Key tax factors for efficient cross-border business and investment involving Malta.
With the following countries, territories and jurisdictions:
|Belgium||Hong Kong SAR||Mexico||Spain|
|Croatia||Isle of Man||Norway||Turkey|
|Egypt||Rep. of Korea||Romania||US|
Limited Liability company, partnership en commandite and partnership en nom collectif that elect to be treated as a company.
A minimum of EUR 1,165 for a private company and EUR 46,587.47 for a public company.
A company is resident if it has been incorporated in Malta or if its management and control is exercised in Malta. A company is domiciled in Malta if it has been incorporated in Malta (i.e. Maltese company law applies to it).
Companies both resident and domiciled in Malta are taxed on their worldwide income.
Companies resident but not domiciled in Malta (or vice versa) are taxed on their Maltese source income and foreign source income received in Malta; however, they are not taxed on capital gains arising outside Malta, even if they are received in Malta.
Non-resident companies are taxed on their Maltese source income only.
The fiscal year generally follows the financial year, ending on December 31, but may be changed upon request.
Company tax returns must, in principle, be submitted within 9 months of the end of the financial year or March 31 of the following year, whichever date is later. Companies carrying on a business must retain proper and sufficient records of their income and expenditure and are required to submit, together with their tax return, a balance sheet and income statement accompanied by a report drawn up by a certified public auditor.
The standard corporate income tax rate is 35 percent. The application of double taxation relief and the full imputation system can reduce the standard rate for investment income to 0 – 6.25 percent, except on income derived from immovable property situated in Malta.
Both resident and non-resident shareholders are entitled to the same tax refunds in respect of underlying tax on distributed company profits. The only exception to this universal tax refund rule applies to income subject to a final tax and to the tax chargeable on profits derived, directly or indirectly, from immovable property situated in Malta.
No. No WHT charged, provided a non-resident person is not engaged in trade or business in Malta through a permanent establishment (“PE”) situated there and where the debt claim in respect of which the interest, discount or premium is paid is effectively connected with such a PE; AND the non-resident is not owned and controlled, directly or indirectly, nor does the non-resident act on behalf of an individual/individuals who is/are ordinarily resident and domiciled in Malta.
No. No WHT charged, provided a non-resident person is not engaged in trade or business in Malta through a PE situated there and where the intellectual property in respect of which the royalties are paid is effectively connected with such a PE; AND the non-resident is not owned and controlled, directly or indirectly, nor does the non-resident act on behalf of an individual/individuals who is/are ordinarily resident and domiciled in Malta.
Dividends received from a resident subsidiary benefit from the imputation system while dividends received from a non-resident subsidiary benefit from a 100 percent participation exemption when derived from a participating holding.
A participating holding exists where the shareholder:
Certain other conditions apply. In terms of the amended Parent-Subsidiary Directive, the participation exemption will not apply where the dividends were deductible for the subsidiary.
100 percent participation exemption applies with respect to capital gains derived from a participating holding (see above).
Trading losses may be carried forward indefinitely. No carry-back is allowed.
Group relief regime available for trading losses.
EUR 2 on every EUR 100 or part thereof unless the company in which the shares are transferred derives 75 percent or more of its value from immovable property in Malta, in which case, the duty is EUR 5 on every EUR 100 or part thereof.
EUR 5 on every EUR 100 or part thereof of the higher of the consideration and the market value of the immovable.
As per above.
Yes. New Controlled Foreign Company (CFC) rules became effective on January 1, 2019 and were adopted as part of the implementation of the EU Anti-Tax Avoidance Directive (ATAD).
CFC rules apply to entities in which Maltese companies hold (directly/indirectly and either solely or jointly with associated enterprises) more than 50 percent of the voting rights, capital or rights to profits. Companies/PEs are excluded from the application of CFC rules if: (i) their accounting profit does not exceed EUR 750,000 and non-trading income does not exceed EUR 75,000; or (ii) accounting profits amount to no more than 10 per cent of operating costs for the tax period.
CFC rules are triggered if the CFC is subject to low taxation in the country of residence, i.e. where the CFC’s effective tax rate is less than half of the rate that would apply if the business or entity was located in Malta. The Maltese CFC rules do not apply to a PE of a CFC that is not subject to tax or is exempt from tax in the jurisdiction of the CFC.
CFC income only includes non-distributed income of the CFC arising from non-genuine arrangements which have been put in place for the essential purpose of obtaining a tax advantage (corresponding to option “b” of CFC rules prescribed by ATAD), provided that the CFC would not have owned the assets/ undertaken the risk that generates such income without the significant people functions within the parent company.
No (however, anti-avoidance rules to be considered)
No. Will be affected by EU developments on country-by-country reporting requirements.
Malta recently introduced Interest Limitation rules (“ILR”) effective from January 1, 2019 as part of the transposition of ATAD.
ILR limit the deduction of exceeding borrowing costs in the tax period in which they are incurred by the higher of (i) 30 percent of taxpayer’s earnings before interest, tax, depreciation and amortization (“EBITDA”); or (ii) EUR 3,000,000. Exceeding borrowing costs refer to the excess of deductible borrowing costs over taxable interest revenues and other economically equivalent taxable revenues.
A higher deduction is allowed for taxpayers that are members of a group that is consolidated for accounting purposes, provided that the taxpayer demonstrates that its equity/total assets ratio is not more than 2 percent lower than the equity/total assets ratio of the relevant accounting group. The ILR do not apply to standalone entities.
Unused interest capacity and exceeding borrowing costs may be carried forward to future periods for up to 5 years.
A general anti-avoidance rule is provided for under Maltese tax legislation. From January 1, 2019, an additional GAAR became effective, corresponding to the wording of Article 6 of ATAD.
Some SAARs are applicable, usually in relation to companies owning real estate in Malta.
Yes (rulings bind local tax authorities for a maximum period of 5 years, but are renewable).
R&D tax amortization at 150 percent on meeting specific conditions. SMEs may be eligible for R&D tax credits. Tax credit for employment of a person holding or reading a doctoral degree in one of the areas as specified in the Incentive Guidelines.
Investment tax credits in line with EU State Aid rules.
The standard rate is 18 percent, which may be reduced to 5 percent or 7 percent, depending on the nature of goods or services.
1. Malta recently introduced a Notional Interest Deduction on risk capital (any form of free capital which does not bear interest such as equity share capital, share premium less any risk capital that is invested and generates exempt income). Subject to the fulfilment of conditions prescribed under the relevant rules, the notional deduction of interest could reach a maximum of 90 percent of the chargeable income of an entity.
2. Malta recently introduced Exit Taxation rules as part of the transposition of ATAD. These rules will take effect from January 1, 2020. In line with ATAD, exit taxation will be triggered in cases where (a) a taxpayer transfers assets from the head office/PE in Malta to a PE/head office outside Malta; (b) a taxpayer becomes tax resident in another state, provided that their assets will not be effectively connected to a PE in Malta; (c) a taxpayer transfers the business carried on by its PE from Malta to another state.
The exit tax will be charged in terms of the domestic income tax on capital gains and will be calculated by deducting the value of the transferred assets for tax purposes from their market value at time of transfer.
Source: Maltese tax law and local tax administration guidelines, updated 2019.
KPMG in Malta
T: +356 2563 10 04
KPMG in Malta
T: +356 2563 10 29