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Companies registered in Malta are considered to be resident and domiciled in Malta, thus they are subject to tax on their worldwide income less permitted deductions at the corporate income tax rate which at present stands at 35%.

Imputation System

Maltese tax resident shareholders receive full credit for any tax paid by the company on profits distributed as dividends by a Maltese company, thus preventing the risk of double taxation on that income. In cases where the shareholder is liable to tax in Malta on dividend at a rate which is lower than the company rate of tax (which currently stands at 35%), excess imputation tax credits are refundable.

Tax Refunds

Upon receipt of a dividend, shareholders of a Malta company may claim a refund of all or part of the Malta tax paid at the level of the company on such income. In order to determine the amount of refund which one may claim, the type and source of the income received by the company must be considered. Shareholders of a company that have a branch in Malta and who are receiving dividends out of branch profits subject to tax in Malta qualify for the same Malta tax refunds as shareholders of a Malta company.

Maltese law stipulates that refunds are to be paid within 14 days from the day in which a refund becomes due, that is when a complete and correct tax return for the company and shareholders has been filed, the tax due has been fully paid and a complete and proper refund claim has been made.

Refunds may not be claimed in any case on tax suffered on income derived directly or indirectly, from immovable property.

100% refund

A full refund of the tax paid by the company, resulting in an effective combined tax rate of zero may be claimed by shareholders in respect of:

  • income or gains are derived from an investment which qualifies as a Participating Holding; or
  • in the case of dividend income, where such Participating Holding falls within the safe harbours or satisfies the anti-abuse provisions.

The 5/7ths refund

There are two cases where a 5/7 refund is given:

  • when the income received is passive interest or royalties; or
  • in cases of income arising from a participating holding which does not fall within the safe harbours or satisfy the anti-abuse provisions.

The 2/3rds refund

Shareholders who claim double taxation relief in respect of any foreign income received by a Malta company are limited to a 2/3 refund of the Malta tax paid.

The 6/7ths refund

In cases of dividends which are paid to shareholders out of any other income which has not being previously mentioned, these shareholders become entitled to claim a refund of 6/7ths of the Malta tax paid by the company. Thus, shareholders will benefit from an effective rate of Malta tax of 5%.

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