Taxation of Malta companies
The main laws regulating income tax in Malta are the Income Tax Act and the Income Tax Management Act. Subsidiary legislation under these laws includes rules on capital allowances, the final settlement system, provisional tax, fringe benefits and capital gains. A number of other laws, such as the Business Promotion Act grant certain specific incentives (including income tax incentives) to qualifying companies undertaking certain target sector activities.
The scope of the tax
Income tax is levied on income in general and on certain specified capital gains.
Taxable Income includes:
- gains or profits derived from a trade, business, profession or vocation
- gains or profits derived from an employment or office
- dividends, premiums, interest or discounts
- pension, charge, annuity or annual payment
- rents, royalties, premiums and any other profits arising from property
- income not falling under the above categories
Capital gains are subject to tax if they are derived from the transfer, including any alienation under any title, of:
- immovable property
- securities, defined as shares and stock and such like instruments that participate in any way in the profits of the company and whose return is not limited to a fixed rate of return, units in a collective investment scheme and units and such like instruments relating to linked long term business of insurance
- a business, a goodwill, a copyright, patents, trademarks and trade-names
- any rights over any of the above assets
There are different rules for determining the taxable amount of income and the taxable amount of capital gains, also depending on the taxed account to which they are allocated.
Income tax is charged on a unitary basis and, as a rule, a taxpayer is liable to one tax on the total amount of his taxable income and capital gains for the respective year.
Income tax rates
Individuals are chargeable to tax in Malta at progressive rates ranging from 0% to 35%, depending on the level of total income.
Companies are chargeable to tax in Malta at a flat rate of 35% on their income.
Full imputation system
Malta operates a full imputation system of taxation in terms of which any tax paid by the company on profits out of which a dividend is distributed is imputed against the tax due by the shareholder on the said dividend. Since companies are chargeable to tax at a flat rate of 35% which is equal to the marginal rate of 35% applicable to individuals, no further tax is due upon receipt of a dividend by an individual shareholder. An individual is therefore not required to declare the dividend for income tax purposes, however should an individual shareholder be liable to tax at a progressive rate which is lower than the 35% rate which was levied on the profits of the company, then s/he is entitled to a tax refund equivalent to the excess tax paid by the company. This system is intended to eliminate economic double taxation (double taxation of corporate profits). In addition, no tax is to be withheld on outbound payments of dividends.
Income tax refunds
Furthermore, a shareholder (resident or non-resident) may be entitled to claim a refund of part or all of the tax paid by the distributing company on the profits out of which the dividend was distributed and depending on the tax account to which such profits were allocated.