Individual Taxation in Malta
|Taxable income (€)||Rate (%)|
|up to 12,700||0|
|12,701 – 21,200||15|
|21,201 – 60,000||25|
|60,001 and over||35|
The tax rates for resident individuals opting to be taxed on the single rates are as follows. Married individuals can also opt for a single computation and use the following tax rates:
|Taxable income (€)||Rate (%)|
|up to 9,100||0|
|9,101 – 14,500||15|
|14,501 – 60,000||25|
|60,001 and over||35|
Individuals are subject to tax on income arising in a calendar year (the basis year). Such income is assessed to tax in the year following the year in which it arises (i.e. the year of assessment).
For example, the income for the year ending 31st December 2021 is assessable to income tax in 2022. Tax on employment income is paid under the FSS system whereby the employer deducts tax payments from wages paid to the employee.
Income tax is chargeable in respect of gains or profits from any employment or office, including the estimated annual value of any quarters or board or residence.
In the context of employment income, expenses are deductible only to the extent that they are wholly, exclusively and necessarily incurred in the performance of the duties of the employment or office. Fringe benefits payable to employees are taxable together with other employment income.
With respect to dividends, in general, Malta operates a full imputation system under which dividends paid by a resident company carry a tax credit equivalent to the tax paid by the company on its profits out of which the dividends are distributed.
Shareholders are taxed on the gross dividend at the applicable tax rates but are entitled to deduct the tax credit attached to the dividend against their total income tax liability. This tax may be treated as a final tax at the taxpayer’s option.
Corporate Taxation in Malta
There is no separate system of corporation tax in Malta. A company (set up to carry on any lawful activity, whether locally or overseas) is subject to income tax at a flat rate of 35%.
In general, a full imputation system is used whereby, dividends paid by a company registered in Malta carry a tax credit equivalent to the tax paid by the company on its profits out of which the dividends are distributed. This system applies to both resident and non-resident shareholders.
Shareholders are taxed on the gross dividend at the applicable tax rates but are entitled to deduct the tax credit attaching to the dividend against their total income tax liability.
A company incorporated in Malta is, for tax purposes, ordinarily resident and domiciled in Malta. That company would, accordingly, be taxed in Malta on a worldwide basis. On the other hand, a company incorporated outside Malta may be resident in Malta (but not ordinarily resident and domiciled in Malta) if its business is controlled and managed in/from Malta. Such a company would, as a result, be liable to tax in Malta:
- On all chargeable income earned in or derived from Malta;
- On all chargeable gains realised in Malta; and
- On all chargeable income arising outside Malta to the extent that such income is remitted to Malta.
The tax system distinguishes between taxed income and non-taxed income. Taxed income is further allocated to different tax accounts: the Final Tax Account, the Immovable Property Account, the Maltese Taxed Account and the Foreign Income Account, depending on the nature of the income. The allocation of income or gains to the tax accounts is important for the purpose of determining the extent of:
- The Malta company’s entitlement to claim double taxation relief in terms of Maltese law; and
- The refund entitlement available at the level of the shareholders of the Malta company;
- The imputation system described above does not apply to distributions made out of the Final Tax Account.
Companies are chargeable to tax in Malta at the flat rate of 35%. However, the combined overall Malta effective rate of tax applicable in respect of income or gains accruing to, or realised by, a company may be reduced substantially by application of the domestic participating holding regime or refundable tax credit system.
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Dividend Income & Gains
A Malta company, in receipt of dividends from a participating holding in a non-resident entity other than a property company, may, at its option:
- Applies a participation exemption such that the dividend income would be exempt from tax in Malta; or
- Pays tax on the profits at a flat rate of 35%. In such circumstances, however, pursuant to a dividend distribution of such profits by the Malta company in favour of its shareholder/s, the said shareholder/s would be entitled, to a full (100%) refund of the Malta tax paid by the Malta company on the profits out of which a dividend was distributed.
The same options would be available with respect to capital gains or other profits derived from the transfer by a Malta company of a participating holding in either a resident or a non-resident entity which is not a property company.
The Malta company is deemed to have a participating holding in an entity if it holds at least 10% of the equity shares in that entity, or it made a minimum equity share investment representing a total value of €1,164,000 and held the same for an uninterrupted period of 183 days.
Furthermore, the Commissioner of Inland Revenue is entitled to establish that an equity holding exists even where there is no holding of share capital, but where it can be demonstrated that, in substance, there is at any time entitlement to any two of the above rights.
