Corporate Taxation
The Maltese tax system is the only remaining full imputation system in the EU. This means that tax paid by a company will essentially remain a prepaid tax on behalf of the tax liability of shareholders. All companies resident in Malta are subject to income tax at a rate of 35%. There is no separate corporation tax.
Under Malta’s tax system, upon a distribution of profits, non-resident shareholders are entitled to claim a refund of tax paid at the corporate level to avoid any double taxation of corporate profits. The refund may be equivalent to either 2/3 (when double taxation relief is claimed), 5/7 (in the case of passive interest and royalties) or 6/7 (in the case of trading income) of the tax paid at the corporate level. Income and gains from a participating holding (where a company holds directly at least 10 per cent of the equity shares of a non-resident company, or meets certain other criteria set out in the law), are exempt from tax. Alternatively, instead of claiming this exemption, a company can choose to pay tax at the normal rate, and then receive a full refund of the tax paid upon a distribution of dividends.
The country’s tax system was vetted by the European Commission upon Malta’s accession to the EU, and has since been approved as fully compliant with all EU requirements. This system has been in use in Malta since 1948 and has also been approved by the Organisation for Economic Co-operation and Development (OECD).
Companies incorporated in Malta are considered to be ordinarily resident in Malta and are subject to tax on their worldwide income and capital gains. Companies incorporated outside Malta are considered residents of Malta if their management and control is exercised in Malta, but as they are not domiciled in Malta, they are subject to tax on income arising in Malta and on foreign income (but not capital gains) that they receive in Malta. Companies that are not incorporated, nor managed or controlled, in Malta are subject to income tax only on income and capital gains arising in Malta.
As part of the global fight against tax fraud, the importance of substance and the need for sound commercial drivers when structuring international operations has increased. Although the actual tax impact depends on the specific circumstances, companies are required to show that their Malta operations are genuine and being run from Malta. In broad terms, this means companies must show that the management, control and day-to-day decisions concerning business activity are taken in the country.
Double Taxation Treaties
Malta-based entities are also allowed to benefit from the country’s wide network of double-taxation treaties, with some 70 currently active and others pending. Malta has succeeded in brokering treaties with China, India, Singapore, the United Kingdom, Hong Kong, Luxembourg, South Africa and the United States of America, as well as most high tax countries. In addition to this, the Maltese tax system also includes Commonwealth relief, unilateral relief and the flat rate foreign tax credit, thereby ensuring that income arising from overseas is not subject to double taxation, even if there is no double taxation agreement in force.
OTHER TAXES
Customs & Excise Duties
As an EU member state, Maltese customs regulations follow European Union Customs Procedures. In general, goods from other EU member states are subject to VAT, while goods from outside the EU are subject to Customs and Excise rules. For full information visit the Malta Customs Portal at https://customs.gov.mt
VAT
Value-added tax (VAT) applies to supplies of goods and services that take place in Malta, intra-community acquisitions and imports. The standard rate is 18%, and a 5% rate applies to the supply of electricity, printed matter, digital and confectionery. The VAT rate on holiday accommodation and sports activities is 7%. Zero rating applies to exports and intra-community supplies, international transport, domestic passenger transport, food, pharmaceuticals, and the supply and repair of ships and aircraft. Exemptions from VAT include the sale and leasing of immovable property, banking and insurance services, health, education and broadcasting.
VAT registration is mandatory for any person who carries out an economic activity (which may be a part-time activity), irrespective of the yearly turnover, unless such person’s income is generated from exempt without credit supplies. Under normal circumstances, a person is required to register for VAT under article 10 of the VAT Act. This means VAT-registrants are required to charge VAT on their taxable supplies made in Malta and have a right of input VAT recovery. On the other hand, persons whose annual turnover does not exceed certain prescribed thresholds, ranging from €20,000 to €35,000, depending on the type of activity undertaken by such persons, need to register under Article 11. Such persons do not charge VAT and cannot recover VAT on their expenses but are still required to have a VAT number (without the MT prefix), issue fiscal receipts and submit a declaration (simplified tax return) at the end of each calendar year which must be submitted by the 15th March of the following year.
