Companies that have both their habitual residence and domicile in Malta are generally taxed at a rate of 35% worldwide. Maltese tax law does not provide for the taxation of companies on the basis of accounting profits. In practice, however, in accordance with International Financial Reporting Standards, the profit reported in the income statement is the basis for calculating profit or loss and the basis for tax collection, subject to specific adjustments required and required by the relevant tax legislation. Generally, a corporation`s profits from the transfer of capital assets are aggregated with its other income, and total income and capital gains are taxed at the general rate. However, profits from the transfer of immovable property located in Malta are subject separately to a flat-rate transfer tax. For businesses eligible for benefits under the Business Promotion Act, reduced income tax rates of five to 15% apply. Malta has no thin capitalization rules regarding the deductibility of interest expenses, nor rules for controlled foreign companies or other similar specific anti-abuse laws. CFC rules. Malta introduced CFC regulations based on EU-ATAD from 2019. The untaxed account is the difference between the company`s accounting profits and the amounts allocated to FTA, IPA, FIA and MTA.
Under Maltese tax law, no personal allowance or credit is granted. The income of a Maltese company is divided into 5 different tax accounts. These are the Final Tax Account (FTA), Real Estate Account (IPA), Foreign Income Account (FIA), Maltese Tax Account (MTA) and Untaxed Account. The FTA comprises distributable profits that have been taxed, including income taxed on the basis of capital gains, profits from the sale of immovable property situated in Malta taxed at the final rate of 12%, profits on which tax has been reduced under various tax incentives laws, etc. persons who do not have a habitual residence in Malta or who are not domiciled in Malta, are generally subject to Maltese tax on income and capital gains earned in Malta and on their foreign income (but not foreign capital gains) earned in Malta. Non-residents are exempt from capital gains tax on the sale of shares in a Maltese company resident in Malta whose assets do not consist wholly or mainly of immovable property.37 Non-resident natural persons are taxed differently from those applicable to resident natural persons. Tax rates for non-residents range from zero per cent for taxable income to 35 per cent for taxable income. As Malta generally offers full credit for residents and non-residents, no withholding tax is levied on dividends received from companies resident in Malta for tax purposes. In addition, distributions of “untaxed income” to non-resident shareholders are also not taxable. No withholding tax shall be payable on interest and royalty payments unless the interest or royalties are actually linked to a permanent establishment in Malta.
In such cases, the withholding tax would be 25% if paid to an individual. These withholding taxes are not final because all withholding taxes paid are deducted from the tax payable by the non-resident relative to income and any overpaid withholding tax is refunded. The Maltese income tax system mitigates double taxation of dividend income through a full imputation system which grants shareholders who receive dividends from Maltese companies a credit for Maltese corporate income tax levied on profits from which dividends are paid by those companies. Credit is allowed for resident and non-resident shareholders. Brief. The Republic of Malta is an island archipelago in the Mediterranean Sea and a constitutional republic. The Maltese tax system distinguishes between “taxed income” and “untaxed income”. The difference between a corporation`s distributable profits, as presented in its financial statements, and the total amounts of taxed income is called untaxed income. Due to the operation of the full imputation system, there is generally no withholding tax on dividends paid on profits subject to Maltese corporation tax. However, a withholding tax rate applies to dividends paid from untaxed profits to resident natural persons.
In general, there is no withholding tax on interest paid to resident natural persons. However, a final withholding tax may be levied in the event of interest payments by Maltese banks, the Maltese Government and public bodies and authorities. There is no withholding tax on royalties paid to residents. The general basis for personal taxation in Malta is that if you are domiciled and ordinarily resident in Malta, you must declare all your income (including the income of your spouse and dependent children) from any source. If you are not domiciled or ordinarily resident in Malta, you must declare all income due to you or from Malta (including income of your spouse and dependent children) and any income transferred to Malta. However, losses on depreciation and amortisation may be carried forward only indefinitely and offset by profits resulting from the same activity and the continuation of the activity. Loss carry-forwards are not permitted. Losses incurred outside Malta shall be allowed as a deduction if the losses, if they had been profits, would have been taxable in Malta. Capital losses can only be offset by capital gains. Set-off with capital gains for the current and subsequent years is permitted. The refund rules apply to the taxation of income allocated to the FIA and MTA, while the flat rate of the foreign tax credit (FRFTC) applies only to income allocated to the FIA.
Malta does not levy inheritance, gift or wealth taxes. The MTA contains distributable profits that have been taxed and have not been allocated to the FTA, IAP or FIA. The tax rates for a natural person are progressive rates with a range of 0% to 35% (see tables opposite). The higher the income, the higher the tax rate. Corporate income tax is 35%. A person who resides in Malta more than 183 days a year is taxed in Malta on his income earned in Malta as well as on any income earned abroad that is earned in Malta. The law stipulates that each month the employer is obliged to deduct the amount of tax due from a salary at source. Certain payments are deductible from an individual`s taxable income that are permitted for tax purposes. Employers and employees must also pay weekly social security contributions, usually equal to 10% of the employee`s salary, up to a maximum of €41.83 per week (if born after 1962); However, the actual contribution depends on the type of employment. The employer must deduct the social security contribution in addition to the income tax deductions.
Residents of Malta can benefit from an extensive network of double taxation treaties that protect them from being taxed on the same income more than once in different countries. In the event that there is no double taxation treaty, Malta has a unilateral relief system under which taxes paid abroad can be used as a credit for income tax due to Malta on the same income. The standard VAT rate is 18% and applies to the purchase of most goods and services. In this section, you will find a general overview of personal tax matters, including information about your obligations and rights as a taxpayer. More detailed tax information is provided on specific topics such as tax credits, tax returns and related forms. Common legal entities. Joint stock company and limited liability company, partnerships collect if and limited partnerships, trusts and foundations as well as branches. A person`s taxable income is the sum of all profits and gains from the following sources: trade or business; profession or vocation; employment or office; dividends, interest or discounts; pensions, pensions or annual payments; rent, royalties, premiums and other profits from real estate; certain capital gains; and other winnings or gains.
