For many businesses, the lure of the low tax in Malta is certainly a compelling one as it offers several benefits as compared to many other countries. Its little wonder that so many businesses have set up in this tiny country located in the middle of the Mediterranean Sea all thanks to the Maltese Company tax structure.
35% Corporate Tax Rate
Basically, the onshore corporate tax rate in Malta is 35% which is comparable with many other countries. However, there is significant tax refunds associated with this tax rate as well which includes the following benefits;
- Capital Gains & Dividends received from a Participating Holding
- Dividends from a Non-Participating Holding
- Trading & Passive Income such as Royalties and Interests
So, while the general corporate tax rate is 35%, it can be significantly reduced thanks to the many different benefits and deductions available. There is also an imputation system in which the tax that is paid by a company is also available as credit to shareholders when it comes to distributions.
When dividends are distributed to shareholders, they may claim refunds of 6/7ths of the tax in Malta paid by the company. When taken into account, the effective Maltese company tax is just 5%. Companies that may participate in this dividend include overseas branches that are set up in Malta and companies that are registered with the local tax authorities whether they have been incorporated in Malta or not.
5/7ths Refund for Royalties & Passive Interest
A claim of 5/7ths refund may be made for companies that have royalties or passive income when the taxes have been paid. This is a qualification for companies that did not make a double tax relief claim, when the dividends are made out of profits that are sent to foreign income accounts under these circumstances.
100% Refund for Participating Holdings and Exemptions
A registered Maltese company qualifies for a full refund of the tax paid when distributions are made to the shareholders of the company itself. Thanks to additional amendments to the tax laws in Malta have allow participatory holding to have qualifications for a full refund opportunity if certain conditions are met. There is also a participation exemption that can be made as well as long as the anti-abuse provisions are met.
Basically, it is possible to greatly reduce, if not eliminate the tax burden through these holdings and exemptions thanks to this refund policy. Check with the Maltese company tax laws to ensure that your company will get full refunds so that they effectively pay no tax in Malta.
In addition to these tax benefits, Malta offers plenty of others that companies can take advantage of when setting up in this country;
- No Withholding Tax, Thin-Cap Rules or Debt
- No Stamp Duties or Exchange Control Restrictions to Dividends or Profits
- No Transfer Pricing Rules, Capital Duties or Wealth Taxes
- No Withholding Tax on Dividend Payments, Interests or Royalties for Non-Residents
In essence, the tax in Malta is very favorable to many businesses which have set up shop so to speak in this island nation.