Malta tax system: audit, reporting and optimization of taxation of Maltese companies and individuals: VAT, income tax and capital gains
Basic taxes (briefly)
|Corporate tax (in detail)||Income tax is paid by companies at a rate of 35%. However, in the future distribution of dividends, Maltese shareholders can set off this tax against income tax. Non-resident shareholders can receive a refund of most of this tax, which allows a significant reduction in the effective tax rate, depending on the type of income of the company, the tax can be reduced, as a rule, to 0 - 10%|
|Capital gains tax. Details||included in a tax base of coporate income tax|
|VAT. Details||The standard VAT rate is 18%. For some goods and services, the tax rate is 7% and 5%|
|Other taxes||Social contributions, Property transfer tax|
International tax agreement
|Albania, Andorra, Australia, Austria, Azerbaijan, Bahrain, Barbados, Belgium, Bulgaria, Canada, China, Croatia, Cyprus, Czech Republic, Curaçao, Denmark, Egypt, Estonia, Finland, France, Georgia, Germany, Greece, Guernsey, Hong Kong, Hungary, Iceland, India, Ireland, Isle of Man, Israel, Italy, Jersey, Jordan, Korea (Republic of), Kuwait, Latvia, Lebanon, Libya, Liechtenstein, Lithuania, Luxembourg, Malaysia, Mexico, Moldova (Republic of), Montenegro, Morocco, Netherlands, Norway, Pakistan, Poland, Portugal, Qatar, Romania, Russian Federation, San Marino, Saudi Arabia, Serbia, Singapore, Slovakia, Slovenia, South Africa, Spain, Sweden, Switzerland, Syrian Arab Republic, Tunisia, Turkey, United Arab Emirates, United Kingdom, United States, Uruguay, Viet nam|
|Bahamas, Bermuda, Cayman Islands, Gibraltar, Macao (China). Convention on Mutual Administrative Assistance in Tax Matters|
Persons ordinarily resident and domiciled in Malta are subject to income tax in Malta on their worldwide income and on chargeable gains. Persons who are resident or domiciled but not ordinarily resident and domiciled are taxed on income and chargeable gains arising in Malta and on their foreign income received in Malta. Taxable income includes gains or profits derived, inter alia, from a trade or business; profession or vocation; employment or office; dividends, interest or discounts; pensions, annuities or annual payments; rents, royalties, premiums and any profits arising from property; and chargeable capital gains. The personal income tax rates are as follows:
Tax year for individuals is a calendar year. Individuals must make provisional tax payments, which must be effected before 30 April, 31 August and 21 December, respectively, of each year (except for income on which tax was withheld at source, e.g. employment income). The balance must be paid by 30 June of the year of assessment.
|Income, EUR||Rate 0-8.500||0% 8.501-14.500||15% 14.501-19.500||25% Over 19.500||35%|
Malta does not apply a separate system of corporation tax, thus Maltese companies are subject to tax on their profits at the same rate as individuals on their income, that is, at the rate of 35%. Taxable income includes profits or gains derived from a trade or business; dividends, premiums, interest or discounts; rents, royalties, and other profits arising from property; any charge, annuity or annual payment; and certain chargeable capital gains. Under the notion of domicile and residence in Malta, companies that are registered in Malta are treated as both domiciled and resident and therefore their worldwide profits are taxed in Malta. The amendments to the Maltese fiscal laws in 2007, in line with an agreement reached with the European Union, offer a revamped system of corporate tax refunds. A Maltese company is subject to tax on its profits at the rate of 35%. When the company pays a dividend to its shareholder, no withholding tax or further tax is due on the dividend. Moreover, under the new tax refund system introduced in January 2007, a tax refund is applicable upon the distribution of profits where the tax thereon has not been reduced by double taxation relief. Therefore the shareholders of a Maltese company may claim a refund of part of the tax (and in some cases all of the tax) paid at corporate level. The extent of the refund depends on the nature and source of profits. The law provides for four types of refunds depending on the nature of the profits:
- 6/7ths refund - refund of 30% of 35% tax producing a tax liability of 5%. This is the typical refund due on trading profits; 5/7ths refunds (refund of 25%) due in respect of passive interest and royalties; 2/3rds refund due where the company has claimed double taxation relief; 100% refund due where the profits derive from a Participating Holding (profits received from equity shares held by a Maltese company in a foreign company).
Capital Gains Tax
Gains on the transfer of capital assets, i.e. (i) immovable property; (ii) securities, business goodwill, copy rights, patents and trademarks; or (iii) beneficial interests in trusts, are aggregated with a company’s other income and charged to income tax.
Trade losses may be set off against income of the relevant year and carried forward indefinitely for setoff against income of subsequent years. Losses arising as a result of depreciation may be carried forward indefinitely and set off against the profits of the same and continuing trade. The carryback of losses is not permitted. Capital losses may be set off against capital gains of the current and following years.
A company in receipt of dividend income is subject to tax on such income with the possibility of relief for any underlying tax. The participation exemption may apply in respect of dividend income derived from a participating holding.
Tax year conforms to calendar year. A company can use other dates if consent is granted by the Inland Revenue Department.
VAT is imposed on the supply of goods and services in Malta, the intra-Community acquisition of goods in Malta and the import of goods into Malta from outside the EU. Malta VAT legislation provides for 4 rates: the standard rate - 18%, the reduced rates of 7% (the supply of accommodation in hotels), 5% (the supply of electricity, certain confectionery items, certain medical accessories, etc.), and 0%. Some transactions are exempt (for example, banking and insurance services and the sale and leasing of immovable property). Supplies charged at 5% include
For VAT purposes, every person who, in the course of a trade or profession, makes taxable and/or exempt-with-credit supplies of goods and services in Malta (with the exception of certain small undertakings) is required to register for VAT in Malta and to charge VAT that might be applicable and is entitled to recover input VAT incurred for the purpose of its supplies. Additional registration requirements apply to businesses supplying and receiving services in a cross-border context.
