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Results: 4 Answers
Corporate Tax
2.
Special regimes
2.1
What special regimes exist (eg, for fund entities, enterprise zones, free trade zones, investment in particular sectors such as oil and gas or other natural resources, shipping, insurance, securitisation, real estate or intellectual property)?
 
Malta
Shipping – tonnage tax regime: Under this regime, any income, profits or gains derived from shipping activities carried out by a licensed shipping organisation may be exempt from tax under the Income Tax Act, provided that the registration fees and tonnage taxes have been duly paid. In order to benefit from this regime, a Maltese company must have a commercial vessel registered within the European Union. The requirements of this regime highlight the importance of keeping separate accounts for shipping and non-shipping activities in order to properly determine the net tonnage rate.

The main benefit of this regime is that instead of calculating the tax due according to income, profits or gains derived from shipping activity, a flat rate will apply, in accordance with the net tonnage, which depends on the age of the ship. The standard rates are based on vessels which are 10 to 15 years old. For other vessels, the following apply:

  • If the vessel is older than 15 years, there is a surcharge of up to 50%;
  • If the vessel is up to five years old, there is a reduction of 30%; and
  • If the vessel is between five and 10 years old, there is a reduction of 15%.

Real estate – income from property transfers: Gains from property transfers are subject to a property transfer tax, calculated on the basis of the transfer value as opposed to gain. The tax applies to all transactions in which immovable property is transferred. However, by way of exception, the transferor may, in specific circumstances, opt out of the property transfer regime and pay tax on the capital gain realised on the transfer instead.

The default applicable rate for property transfers is 8% of the transfer value.

Different rates may apply in other scenarios, as follows:

  • a 5% final withholding tax rate if the property is transferred within five years of the acquisition date and does not form part of a project;
  • a 5% final withholding tax rate if the property is located in an urban conservation area, is acquired on or after 1 January 2016 and is subsequently restored and/or rehabilitated, where such works have been certified by a planning authority compliance permit; and
  • a 2% rate if the property was acquired as a sole ordinary residence and is transferred no later than three years from the date of acquisition.

Securitisation: A securitisation vehicle is subject to the standard Maltese corporate tax regime, whereby tax is charged on its worldwide income and gains. Chargeable income at the level of the securitisation vehicle may be reduced or completely eliminated by the application of the general rules relating to the deduction of expenses for tax purposes, as well as the special rules on the deduction of expenses under the Securitisation Transactions (Deductions) Rules. Once all permitted deductions have been made, the securitisation vehicle may make a residual profits deductions equal to the total of any remaining income, thus bringing the securitisation vehicle’s chargeable income down to zero.

Taxation of funds: The taxation of investment funds in Malta is determined based on whether the fund is classified as a prescribed or a non-prescribed fund. A fund is prescribed if at least 85% of the value of its assets is based within Malta, whereas a non-prescribed fund does not have at least 85% of the value of its assets based in Malta. A prescribed fund must also be acknowledged as such in writing by the commissioner for revenue.

Non-prescribed funds are generally not subject to taxation under Maltese law. However, income derived from immovable property situated in Malta will be subject to taxation under the normal Maltese laws.

The default tax rate applicable to a prescribed fund which is a company is 35%. However, other rates of tax may apply, depending on the fund’s income streams.

Bank interest is subject to a 15% withholding tax.

Interest, discounts and premiums received from the Maltese government, corporations or authorities established by law in Malta, or any other company or legal entity in respect of a public issue are subject to a 10% final withholding tax.

The normal rate of tax also applies to income derived from local immovable property.

For more information about this answer please contact: Kenneth Camilleri from Chetcuti Cauchi Advocates
2.2
Is relief available for corporate reorganisations or intra-group transfers of companies and other assets? Please include details of any participation regime.
 
Malta
Deferral of tax on restructuring: A deferral of capital gains tax applies in the case of an exchange of shares where there is a restructuring of holdings following a merger, demerger, division, amalgamation or reorganisation. No gain or loss shall be recognised at the restructuring stage; however, upon subsequent disposal, the cost of acquisition of the shares shall be deemed to be the original cost of acquisition.

Participation exemption regime: Income and gains from qualifying investments may be eligible for exemption under the participation exemption regime. For income or capital gains from an investment held by a Malta company to be eligible under the participation exemption regime, such investment must qualify as a participating holding.

An investment qualifies as a participating holding where one of the following conditions applies:

  • A company holds directly at least 5% of the equity shares of a company whose capital is wholly or partly divided into shares, which holding confers an entitlement to at least 5% of any two of the following (‘equity holding rights’):
    • voting rights;
    • profits available for distribution; and
    • assets available for distribution on winding up;
  • A company is an equity shareholder in a company and is entitled, at its option, to call for and acquire the entire balance of the outstanding equity shares to the extent permitted by the law of the country in which the equity shares are held;
  • A company is an equity shareholder in a company and is entitled to first refusal in the event of the proposed disposal, redemption or cancellation of all outstanding equity shares of that company;
  • A company is an equity shareholder in a company and is entitled either to sit on the board or to appoint a person to sit on the board of that company as a director;
  • A company is an equity shareholder which holds an investment representing a total value, as on the date or dates on which it was acquired, of a minimum of €1,164,000 (or the equivalent sum in a foreign currency) in a company and this holding is held for an uninterrupted period of not less than 183 days; or
  • A company is an equity shareholder in a company, where the holding of such shares is for the furtherance of its own business and the holding is not held as trading stock for the purpose of a trade.

