Companies that are incorporated in Malta are subject to a flat rate of Malta income tax of 35% on their profits. However, it’s important to note that various tax exemptions based on certain regulations provided by the Malta copyright tax exemption or the Malta tax exemption for patent royalties.
If companies are taxed at the standard rate of 35%, after the distribution of dividends, shareholders are entitled to a refund of part or all the tax paid by the Malta company. Tax refunds are available to all shareholders in respect of the distribution of all profits other than those derived from immovable property situated in Malta and those who were already a subject of a final tax, such as bank interests.
Therefore, although corporate taxation in Malta is not low, shareholders are entitled to claim back part or even the whole tax paid by the Malta company. This is why the Maltese taxation system is unique and very ingenious.
Tax refunds in Malta for non - residents
The amount of Malta tax refunds is set at 6/7th of the Malta tax paid by the company. Therefore, the Malta company is a subject to a taxation at 35%, but shareholders are entitled to claim back 6/7 of this tax back.
A full refund applies to a holding company in Malta that derives gains or profit from a participating holding in a non – resident entity. If this is the case, the Malta holding company may decide to apply for an outright exemption for Malta tax and not pay the 35% tax or to include such income or gains as part of the taxable income of the company and pay the tax at 35%. Following the distributions of dividends, the recipient shareholders would be entitled to a full refund of the Malta tax paid by the company on such income or gains.
In some cases, the refund is lower than 6/7. This occurs when the profits out of which a dividend is distributed consist of passive interest or royalties or when double taxation relief is claimed and dividends are paid out of profits allocated to the foreign income account. For dividends derived from passive interest and royalties, the Malta tax refund is at 5/7. For dividends derived from foreign income subject of double taxation relief, the Malta tax refund is at 2/3.
Withholding tax in Malta
Malta does not levy withholding tax on dividends paid to shareholders. Royalties are also not a subject to withholding tax. Certain investment income, such as interest paid by Maltese banks and other public entities may be subject to a withholding tax of 15%.
Investment income payable to a collective investment scheme that invests at least 85% of its total investments in Malta – based securities is taxed with a withholding tax at the rate of 10% for corporate or government bonds and 15% for bank interests
Income derived from the ownership, leasing or operation of aircrafts used in the international transport of passenger or goods is considered to be arising outside of Malta. Therefore, a resident non – domiciled company is taxable only if its income is received in Malta.
The Malta Freeports Act from 1989 offers various tax incentives for companies licensed by the Freeport Authority, a customs – free zone located around the harbor of Marsaxlokk Bay. These incentives include exemptions from custom duties, stamp duties, withholding tax and exchange control.
Investment Tax Credits are available under the Investment Aid Regulations from 2008, for companies that conduct business consisting solely of one or more qualifying activities. These activities are related to manufacturing, information and communication technology, research, innovation and development, logistic operations.
Various incentives are provided to stimulate corporations to engage in R&D (Research and Development) activities. For example, tax credits are calculated as a percentage carrying between 10.5% and 35%.
Shipping organizations are not subject to income tax on the income derived from shipping activities, but they have to pay an annual tax based on their tonnage.
Non – resident shipping companies pay tax on all profits from the transport of passengers, goods, livestock or mail shipped in Malta. However, they are not taxed on profits arising from goods that are brought in Malta for trans – shipment or bay casual call in the port.