Malta does not apply a separate system of corporate tax, making a company chargeable to income tax in Malta in much the same way as an individual, at the flat rate of 35%. However, Malta does apply a full imputation system to relieve the economic double taxation arising on the taxation of dividends received by shareholders from distributions made from tax-retained earnings of Maltese companies.
A special tax regime may apply in respect of inter alia, profits derived from insurance business, petroleum profits, shipping and aircraft profits derived from certain target industries, under the regulations of the Enterprise Act.
Malta does not have thin capitalization and controlled foreign company rules, or transfer pricing, but there is a general anti – avoidance rule.
The country has implemented EU directives, such as the parent – subsidiary directive, interest, royalties and merges directives, as well as the savings directive, which requires exchange of information between tax administrations regarding interest payments in the EU.
Taxable income for companies in Malta
A Malta resident and domiciled company is subject to tax in Malta on its worldwide profits, with credit granted for most oversea taxes. A company incorporated in Malta is considered ordinarily resident as well as domiciled in the country. A company that is neither resident nor domiciled in Malta is chargeable to tax only on the Malta – source income and gains.
Companies are chargeable at a tax rate of 35% and no tax is levied at provincial or municipal levels. However, the application of the participation exemption, of the full imputation system and the refund system, usually results in an effective tax rate varying from 0% to 5%. A chargeable rate of 12% is applied on income derived from the transfer of immovable property located in Malta. A withholding tax at a reduced rate of 15% may be applicable for certain categories of investment income.
Withholding taxes in Malta
No taxes are withheld in Malta on dividends paid to a non – resident, although there are some exceptions. The withholding tax is reduced to zero if the dividends are distributed to a qualifying EU shareholder that holds at least 10% of a subsidiary in Malta at the date of payment of the dividend.
Usually, there is no withholding tax on interests paid to non – residents. Tax is withheld at the flat rate of 35% on interest paid to non – residents that are owned, controlled or act on behalf of an individual or individuals with the residence in Malta, or non – residents engaged in a trade or business in Malta. The same regulations are applied to royalties as well.
Malta does not levy a tax on company branch remittance.
VAT is levied in Malta, with certain exceptions, on the supply of goods and services, on the intra – Community acquisition of goods in Malta by a VAT – registered person and on the import of goods from outside the EU.
The standard VAT rate is 18%, with a reduced rate of 7% for the supply of hotel accommodation and 5% on certain supplies, including electricity, confectionery, medical accessories, items for the exclusive use of the disabled, works of art, antiques and collectors’ items. A 0% rate is levied on specific supplies such as the export of goods, the supply of qualifying sea vessels and aircraft and related transactions, food – except in the course of catering, gold, pharmaceutical goods, international transport services and supplies related to the international traffic of international goods. Certain transactions, such as the transfer of immovable property, cultural and religious services, lotteries and gambling or postal services are exempt from VAT.
A person or a company that makes taxable profit on goods and services is required to register for VAT, except for persons who make taxable or zero- rate supplies, if their turnover does not exceed 7,000 euros per calendar year.
Malta does not levy any capital tax, real property tax and transfer tax. However, there is a stamp duty, chargeable at a rate of 5% of the higher of the consideration of the real value upon immovable property. The stamp duty is chargeable at the rate of 2% of the higher of the consideration and the real value upon transfer of marketable securities in a company or of an interest in a partnership where 75% or more of the company’s assets consist of immovable property.
Other indirect taxes applied in Malta are custom end excise duties, environmental taxes and a registration tax for motor vehicles.
Taxes on individuals in Malta
An individual who is ordinarily resident and domiciled in Malta is a subject of income tax, consisting of worldwide income and chargeable gains. The taxable income includes salaries, wages and other benefits from employment, profits or gains from a business, dividends, interests, royalties rents and other investment income, pensions and annuities.
Malta has a progressive income tax rate schedule for individuals, as following:
- 0% on taxable income up to 8,500 euros;
- 15% on taxable income between 8,501 and 14,500 euros;
- 25% on taxable income between 14,501 and 19,500 euros;
- 29% on taxable income between 19,501 and 60,000 euros;
- 35% on taxable income over 60,000 euros.
Non – residents are subject to a different income tax schedule, applied on tax arising in Malta, as following:
- 0% on taxable income up to 700 euros;
- 20% on taxable income between 701 and 3,100 euros;
- 30% on taxable income between 3,101 and 7,800 euros;
- 35% on taxable income over 7,800 euros.
There are no inheritance and gift taxes, wealth taxes or real property taxes in Malta, however a stamp duty tax is applied under certain circumstances.