Malta became a member of the European Union in 2004 and, in 2008, it entered the Eurozone. The EU membership and the taxation system made Malta a very attractive country for foreign investments. The Maltese tax system is very attractive due to the corporate tax, as well as to the double taxation treaties that Malta has signed with more than 60 countries. Taxation in Malta applies to individuals and companies.
In Malta, the taxes that apply to individuals depend principally on the residence. For the residents who have a domicile in Malta, the income and the capital gains taxes apply. Persons accomplishing only one of the conditions will be liable to pay taxes for the incomes they make or receive in Malta and for capital gains that are made in Malta. The income tax is variable and reaches a maximum of 35% depending on the marital status of the individuals and if they have children. Non-residents and people who have no domicile in Malta will be subject to the income tax and capital tax for the earnings they make on the country’s territory. Interests, royalties and capital gains from holding companies are exempt from tax, as long as the income is not made from an immovable property.
The income tax on worldwide revenue is applied to companies incorporated in Malta and foreign companies with subsidiaries in Malta. Non-resident companies and companies that have a management board in Malta will be taxed for the income they make in Malta only. The income tax for companies in Malta is 35%.
Malta has a full imputation tax system that enables shareholders to ask for refunds for their dividends, because of the tax the company pays on the distribution of profits. The refunds can be from 2/3rds and up to 100% of the income tax.
Malta’s full imputation system authorizes shareholders to claim refunds on the taxes the company pays. This means that whenever shareholders receive a dividend from the company established in Malta, they can also claim a refund of 6/7ths of the tax within the limit of 5% of the tax the company is subject to in Malta; the refund will decrease at 5/7ths if the tax the company paid is 10% and it will decrease at 2/3rds if the income of the Maltese company comes from interests or royalties.
Incomes made form participation holding may be exempt from tax payment or even excluded if the participation holding meets the requirements of a participation exemption.
Relief from double taxation applies in the following cases:
- treaties relief: Malta has signed double taxation agreements with over 60 countries in order to avoid income tax being applied twice to the same income;
- Commonwealth relief applies to taxes paid to the British Commonwealth for income made in the U.K.;
- unilateral relief applies to individuals subject to the income tax when double taxation or Commonwealth reliefs do not apply;
- Flat Rate Foreign Tax Credit (FRFTC) allows Maltese companies making revenues in countries Malta has no double taxation agreements with to benefit from a flat tax rate of 25% of the foreign income.