Answer ... 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.