Shareholders who receive dividends from a Malta Company may benefit from a number of refunds which will considerably reduce the net tax leakage to as low as 5%. The refunds available to shareholders are the following:
Income Tax in Malta is charged on all sources of income, namely:
Certain capital gains are treated as income. Fringe benefits provided in virtue of an employment or office are deemed to constitute income for tax purposes.
For Individuals who are employed, a Final Settlement System (FSS) is in place, whereby tax is deducted from the individual’s earnings during the year to ensure that all the tax from employment income, and pensions, is collected in the same year. Self employed individuals and limited liability companies are obliged to make quarterly provisional tax payments during the current year of assessment which is based on the profits that the company or the self employed individuals made 2 years prior to when the provisional tax payments are being made. The provisional tax payments assist self employed individual and companies by paying their tax due in 3 installments rather than in one lump sum. Any tax still unpaid is remitted on the date the tax return is due for filing. For individuals, the filing date is the 30 June whilst for companies the return is due by not later than nine months from the accounting year-end.
Personal income is brought to charge at the rates applicable for the relevant year of assessment, with different tax brackets for single and married individuals. An Individual’s income may be taxed up to a maximum rate of 35%. Below are the tax brackets for resident single and married individuals and for non-resident individuals for the basis year 2010.
Persons ordinarily resident and domiciled in Malta
| Married | Single | ||
| Income, Euro | Tax rate | Income, Euro | Tax rate |
| 0 – 11,900 | 0% | 0 – 8,500 | 0% |
| 11,901 – 21200 | 15% | 8,501 – 14,500 | 15% |
| 21,201 – 28,700 | 25% | 14,501 – 19,500 | 25% |
| 28,701 and over | 35% | 19,501 and over | 35% |
Non-residents (married or single)
| Income, Euro | Tax rate |
| 0 – 700 | 0% |
| 701 – 3,100 | 20% |
| 3,101 – 7,800 | 30% |
| 7,801 and over | 35% |
Companies are subject to a rate of tax of 35%. Certain types of income and certain individuals may benefit from reduced rates of tax.
Malta is the only state of the European Union which operates a full imputation system whereby on the distribution of dividends made by a company resident in Malta to its shareholders, the dividends carry a tax credit which is equal to the tax paid by the company out of which the distribution is being made. Shareholders are taxed on the gross dividend at the personal rates but are entitled to deduct the tax credit attaching to the dividend against their total income tax liability.
The Income Tax Act defines a company as any partnership constituted in terms of the Companies Act, 1995, or the Commercial Partnership Ordinance, the capital of which is divided into shares. For income tax purposes this definition is used as to what determines a company. The definition of a company includes any body of persons constituted, incorporated or registered outside Malta, co-operative societies and partnerships ‘en commandite’.
The tax rate for companies is charged at 35%. The way tax is charged on companies’ profits is similar to the applicability for individuals. Companies registered and resident in Malta are considered to be domiciled and resident in Malta and are therefore taxed on their world wide income. Companies who are either not registered (not domiciled) or not resident in Malta are taxed on those profits arising in Malta. Companies are considered to be resident in Malta when their management and control activities are exercised in Malta, which is closely linked to the place where the directors’ meetings with regards to fundamental business decisions are held. Overseas companies that establish a place of business in Malta are charged to tax on income arising in Malta, and on that remitted to Malta, but are entitled to deduct a proportion of head office expenses attributable to their Malta operation.
As discussed earlier, Malta operates a full imputation system of taxation. When a company registered in Malta distributes profits to its shareholders in the form of dividends, the shareholders are taxed on the gross dividend, however, they may apply a credit of the tax paid by the company on those dividends. A shareholder has the option to either not declare the dividend, if his tax liability is within the 35% bracket, or if his income falls in one of the lower brackets, he may apply for a refund on the tax paid by the company.
Malta operates a system of tax accounting, whereby the profits of a Malta registered company are allocated for tax purposes to different tax accounts. The Tax accounts are five: the Foreign Income account (FIA), the Maltese Taxed Account (MTA), the Untaxed Account (UTA), the Final Tax Account (FTA) and the Immovable Property Account (IPA).
Taxed profits received from foreign investment and from other means of foreign business are allocated to the Foreign Income Account. Profits which have been derived, directly or indirectly from immovable property situated in Malta and are subject to tax, are to be allocated to the Immovable Property account. Profits which have been subject to a final tax (such as a final withholding tax on interest income) or profits which have been exempt or relieved from tax by way of tax credits are subject to be allocated to the Final Tax Account. Profits which are subject to tax and are not required to be allocated to the above three tax accounts must be allocated to the Maltese Taxed Account. The Untaxed Account is made up of the difference between the total distributable profits of the company and the amounts allocated to the other four tax accounts, FIA, IPA, FTA and MTA.
Segregation of profits is an important factor as it will determine the dividend warrant to be drawn up on distribution of profits to the shareholders.
Malta has negotiated a number of tax treaties with a significant number of countries all over the world and not just with European countries. The treaties which have been negotiated are drawn up on the Organisation for Economic Co-Operation and Development (OECD) model, with some adjustments in a few of the treaties.
Malta also allows for tax relief in those instances where treaties with other countries are not yet in force and have not yet been negotiated. Malta allows unilateral relief on profits which have suffered tax abroad and also allows for another form of tax relief know as the ‘Flat Rate foreign tax credit’ (FRFTC) in respect of profits or capital gains arising overseas which have been allocated to the Foreign Income Account
In the same way that companies which are domiciled and resident in Malt are taxed on their worldwide income, so are individuals who are also domiciled and ordinarily resident in Malta are also taxed on their worldwide income. Individuals who are resident, but not ordinarily resident in Malta and are domiciled elsewhere pay tax on any income arising in Malta and on income remitted to Malta, Capital Gains which do not arise in Malta are not taxed, whether remitted or not. Individuals who are not resident in Malta are taxed on their income arising in Malta, however there are also a number of exemption such as local interest and royalty income are exempt from tax, as are capital gains on holdings in collective investment schemes or on securities as long as the underlying asset is not Maltese immovable property.
There is also a specific tax incentive for Returned Migrants, who are persons born in Malta who return to Malta will only be taxed 15% on local income only. Permanent Resident Permit holders also pay income at a reduced rate of 15% on Malta source income and on income remitted to Malta subject to a minimum tax payment of €4,192, after double taxation relief.
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