The tax rate in Malta applicable to companies is that of 35%, which is charged on the accounting profit adjusted by tax adjustments. Tax losses may be carried forward to subsequent years and can be offset against future profits without any time limitation. Companies forming part of a group, may benefit from group relief provision in respect of allowable losses which are surrendered to companies within the same group.
Companies which are resident and domiciled in Malta are taxable on their worldwide income. However, companies which are either resident but not domiciled or domiciled but not resident are taxable only on any gains or profits arising in Malta and other foreign source income which is received in Malta.
Similarly, individuals who are domiciled and resident in Malta are taxable on all their worldwide income and capital gains. Whereas individuals being either resident but not domiciled or domiciled but not resident are taxable on income arising in Malta and any foreign source income which is received in Malta. Individuals who are resident but not domiciled, or vice versa, are not taxable on foreign capital gains, even if received in Malta.
Malta also provides for beneficial rate of 15% to individuals which are returned migrants or fall under the provisions of High Net Worth individuals or accepted under the Global Residence Programme.
Double Tax Treaties and Reliefs
Throughout the years, Malta has entered into a considerable number of double-tax treaties and has around 70 treaties with our countries designed to prevent excessive foreign double taxation. All treaties, other than the Swiss treaty, are based on the OECD Model Convention.
Malta adopts a credit method of Double Taxation Relief applicable to foreign tax incurred in a jurisdiction with which Malta had concluded a treaty agreement.
Where foreign tax has been incurred in a jurisdiction with which Malta has no treaty agreement in force, a relief is granted on foreign tax through the Unilateral Relief.
One of the main incentives offered through the Malta legislation is the Full Imputation System. Where dividends have been paid by a company, resident in Malta, a tax credit is available equal to the tax paid by the company on the profits out of which the dividends have been paid, which can be allocated against the total income tax liability. This could also give rise to situations where an individual may be entitled for a refund of the tax paid by the company, depending on the person tax rates which is applicable to the individual.
By means of the Full-Imputation System, not only a credit for the tax paid the the company upon a distribution of dividends is received, but also provides that no further withholding tax is liable upon a distribution from the company to its shareholders.
Tax Refund System
Upon a dividend distribution from the Maltese company, the shareholders receiving such distributions become entitled to claim a refund of the Malta tax paid by the company on those profits out of which distributions are made. Tax refunds also apply where a non-resident company operates through a branch in Malta.
A full-refund applies when profits are derived from a participating holding which qualifies for a participation exemption. The participation exemptions applies where a company holds directly at least 10% of the equity shares of company.
A 6/7ths refund is the general type of refund and is received on those profits earned from trading activities. Considering the refund received on the Malta tax paid, an effective rate of 5% would be applicable.
Other refunds available are the 5/7ths refund and 2/3rds refund. The applicability of such refunds depends on the source of income.
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