Direct taxation of businesses
A Maltese company or its equivalent, including a foreign company with a permanent establishment in Malta, pays tax in Malta on its profits at a rate of 35 per cent.
Should it be profitable and distribute dividends, following the distribution of dividends from taxed profits, shareholders (without distinction as to the nature of such members) are entitled to claim a partial tax refund by virtue of the operation of the imputation credit system. The most common tax refund consists of six-sevenths of the tax charge borne on the distributed profits before deducting any relief of foreign tax. This translates to an effective tax leakage of 5 per cent. Although the quantum of the tax refund depends on the nature of the income and whether double tax relief is claimed, the overall tax in Malta after tax refund will be between zero and 5 per cent.
For partnerships that opt to be treated as look-through, tax is levied on the partners at their rates reaching a maximum of 35 per cent, and subject to treaty protection.i Tax on profitsDetermination of taxable profit
Taxable profits are based on accounting profits, consisting of the profits reported in the company's audited financial statements following adjustment for non-deductible expenses and non-taxable income. Business profits are taxed on an accruals basis, while investment income is taxed on a receipts basis.
Expenses wholly and exclusively incurred in the production of income are deductible from the taxable base. In general, business expenditure of a revenue or recurrent nature is normally deductible, while that of a capital nature is not (with the exception of depreciation for plant and machinery and industrial buildings and structures). A minimum number of years for tax depreciation and amortisation rates are established by statute and vary according to the estimated useful life of, and hence the nature of the asset, used in the business.
While a company incorporated in Malta is taxable in Malta on its worldwide income, companies incorporated outside Malta that have their tax residence in Malta when the control and management of their business are exercised in Malta (known as resident but not domiciled companies) are subject to tax in Malta on income or capital gains arising in Malta, and income arising outside Malta is taxable in Malta to the extent that it is received in Malta, whereas capital gains arising outside Malta are not taxable.Capital and income
Capital profit is not taxed generally, but only specific items of capital gains are subject to tax, namely such as derived from the transfer of real estate and real rights, securities, business, goodwill, business permits and intellectual property; and interest in a partnership.
In general, a company's gains on the transfer of capital assets are aggregated with its other income, and the total income and capital gains are charged to income tax at the standard rate. The basic rules for the computation of capital gains and losses require the determination of the gain realised on the transfer by deducting from the actual consideration received or deemed to have been received the cost to the transferor for the acquisition of the asset being transferred.Losses
Trade losses may be set off against income and carried forward indefinitely and set off against the income of the following years (with the exception of losses arising due to depreciation, which can only be set off against the profits of the same and continuing trade), but no carry-back of losses is allowed. Capital losses may be set off only against capital gains. Losses can survive a change in ownership on condition that the same business is continued and no abuse is contemplated.Rates
A Maltese company or its equivalent, including a foreign company with a permanent establishment in Malta, pays tax in Malta on its profits at a rate of 35 per cent, as explained above.Administration
Company tax returns must typically be submitted within nine months from the financial year-end or 31 March of the following year, whichever date is the later. Companies must retain proper and sufficient records of their income and expenditure, and are required to submit together with their tax return a balance sheet and profit and loss account accompanied by a report made out by a certified public auditor. Financial statements are prepared in accordance with international financial reporting standards or the local generally accepted accounting principles.
Malta operates a self-assessment tax return regime for all taxpayers. The degree of scrutiny of returns and the likelihood of investigation will be affected by the tax authorities' risk assessment of the taxpayer rather than by a defined cycle of enquiry.
Appeals against assessments are made by means of an objection in writing to the Commissioner for Revenue, to be submitted within 30 days from the date on which a notice of assessment is served on the taxpayer. If no agreement is reached between the taxpayer and the Commissioner for Revenue at objection stage, an appeal may then be lodged with the Administrative Review Tribunal within 30 days of the service of the notice of refusal. An appeal may be made to the Court of Appeal within 30 days from the date when the Tribunal's decision was notified to the parties and may only be made on a point of law.
It is pertinent to note that rulings are not and cannot be obtained to establish the tax base or to negotiate a transfer price, and thus cannot be used to harmful ends. Malta also exchanges its rulings under the EU's relevant legislation. It is possible to obtain clearance as to the law's interpretation by means of an advance revenue ruling, which is valid for five years and can be renewed for another five-year period. A ruling will remain binding on the tax authorities for a period of two years from the time of any change in legislation affecting the ruling.Tax grouping
Group relief provisions allow for the surrender of tax losses between group companies. Two companies are considered to be members of a group of companies if they are both resident in Malta and not resident for tax purposes in any other country, and where one company is the 51 per cent subsidiary of the other or both companies are 51 per cent subsidiaries of a third company resident in Malta and not resident for tax purposes in any other country.
Intra-group transfer of capital assets is governed by a tax deferral until final disposal to unrelated parties. Dividends move intra-group in a tax-neutral fashion attracting no double or multiple economic taxation owing to the full imputation system.ii Other relevant taxes
Malta, as an EU Member State, is part of the harmonised EU VAT system. Malta's standard VAT rate is 18 per cent. Malta also applies reduced rates (5 and 7 per cent) to various goods and services. With effect from 1 June 2018, Malta introduced VAT grouping, whereby two or more legal persons, at least one of which operates within the financial or gaming sectors, may opt to be treated as a single taxable person for VAT purposes.
Malta has stamp duty legislation. However, exemptions are available, for instance, for intra-group transactions. Maltese stamp duty consists of a tax on documents evidencing transfers of real estate and real rights, securities or an interest in a partnership. Duty is chargeable on the higher of the amount of consideration and the market value.
There are no capital duties, net wealth or turnover taxes for incorporated businesses in Malta.