Malta’s taxation system

Malta offers a highly efficient fiscal regime which avoids double taxation on taxed company profits distributed as dividends. 

Shareholders’ refunds on profits paid by the company – 5% rate of tax 

The Maltese taxation system is based on a particular major concept, namely the “Imputation System”. This means that taxes paid by the company are imputed as having been paid by the shareholder. As a result, no further tax is levied on profits distributed to shareholders in the form of dividends. Every Maltese company is subject to income tax at the rate of 35%. However, the shareholder is then entitled to a fractional (6/7ths, 5/7ths or 2/3rds) refund on the tax paid by the company. This means that the global net tax rate may go down from 35% to 5%. 

Participation Exemption – 0% rate of tax

Moreover, a Malta holding company, as the shareholder of a foreign subsidiary, may have its dividend income received from the foreign subsidiary exempted from tax (0%) by virtue of the application of the “participation exemption”. When these qualify as a ‘participating holding’, the company has a right to apply for “participation exemption” on the dividend, once the anti-abuse provisions are adhered to. This means that the Maltese company is exempt from tax on such dividends received.

Double Taxation Treaties 

Successive Maltese governments have sought to conclude double tax treaties with important trading partners as well as with emerging countries, in order to encourage the growth of international trade including that of financial services. To date, treaties are in force with over 70 countries and this policy is expected to continue in the future. 

Most of Malta’s double tax treaties are based on the OECD model. Once concluded, a tax treaty becomes law by Ministerial order and overrides any provisions to the contrary under Maltese domestic tax legislation. Double taxation relief is available in the terms of the relative tax treaty. For more information on Malta’s double tax treaties see below. 

Malta is amongst the most tax compliant countries 

Malta does not offer shelter from tax and is not a tax haven, as it had been dubbed several times by misinformed speakers. The Maltese tax system is in line with current international and European Union (EU) standards. Malta has transposed EU rules and respects the Organisation for Economic Co-Operation and Development (OECD) standards in terms of transparency, fight against tax fraud and money laundering. 

Way back in 2006 the taxation system in Malta had been discussed in detail with European Commission and with Member States within the Code of Conduct Group which evaluates taxation measures. These concluded that the tax system in Malta is completely transparent and based on statutory regulations, and not on administrative discretion as is the case in certain countries. Additionally, Malta’s offshore legislation had been repealed in 1994, and all companies have to publish their audited financial statements. 

OECD indicators portray Malta as a tax compliant jurisdiction. These indicators show the absence of harmful tax practices in relation to Base Erosion and Profit Shifting (BEPS) as well as a strong commitment in relation to tax cooperation in general. Moreover, Malta is ranked as being largely compliant when it comes to the Exchange of Information on Request.

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