Social Security
Malta has a comprehensive ‘cradle to grave’ social security system. This system is financed through social security contributions paid by each employee and employer. All employed and self-employed persons are required to pay Social Security Contributions (SSCs). The amount of SSCs payable by employees amounts to 10% of the basic wage, subject to a minimum linked to the national minimum wage and a maximum linked to the maximum pensionable income. An equivalent amount is payable by the employer in respect of each employee. The SSC amounts to 10% of the gross salary, with a minimum of €6.62 per week and a maximum of €42.57 euro per week, to be paid by both the employee and the employer. The employer must deduct the employee’s contributions from the wages and must remit the amount due, including the employer’s share, to the Commissioner of Inland Revenue by the end of the month following the month in which the wages or salaries are paid. Self-employed persons pay contributions at 15% of their profits, subject to a minimum and a maximum. Payments by self-employed persons are made to the Commissioner of Inland Revenue every three months in arrears.
Maternity Fund Contributions
All employers are obliged to pay Maternity Fund Contributions for all their employees. By means of this fund, employers in the private sector are entitled to a reimbursement of the salary of the 14 weeks maternity leave paid to their employees. Contributions are generally computed at 0.3% of the basic salary of each employee – subject to a maximum of €65 per annum per employee. Special rates of contribution apply in particular situations as set out in the Tenth Schedule to the Social Security Act.
Personal Taxation
Individuals are charged on their income at progressive tax rates up to a maximum rate of 35%. A person who is ordinarily resident and domiciled in Malta is subject to tax on his worldwide income and capital gains. A person who is resident, but not domiciled, in Malta is taxed on income and capital gains arising in Malta and on foreign income (but not foreign capital gains) received in Malta. Non-resident individuals are subject to tax on income and capital gains arising in Malta. Residence will be based on where a person effectively lives and has a home. The Department of Inland Revenue will consider individuals who have spent in aggregate more than 183 days in a tax year in Malta as residents of Malta. Temporary residents, who are not ordinarily residents in Malta but have earned income from Malta, are subject to tax on this income but are not liable to tax on any income arising outside Malta.
The income of a married couple is treated as the income of a single person and is to be declared in one tax return. However, the tax is calculated either on the total income at the married couple’s rates or, if the married couple so elects, and subject to certain conditions, on the income of each spouse separately at the single persons’ rates. A separate tax band exists for working parents supporting children up to 18 years old who are not gainfully employed (or 21 year-olds if they continue their studies to tertiary education). These rates may be availed of if the parents do not declare their income jointly.
|
Rate |
Single Computation (€) |
Joint Computation (€) |
Parental Computation (€) |
|
0% |
0 - 9,100 |
0 - 12,700 |
0 - 10,500 |
|
15% |
9,101 - 14,500 |
11,901 - 21,200 |
9,801 - 15,800 |
|
25% |
14,501 – 60,000 |
21,201 – 60,000 |
15,801 - 60,000 |
|
35% |
60,001+ |
60,001+ |
60,001+
|
Expatriate Taxation
To attract highly qualified personnel from abroad, Malta has introduced an incentive scheme targeting foreign executives. Professionals in the financial services, gaming and aviation sectors can benefit from a flat personal income-tax rate of 15% on income up to €5 million. Any income over that figure is tax-free. To qualify for this tax incentive, the employee must earn a minimum of € 82,353 per year (basis year 2016), among other criteria. EU nationals can benefit from the reduced tax rate for an unlimited period, EEA and Swiss nationals for a period of ten years and third-country nationals for four consecutive years.
Tax returns
The fiscal year aligns with the calendar year. Malta operates a self-assessment system. Taxpayers are required to declare their income and calculate their tax, taking into account payments in advance and any other tax credits. The tax payable must be settled at the time that the self-assessment is filed. For individuals, the deadline is 30th June. For companies, the tax return date is nine months after the financial year end, but not earlier than the 31st March of each year. Tax returns of companies have to be accompanied by an auditor’s certificate. Revenue assessments may be raised when a return is not filed, or where the Commissioner of Inland Revenue disagrees with the self-assessment.
