouping irrespective of whether such entity elects to be treated as a company for tax purposes in Malta, or a collective investment vehicle that provides for limited liability of investors, provided the above conditions for the application of the participation exemption are satisfied.

With respect to dividends, the participation exemption is applicable if the entity in which the participating holding is held:

  • is resident or incorporated in a country or territory which forms part of the European Union; or
  • is subject to tax at a rate of at least 15%; or
  • has 50% or less of its income derived from passive interest or royalties; or
  • is not a portfolio investment and it has been subject to tax at a rate of at least 5%.

However, this additional requirements do not apply in the case of gains derived from the transfer of a participating holding. Such gains are therefore exempt with no further prerequisites.

Furthermore, the exemption also extends to income attributable to a permanent establishment (“PE”) (including a branch) of a Maltese company where the PE is situated outside Malta, and gains derived from the transfer of such permanent establishment. The exemption applies irrespective of whether such PE belongs exclusively or partly to the Maltese company and also applies where the PE is operated through an entity or relationship, other than a company, in which the Maltese company has an interest.

The profits or gains to which the exemption applies are calculated on an arm’s length basis, i.e. as if the permanent establishment is an independent enterprise operating in similar conditions.

Any gains or profits derived by non-residents on a disposal of shares or securities in a company resident in Malta are exempt from tax in Malta, provided that the company does not have, directly or indirectly, any rights over immovable property situated in Malta, and the beneficial owner of the gain or profit is not resident in Malta and not owned and controlled by, directly or indirectly, nor acts on behalf of an individual/s ordinarily resident and domiciled in Malta.

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KPMG International Cooperative (“KPMG International”) is a Swiss entity.  Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.

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