‘Equity shareholding’ refers to a holding of share capital which entitles the shareholder to at least any two of the following three rights:

  • the right to vote;
  • the right to profits available for distribution to shareholders; and
  • the right to assets available for distribution on winding up.

Capital gains derived from the disposal of a participating holding may, at the option of the company, be exempt from tax in Malta.

Where a Malta company receives dividend income from a participating holding, it may elect for such income to be exempt from tax in Malta, provided that the company in which the participating holding investment is held falls within one of the following safe harbours:

  • It is resident or incorporated in the European Union;
  • It is subject to foreign tax at a rate of at least 15%; or
  • Less than 50% of its income is derived from passive interest or royalties (interest or royalties are deemed to be passive when they are not derived directly or indirectly from a trade or business, and where such interest or royalties are subject to foreign tax at a rate of less than 5%).

Where a participating holding does not fall within one of the safe harbours above, a company may still opt for such income to be exempt from tax in Malta if both of the following anti-abuse conditions are satisfied:

  • The equity shares held in the non-resident company do not represent a portfolio investment; and
  • The non-resident company or its passive interest or royalties have been subject to tax at a rate of at least 5%.
For more information about this answer please contact: Kenneth Camilleri from Chetcuti Cauchi Advocates
2.3
Can a taxpayer elect for alternative taxation regimes (eg, different ways to calculate the taxable base, such as revenue-based versus profits based or cash basis versus accounts basis)?
 
Malta
In the case of rental income, a landlord may opt to be taxed on a revenue basis at a flat rate of 15% on the gross rental income received, as opposed to being taxed at the applicable income tax rate on the net rental income after permissible deductions.

Taxpayers may further elect for certain types of investment income to be taxed a final withholding tax at source at a rate of 15%.

For more information about this answer please contact: Kenneth Camilleri from Chetcuti Cauchi Advocates
2.4
What are the rules for taxing corporates with different functional or reporting currency from that of the jurisdiction in which they are resident?
 
Malta
In terms of the Companies Act, a company is permitted to denominate its share capital in any convertible currency and shall report its accounts in the same currency. Tax is reported and paid in that same currency.

For more information about this answer please contact: Kenneth Camilleri from Chetcuti Cauchi Advocates
2.5
How are intangibles taxed?
 
Malta
The mere holding of intangibles is not deemed to be a taxable event.

For more information about this answer please contact: Kenneth Camilleri from Chetcuti Cauchi Advocates
2.6
Are corporate-level deductions available for contributions to pensions?
 
Malta
Malta currently operates a first pillar pension scheme, whereby employers and employees both make equal contributions towards a state pension. The contributions made by corporate employers towards employee first pillar pensions are deductible for tax purposes.

For more information about this answer please contact: Kenneth Camilleri from Chetcuti Cauchi Advocates
2.7
Are taxpayers from different sectors (eg, banking) subject to different or additional taxes or surtaxes?
 
Malta
No additional taxes apply to taxpayers from different sectors.

For more information about this answer please contact: Kenneth Camilleri from Chetcuti Cauchi Advocates
2.8
Are there other surtaxes (eg, solidarity surtax, education tax, corporate net wealth tax, remittance tax)?
 
Malta
There are no other surtaxes. The remittance basis of taxation applies to entities which are resident but not domiciled in Malta.

For more information about this answer please contact: Kenneth Camilleri from Chetcuti Cauchi Advocates
2.9
Are there any deemed deductions against corporate tax for equity?
 
Malta
Malta recently introduced notional interest deduction rules intended to bring about neutrality between debt and equity financing of Malta resident entities, as well as permanent establishments of non-resident entities, to the extent that risk capital is attributable to such permanent establishments.

With effect from year of assessment 2018, Malta companies and partnerships, and Malta permanent establishments of non-resident entities, may claim a deduction for a ‘notional interest on risk capital’. The deduction is optional and subject to the approval of shareholders or partners of the Malta entity.

Pursuant to the notional interest deduction rules, the meaning of the term ‘risk capital’ is as follows:

  • Where the undertaking is a company or partnership resident in Malta, the term refers to the share or partnership capital of the undertaking, any share premium, positive retained earnings, loans or other debt borrowed by the undertaking which do not bear interest, any other reserves resulting from a contribution to the undertaking and any other item which is shown as equity in the financial statements of the undertaking; and
  • Where the undertaking is a permanent establishment of a company or partnership that is not resident in Malta, the term refers to the risk capital of that undertaking, as defined in the first bullet above, which is attributable to the permanent establishment.

The deduction which may be made is calculated by multiplying the company’s risk capital at year end by the notional interest deduction reference rate equal to the risk-free interest rate identified as current yield to maturity on Maltese government stocks with a remaining term of approximately 20 years, plus a premium of 5%. The maximum deduction in any given year cannot exceed 90% of the entity’s chargeable income, but the balance of notional interest deduction over that threshold can be carried forward.

Where a Malta entity claims the notional interest deduction, its partners/shareholders will be considered to have received interest income in proportion to the nominal value of risk capital held by them. In the case of non-resident shareholders/partners, the deemed interest will be exempt from tax in Malta. Shareholders in receipt of dividends paid out of profits which have been relieved of tax through a notional interest deduction claim will not be subject to further tax on receipt.

For more information about this answer please contact: Kenneth Camilleri from Chetcuti Cauchi Advocates