VAT tax period and returns
Input VAT is set off against output VAT, and the balance is accounted for every three months (quarterly).
Malta does not levy withholding tax on outgoing dividends. The rate of withholding tax on interest and royalty is 0%, provided the recipient is not owned or controlled by, and does not act on behalf of, persons ordinarily resident and domiciled in Malta, and does not carry on trade/business in Malta through a permanent establishment with which the interest or royalty income is effectively connected.
Stamp duty is generally levied on documents evidencing transfers of immovable property at a rate of 5% of the higher of the consideration and the real value; and upon a transfer of marketable securities at a rate of 2% of the higher of the consideration and the real value, although a 5% rate applies to transfers of marketable securities in a company where 75% or more of the company’s assets consist of immovable property.
Social Security Contributions
The employer must pay social insurance contributions for each full-time employee in an amount equal to 10% of the employee’s basic weekly wage subject to a minimum and a maximum contribution, which are updated annually on the basis of the government awarded cost-of-living increase. The employer also must deduct 10% from the basic weekly wages of the employee and pay the entire amount to the government on a monthly basis. The employer’s share of the social security contribution is deductible for income tax proposes.
The amount of the registration fee and fee for submitting annual returns depends on the amount of authorized capital and also whether the annual return is submitted in paper format or electronically:
|Authorized Share Capital, €||Fee in paper format||Fee in electronic format 1,165-1,500||100||85 1,501-5,000||140||120 5,001-10,000||160||135 10,001-50,000||350||300 50,001-100,000||400||340 100,001-250,000||600||510 250,001-500,000||800||680 500,001-1,000,000||900||765 1,000,000-2,500,000||1200||1020 Over 2,500,001||1400||1200|
There are no transfer pricing rules, thin capitalization or controlled foreign companies in Malta.
Double Tax Agreements
Malta has entered a whole range of double tax and tax information exchange mechanisms:
- 76 DTC: Albania, Andorra, Australia, Austria, Azerbaijan, Bahrain, Barbados, Belgium, Bulgaria, Canada, China, Croatia, Cyprus, Czech Republic, Curaçao, Denmark, Egypt, Estonia, Finland, France, Georgia, Germany, Greece, Guernsey, Hong Kong, Hungary, Iceland, India, Ireland, Isle of Man, Israel, Italy, Jersey, Jordan, Korea (Republic of), Kuwait, Latvia, Lebanon, Libya, Liechtenstein, Lithuania, Luxembourg, Malaysia, Mexico, Moldova (Republic of), Montenegro, Morocco, Netherlands, Norway, Pakistan, Poland, Portugal, Qatar, Romania, Russian Federation, San Marino, Saudi Arabia, Serbia, Singapore, Slovakia, Slovenia, South Africa, Spain, Sweden, Switzerland, Syrian Arab Republic, Tunisia, Turkey, United Arab Emirates, United Kingdom, United States, Uruguay, Viet nam. 5 TIEA: Bahamas, Bermuda, Cayman Islands, Gibraltar, Macao (China).
Foreign Exchange Control
There is no foreign exchange control in Malta.
The Companies Act requires every company to keep proper accounting records for the following:
- All sums of money received and expended by the company, and details of the receipts and expenditure. All sales and purchases of goods by the company. The assets and liabilities of the company.
Each year, upon anniversary of its incorporation, a company registered in Malta must prepare and submit to the Registrar of Companies an Annual Return of the company containing the details of all shareholders, directors, registered office and share capital and any changes thereof. This information is available to public. The Annual Return duly completed and signed by at least one director or the company secretary must be filed with the Registrar within 42 days after the date to which it is made up. In case of non-compliance, the Registrar of Companies may strike the company off the register. Annual return is publicly accessible.
In addition, every Maltese company must annually prepare and submit to the Registrar its annual accounts. The accounts must be laid for approval before the general meeting of the company within ten months after the end of the relevant accounting reference period and then, accompanied by the auditors’ report and the directors’ report, be delivered to the Registrar within 42 days from the end of the 10-month period for laying of annual accounts. Exemption from audit is granted to private companies which in their balance sheet dates do not exceed the limits of two of the three following criteria:
- a balance sheet total is EUR 46,587.47; turnover is EUR 93,174.94; average number of employees is 2.
Liability of Directors
Officers of the company failing to file annual return or directors failing to deliver the accounts (or delivering defective annual accounts) to the Registrar are liable to a penalty of EUR 2,329.37 and to a further daily penalty of EUR 46.59 for every day during which such default continues.
Companies are assessed to tax on income derived during the financial year. Company profits are assessable in the year (year of assessment) on the basis of the financial year immediately preceding the year of assessment (basis year). A company may use an accounting reference date other than 31 December if consent is granted by, and subject to conditions imposed by, the Inland Revenue Department. Companies are required to make advance payments of tax during the accounting period (although exemptions from paying provisional tax may apply), and must typically file a tax return together with financial statements within nine months from the end of the accounting period. A final tax payment is due by the date the tax return is submitted. Penalties may be imposed, inter alia, for filing an incorrect return.
Taxes of Malta
|Min. rate for corporate tax||35%|
|Capital gains tax||Regular rate|