The Malta tax system is very attractive for holding investments consisting of equity shareholdings in other companies. This is because in certain instances dividends and capital gains received by a Malta company are exempt from tax in Malta by virtue of the participation exemption.
The participation exemption generally applies where a Malta company has a participating holding in another company. A participating holding in a company exists where the holding in such company satisfies any one of six conditions such as the investment of the Malta company amounting to 10% of the equity share capital in the other company or conferring a right to the Malta company to sit on the Board of Diretors or to appoint a director of that company or the investment of the Malta company on the date of acquisition representing a total value of at least Euro1,164,000 (or its equivalent in a foreign currency) which investment is held for an uninterrupted period of not less thatn 183 days. Other qualifying criteria are available.
Where the Malta company has a participating holding in another company, capital gains received by the Malta company from such participating holding are always exempt from tax in Malta, whereas dividends received by the Malta company from such participating holding are exempt from tax where certain wide ranging conditions are satisfied.
Where the dividends and/or capital gains are not eligible to benefit from the participation exemption (either because the holding does not qualify as a participating holding or otherwise because in the case of dividends the wide ranging conditions are not met), such dividends and/or capital gains will be included in the chargeable income of the Malta company and will be taxed at 35%. However, upon the Malta company making a distribution of dividend to the shareholder from such dividends/capital gains, the shareholder of the Malta company will be entitled to claim a 6/7ths refund of tax paid by the Malta company on such dividends/capital gains from which the distribution was made (or otherwise a 2/3rds refund in the case where the Malta company has claimed relief from double taxation of its income).