Malta Tax Refund System

The tax measures currently in force in Malta provide excellent opportunities to those companies set up to carry out international trading as well as investment and holding activities. The main advantage is that Malta is the only EU member state that operates the full imputation system of taxation. Shareholders of Maltese companies are entitled to claim a refund of the tax paid by the company whenever distributions are made to them.​​​​

​In fact, whenever distributions are made from the Maltese taxed account or the foreign income account, shareholders receiving such distributions become entitled to claim a refund of the Malta tax paid by the company on those profits out of which distributions are made. Tax refunds also apply where a company operates through an overseas branch in Malta.

The refunds currently available are:

• 6/7ths refund:   This type of refund is generally due on those profits earned from trading activities. Taking into account such refund, the effective rate of tax works out at 5%.

• 5/7ths refund: This type of refund is generally due in respect of income derived from passive interest and royalties. The effect rate of tax works out at 10%.
• 2/3rds refund: Available in those instances where the company has claimed double taxation relief. The refund depends on the type of double taxation relief availed of and is limited to the tax paid in Malta.
• 100% refund:  Applies when profits are derived from a participating holding.

One must note that profits derived directly or indirectly from immovable property situated in Malta are allocated to the immovable property account and accordingly do not qualify for tax refunds. 

There are several other advantages encompassed within Malta’s international tax provisions;

• No withholding taxes are applied when dividends are paid by Maltese companies. 

• Tax exemptions apply whenever interest and royalties are paid to non-residents 

• No tax is levied on the transfer of shares held by non-residents (provided shares are held in a company which does not own property in Malta). 

• Malta currently has 57 tax treaties in force. 

• The double taxation relief provisions are supplemented by other forms of double taxation relief in the absence of a double taxation treaty.

Participation Exemption

Maltese law also provides for a participation exemption regime on certain profits derived from a qualifying participating holding.

Participating Holding

A participating holding exists where a company holds directly at least 10% of the equity shares of a company whose capital is wholly or partly divided into shares and where such holding confers at least 10% of any of following:  (i) a right to votes; (ii) a right to profits available for distribution and (iii) a right to assets available for distribution on the winding up of the company. The taxation authorities in Malta may also establish that an equity holding exists even where there is no holding of shares but where it is proven that at least two of the condition rights exist. A participating holding also exists when the following criteria are met:

• The investment in the non-resident company amounts to EUR 1,164,700 or more, subject to a time duration test of 183 days
• The Maltese company has the option to acquire the remaining balance of the equity shares in the non-resident company
• The Maltese company is entitled to first refusal in the event of the proposed disposal, redemption or cancellation of the remaining balance of the equity shares in the non- company
• The Maltese company is entitled to sit on the Board of the non-resident company
• The holding of shares in the non-resident company is for the furtherance of the business of the Maltese company provided further that the shares are not held for trading purposes

Participation Exemption

Profits derived from a participating holding or from gains realised on the disposal of such holding may, subject to certain conditions, be exempted from tax in Malta. The exemption is available where the non-resident company or similar entity  (in which the Maltese company owns the holding) is resident or incorporated in the EU; or is subject to foreign tax of at least 15% or does not have more than 50% of its income derived from passive interest or royalties. Where none of the above 3 conditions are met, the exemption is subject to an alternative test where both of the following 2 conditions must be satisfied – (1) the holding is not a portfolio investment and (2) the non-resident company or entity or its passive interest or royalties have been subject to any foreign tax at a rate which is not less than 5%.

A Maltese company receiving gains or profits from a participating holding or its disposal has an option not to claim the participation exemption but may pay tax at 35% instead. In such case, the company’s shareholders may (following a distribution of profits derived from the holding) claim a 100% refund of the tax paid by the company. This option affords flexibility in planning holding structures.

For more information about the Tax Refund System in Malta please contact us on info@virtusmalta.com or by filling in the form in the Contact Us page.