Malta: Malta Taxation For Business

A country which is small in size but a giant in stature, Malta is rapidly gaining more and more attention on the global stage.

With a rapidly expanding financial services sector which rivals some of the most established economies in the world, Malta is an extremely attractive place to do business.

What makes this particularly interesting is that in the modern age it is not difficult to transfer business from one country to another and the benefits of doing so could be many.

Malta in particular offers huge benefits to the business community, including those based offshore or overseas. Taxation for businesses in Malta is very generous and is a good enough reason alone to consider whether relocation could be worthwhile.

Here's a closer look at how taxation for businesses is treated in Malta.

Full imputation system

The tax incentives in Malta are one of the most generous across the whole of the EU, and compare very favourably to elsewhere in the world too. Therefore whether your business is based in the EU or further afield, you could find considerable financial benefits from moving its registration to Malta.

Corporate tax is officially set at a flat rate of 35% but the way the system works means that it can be reduced to an effective rate of 5% or in some cases even lower. This is organised by an efficient tax refund system whereby in practice the repayment of a tax refund by the Maltese tax authorities should take on average fourteen (14) working days.

In fact, the taxation in Malta is so low that Forbes has described the country as one of the most business-friendly states in the world.

Through the imputation tax the shareholders are guaranteed that their dividend income will not be doubly taxed in their hands.

Malta operates a full imputation system which is a mechanism whereby the dividend distributed by a Maltese company, which dividend has already been subject to tax, shall entitle its shareholder to a tax credit which shall be equivalent to the tax paid by the company. The tax credit shall be allowed against the shareholder's tax liability.

The application of the full imputation system is applicable with respect to dividend distributions made by Malta Company.

Upon dividend income being declared by a Malta Company and physically paid to its shareholders, and upon the said shareholders being registered with the tax authorities for income tax refund purposes, such shareholders may apply for a tax refund on the amount of tax which was suffered by the Malta Company. The amount of tax refunds which are granted to the shareholders all depends on the type of income which the Malta Company generates. Passive income allows for a tax refund of 5/7ths, which refund is calculated on the amount of tax paid by the Malta company. Income which is not of a passive nature may benefit from a tax refund of 6/7ths.

Individuals who are resident but not domiciled in Malta, are liable to tax on any income arising in Malta and on any foreign income which is physically remitted to Malta. Capital gains which arise outside of Malta and are remitted to Malta are not subject to taxation in Malta. Resident and domiciled individuals are subject to a worldwide basis of taxation, likewise a resident not domiciled individual who is married to a Maltese resident and domiciled individual shall be deemed to be taxable on a worldwide basis of taxation in Malta.

Additionally, individuals residing in Malta may take advantage of over 60 double taxation agreements which regulate the manner in which income and/or capital gains derived from more than one jurisdiction are taxed.

A Malta company may also benefit from a participation exemption if it satisfies the requirements of a participating holding in another company. A participating holding is defined as a holding which arises when a company holds directly at least ten percent (10%) of the equity shares in its subsidiary company.

Should a participating holding be established, dividend income received by the holding company from its subsidiary company may benefit from 100% participation exemption subject to specific conditions.

Other benefits for businesses include no entry or exit taxes, no withholding taxes on outbound payments of dividend income, no thin capitalisation rules, no CFC rules or wealth taxes.

Coupled with a VAT rate at 18%, the taxation system in Malta makes the country an extremely attractive proposition for any business considering registering overseas.

Financial stability

Of course it's important to consider the Maltese taxation system against the wider picture, and that's one of economic strength and stability.

Lying in the Mediterranean between Europe and Africa, Malta occupies the perfect strategic position. It joined the EU in 2004 and adopted the Euro as its currency in 2008, creating the ideal environment to act as a gateway to the rest of European business and commerce. For companies in countries based outside the EU, registering in Malta offers an easy route into Europe.

EU directives are part of Maltese legislation and the government has shown that they are keen to get any new rules implemented and enforced as soon as possible. This creates much greater parity with the rest of Europe and helps keep Malta free of turmoil.

Many global businesses have already transferred their operations to Malta for the above reasons, and their decision to do so has strengthened the economy further. Malta is now considered to be one of the main financial and business hubs in the world.

The political climate in Malta is strongly democratic and all the main parties agree on the policy of encouraging foreign investment. This means that whatever party rules the country, the current policy of low taxation and incentives to trade from Malta are likely to continue unabated.

The tax system in Malta is difficult to beat and when coupled with the other advantages that Malta has to offer, the country is an obvious choice to operate from, no matter where in the world you are.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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