In terms of anti-abuse provisions, the participation exemption or full refund mechanism would only be available, in respect of dividends received from a participating holding, provided that the non-resident entity in which the participating holding is held:
- Is resident or incorporated in an EU country or territory;
- Is subject to any foreign tax at a rate of at least 15%; or
- Derives less than 50% of its income from passive interest or royalties.
Should none of the above-listed three conditions be satisfied, two alternative cumulative conditions may be satisfied instead:
- The holding by the Malta company must not be a portfolio investment; and
- The non-resident entity, or its passive interest, or royalties, must have been subject to any foreign tax at a rate of at least 5%.
Tax Refunds in Malta
A shareholder in receipt of a dividend distributed by a company resident in Malta out of profits allocated to its Foreign Income Account (typically foreign source passive income) and/or its Maltese Taxed Account (typically trading income or domestic source passive income) would be entitled to claim a refund of a portion of the Malta tax suffered or paid on the profits out of which the dividend was distributed.
The said refund would typically be of six-sevenths (6/7) of the Malta tax suffered at the level of the Malta company on profits allocated to its Foreign Income Account or its Maltese Taxed Account and out of which the dividend was distributed.
However, the refund is reduced to five sevenths (5/7) of the Malta tax suffered at the level of the Malta company on profits allocated to its Foreign Income Account. Out of which the dividends were distributed in the event that such profits consist of passive interest or royalties or dividends derived from a participating holding when the anti-abuse provisions are not satisfied.
Alternatively, the refund entitlement would be reduced to two-thirds (2/3) of the Malta tax paid by the Malta company on profits allocated to its Foreign Income Account and out of which the dividends were distributed in the event that the Malta company would have claimed relief for double taxation in respect of the said profits.
Tax Incentives in Malta
Shipping organisations are exempt from income tax on income derived from shipping activities as defined in the Merchant Shipping Act. Instead, they are subject to an annual tax based on tonnage.
Non-resident shipping companies are taxable on all profits from the carrying of passengers, mail, livestock or goods shipped in Malta, but not on profits arising from the goods that are brought solely into Malta for transhipment or by a casual call in the port. In effect, most non-resident shipping companies are exempt on a reciprocal basis.
Income derived from the ownership, leasing or operation of an aircraft used in the international transport of passengers or goods, is deemed to be sourced outside Malta. It is not subject to tax in Malta in the hands of a resident non-domiciled person, provided such income is not received in Malta.
Tax Procedures in Malta
The income tax year is the calendar year (year of assessment). Corporate profits are assessable based on the immediately preceding accounting year (basis year). For example, the profits of the year ending on 31st December 2021 (basis year) are assessable to income tax in 2022 (year of assessment).
An accounting date other than 31st December may be used with the consent of the Inland Revenue and subject to the conditions imposed by it. A company must file a tax return, with supporting financial statements, by nine (9) months after the end of the accounting date or 31st March of the relevant year of assessment, whichever is later.
Companies must make three provisional tax payments that have to be effected by 30th April, 31st August and 21st December of each basis period.
Furthermore, any unsettled tax must be settled by the due date of the tax return.
The tax due on the profits of a company which has more than 90% of its business interests outside Malta or on foreign-source profits is payable 18 months after the end of the relevant accounting period or on the date of distribution of such profits, whichever is earlier.
Value Added Tax (VAT) in Malta
Malta VAT is levied on the supply of goods and services made in Malta for consideration by a taxable person acting as such, on intra-Community and new means of transport and excise goods as well as on importations acquisitions. Malta VAT Legislation, as EU Member State, is in line with EU Directives and Regulations, save any derogations agreed with the EU on accession.
A standard rate of 18% applies to all taxable supplies of goods and services, all importations and intraCommunity acquisitions of goods which are not expressly taxable at other rates or exempt from VAT.
Goods and services outlined in Schedule 8 of the VAT Act are taxed at a reduced rate of either 5% or 7%.
The zero rate applies to those goods and services outlined in Schedule 5 Part 1 of the VAT Act, which deals with supplies of goods and services that are exempt with credit.
The zero rate is, in general, applied to exports and like transactions; international goods traffic; intra-Community supplies, international transport and ancillary services; certain supplies by brokers or other intermediaries; supplies of sea vessels, aircraft, gold, food, pharmaceutical goods; certain transport services and supplies of goods onboard cruise liners.