Taxation of Maltese companies

Transcription

1 Taxatin f Maltese cmpanies Cmpanies frmed in Malta are deemed t be rdinarily tax resident and dmiciled in Malta and are therefre subject t tax n incme earned n a wrld-wide basis. Cmpanies frmed in anther jurisdictin, ther than Malta, are als cnsidered t be a tax resident in Malta if they are effectively managed and cntrlled in r frm Malta. Maltese resident cmpanies are subject t a tax charge f 35% n their taxable prfits. The lcal tax legislatin which is mainly gverned by the Incme Tax Act and the Incme Tax Management Act hwever, include varius prvisins which have resulted in Malta psitining itself as an attractive jurisdictin t freign investrs and cmpanies perating in the internatinal sphere in view f the fllwing cre advantages: - Full imputatin system n distributin f dividends; - Tax refunds n distributins f prfits; - Participatin hlding exemptin; - Other exemptins applicable mainly t nn-resident persns. The full imputatin system Dividends distributed my Maltese cmpanies are nt subject t any withhlding tax and the full imputatin system mechanism is applicable. This system ensures that the prfits f cmpanies are nt subject t duble taxatin and are subject t tax nly at the cmpany level. Sharehlders receiving a dividend frm Maltese cmpanies are credited the full tax, charged at the crprate level.

2 Tax refund system The tax legislatin prvides that, in additin t the applicatin f the full imputatin system, sharehlders may als claim a tax refund f the tax paid at the crprate level n receipt f a dividend frm a Maltese cmpany. Prfits earned by Maltese cmpanies are allcated t the different tax accunts which reflect the different surces f incme, as identified in the belw list srted in accrdance with rder f distributable prfits: - Final Tax Accunt (FTA) - Immvable Prperty Accunt (IPA) - Freign Incme Accunt (FIA) subject t tax refund - Malta Tax Accunt (MTA) subject t tax refund - Untaxed Accunt (UA) A tax refund can be claimed n prfits allcated t the Malta Taxed Accunt and the Freign Incme Accunt. The tax refund which can be claimed n the crprate tax paid by the cmpany being distributed by way f a dividend is cmputed at the fllwing rates, depending n the nature f the activity which has resulted in the prfits being distributed: 6/7ths refund f the crprate tax paid- applicable t distributin f prfits by a cmpany resulting frm trading activities; 5/7ths refund f the crprate tax paid - applicable t distributin f prfits by a cmpany arising frm passive incme, such as interest incme and ryalties; 2/3rds refund f the crprate tax paid this type f refund can be claimed by sharehlders in receipt f a dividend ut f prfits in respect f which a claim fr duble taxatin relief was made by the cmpany and which was allcated t the FIA.

3 Tax refund system The fllwing table illustrates the tax refund mechanism applicable t a distributin f a dividend by a Maltese cmpany t its sharehlders, taking int cnsideratin the full imputatin system: Cmpany level: 6/7ths refund 5/7ths refund 2/3rds refund Prfit befre tax 10,000 10,000 10,000 Duble taxatin relief Incme grssed up with the flat rate freign tax credit (FRFTC) f 25% - - 2,500 Chargeable incme 10,000 10,000 12,500 Tax 35% 3,500 3,500 4,375 Duble taxatin relief fr freign tax paid - - (2,500) Ttal tax due (at crprate level) 3,500 3,500 1,875 Tax refund claimed by sharehlders in receipt f dividend: Dividend incme (Grss f 35% tax paid at cmpany level) 10,000 10,000 10,000 Tax paid theren - (imputatin system) 3,500 3,500 3,500 Tax refund claimed by sharehlder 3,000 2,500 1,250 Effective tax rate paid by sharehlder 5% 10% 6.25%

4 Tax refund system Participating hlding exemptin In additin t the tax refund mechanism applicable t sharehlders n receipt f a dividend frm a Maltese cmpany, the legislatin prvides fr a full exemptin frm tax f any incme r gains derived by a cmpany registered in Malta frm a participating hlding r frm the transfer f such hlding. The participating hlding exemptin is applicable where the hlding implies: a direct hlding f at least 10% f the sharehlding f a cmpany whse capital is whlly r partly divided int shares. In rder t qualify fr this exemptin, such hlding shuld cnfer an entitlement t at 10% f any tw f the fllwing: (i) right t vte; (ii) prfits available fr distributin; and (iii) assets available fr distributin n a winding up. a hlding in a cmpany which gives the right t call fr and acquire the entire balance f the equity shares nt held by it; r a hlding in a cmpany which entitles its hlder t the right f first refusal in the event f the prpsed dispsal/redemptin/cancellatin f all f the equity shares f that cmpany nt held by that equity sharehlder cmpany; r a hlding in a cmpany which entitles the sharehlder cmpany t either sit n the Bard r appint a persn t sit n the Bard f that cmpany as a directr; r a hlding representing a ttal value, as n the date(s) n which it was acquired, f a minimum f 1,164,000, r the equivalent sum in a freign currency in a cmpany fr an uninterrupted perid f nt less than 183 days; r a hlding in a cmpany held fr the furtherance f its wn business and the hlding is nt held as trading stck fr the purpse f a trade. In the case f dividend incme, certain criteria have t be met fr the participating hlding exemptin t be applicable.

5 Other cnsideratins Other exemptins: In additin, the Incme Tax Act (ITA) - Chap 123 f the Laws f Malta, prvides fr the fllwing exemptins: - interest, discunt, premium r ryalties accruing t a nn-resident are nt subject t tax in Malta; - Gains r prfits earned by nn-residents n a transfer f units in a Cllective Investment Scheme and n the transfer f shares in Maltese cmpanies, upn certain criteria being met, are nt subject t tax in Malta; Fr further infrmatin cntact: Franc Cini, B. Accty (Hns), CPA, MIA FG Audit Ltd, 30/1, Dun Karm Street, Iklin, IKL9031, Malta T: E: fcini@fgaudit.cm.mt W: FG Audit is a member f MSI Glbal Alliance an internatinal assciatin f independent prfessinal firms. Disclaimer: The cntent f this publicatin has been prepared slely fr the purpse f prviding yu with general infrmatin nly. While all reasnable attempts were made t include accurate and current infrmatin, FG Audit accepts n respnsibility what s ever fr any errrs r missins cntained there-in. Users shuld be aware that prir t assessing the applicability f the abve, all circumstances surrunding the particular situatin need t be cnsidered and thus we suggest that users seek prfessinal advice. In additin, the abve shuld nt be cnstrued as a substitute t the applicable legislatin.