Malta’s EU membership has made the country a competitive jurisdiction for tax planning and corporate structures. Income Tax in Malta is charged on income from all sources and capital gains on the transfer of immovable property, securities and certain intangible assets. Companies are chargeable to tax in Malta at a flat rate of 35% on their income. Individuals are chargeable to tax in Malta at progressive rates ranging from 0% to 35%, depending on the level of total income.
One of the key advantages of the Maltese income tax system is the full imputation system that applies to the taxation of dividends. This implies that dividends distributed by a Maltese company carry a credit in favour of the recipient shareholder/s which is equal to the amount of underlying tax paid by the Malta company on the profits out of which the dividend was distributed. Since companies are chargeable to tax at a flat rate of 35%, no further tax is due upon receipt of a dividend by an individual shareholder. Therefore, individuals are not required to declare the dividend for income tax purposes, however should an individual shareholder be liable to tax at a progressive rate which is lower than the 35% rate which was levied on the profits of the company, then s/he is entitled to a tax refund equivalent to the excess tax paid by the company.
This system is intended to eliminate economic double taxation (double taxation of corporate profits). In addition, no tax is to be withheld on outbound payments of dividends. Furthermore, a shareholder (resident or non-resident) may be entitled to claim a refund of part or all of the tax paid by the distributing company on the profits out of which the dividend was distributed and depending on the tax account to which such profits were allocated.
The amount of the tax refund is set at 6/7ths of the advance corporation tax paid by the company and 5/7ths in the case of passive interest and royalties. The refund is reduced to 2/3rds where the distributing company claims double taxation relief.
With respect to participating holdings a full 100% refund applies. A participating holding arises where a company holds at least 10% of the equity shares of a non-resident subsidiary company or meets certain other criteria set out in the law.