Foreign exchange control – No
Accounting principles/financial statements – IAS/IFRS/General Accounting Principles for Small and Medium-Sized Entities (GAPSME) apply. Financial statements must be prepared annually.
Principal business entities – These are the public and private limited liability company, partnership en nom collectif and the partnership en commandite (the capital of which may or may not be divided into shares). Trusts and foundations also are available under Maltese law.
Residence – A company incorporated in Malta is considered both domiciled and resident in Malta. A company not incorporated in Malta is considered resident in Malta if the management and control of its business is exercised in Malta.
Basis – Companies resident and domiciled in Malta are subject to income tax on their worldwide income and chargeable gains.
Companies that are ordinarily resident but not domiciled in Malta are taxable in Malta on a source and remittance basis, i.e. on income and chargeable gains arising in Malta and on income arising outside Malta that is received in Malta (such companies are not taxable on income arising outside Malta that is not received in Malta or on capital gains arising outside Malta, regardless of whether received in Malta). Companies that are neither incorporated nor resident in Malta are chargeable to tax in Malta only in respect of Malta-source income and chargeable gains, such as the income of a Malta permanent establishment (PE).
Taxable income – Taxable income includes gains or profits 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. Some categories of income are, subject to certain exceptions, exempt from tax (such as interest, royalties and gains on the transfer of shares derived by nonresidents), as is income accruing to certain categories of persons (such as income of a CIS that has at least 15% of the value of its assets situated outside Malta, other than income from immovable property situated in Malta).
Taxation of dividends – 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.
Capital gains – Gains on the transfer of capital assets are aggregated with a company's other income, and the total income and capital gains is charged to income tax. Capital gains arise, inter alia, upon a transfer of: (i) immovable property; (ii) securities, business goodwill, business permits, copyrights, patents, trademarks, trade names and any other intellectual property; (iii) interests in a partnership; and (iv) beneficial interests in trusts that hold property referred to above. However, where a company transfers immovable property situated in Malta, final tax is payable at a rate of 8% on the transfer value; other rates (mainly 2%, 5%, 10% and 12%) may apply in specific cases.
A participation exemption may apply in respect of gains derived from the disposal of a participating holding (see “Participation exemption,” below).
Nonresident companies are not subject to tax on gains or profits realized on a disposal of units in a CIS, units relating to long-term insurance policies, interests in a partnership and shares or securities in a company, unless the partnership’s or company’s assets consist wholly or principally of immovable property situated in Malta.
Surtax – No
Alternative minimum tax – No
Foreign tax credit – An ordinary tax credit with per-country and per-source limitations may apply, or a (notional) flat rate foreign tax credit of 25% may apply to companies that receive, and are specifically empowered to receive, foreign-source income.
Participation exemption – Dividend income or capital gains derived from a participating holding (usually an equity shareholding of at least 5%, although a number of alternative tests may apply), or from the disposal of such a holding, are exempt from tax in Malta (or alternatively may be taxed at 35% and the shareholder may, upon a subsequent distribution of the corresponding profits, claim a full refund of the Malta tax paid by the company).
In the case of dividends derived from a participating holding, the entity also must be incorporated or resident in the EU or must derive less than 50% of its income from passive interest and royalties or must be subject to tax at a rate of at least 15%. If none of these conditions are satisfied, the participation exemption may apply if the holding does not qualify as a portfolio investment and the entity is taxed at a rate of at least 5%.
The participation exemption regime also is applicable to profits and gains derived by a Maltese company that are attributable to a PE situated outside Malta, or to the transfer thereof. The profits and gains are to be calculated as if the PE is an independent enterprise operating under similar conditions and at arm’s length.
The benefits of the participation exemption are limited by the anti-hybrid mismatch rule and the general anti- avoidance rule introduced into domestic law pursuant to the amendments to the EU parent-subsidiary directive.
Holding company regime – No specific holding company regime is available; however, the participation exemption may be applicable, as outlined above.
Incentives – Tax and other incentives are granted to the following activities, among others: manufacturing, information and communication technology development, call centers, healthcare, pharmaceuticals, biotechnology, aviation and maritime services, education and training and logistics. Incentives fall under the following support measures: (i) investment aid, which comprises business development and continuity assistance, investment aid tax credits, soft loans, interest rate subsidies, loan guarantees and rent subsidies; (ii) aid for small enterprises, which comprises micro investment tax credits, micro guarantee schemes and trade promotion; (iii) aid for SME start-ups, which comprises seed funding for start-ups and trade promotion; (iv) aid for research and innovation, which includes research and development tax credits and personal tax incentives; and (v) enterprise support measures, which include business development and continuity grants, investment aid for high-efficiency co-generation, knowledge transfer grants, business advisory services, business associations grants, Gozo transport grant schemes, network support schemes, rent subsidies and trade promotion.
Qualifying undertakings established in Malta are entitled to a notional interest deduction (NID) on their qualifying capital (e.g. share capital, share premiums, interest-free debt, positive retained earnings), which is capped at 90% of taxable income, with any excess able to be carried forward to be deducted against taxable income derived in future years.
Dividends – Malta does not levy withholding tax on outbound dividends (except for certain untaxed dividends where a nonresident person is owned and controlled by, or acts on behalf of, an individual ordinarily resident and domiciled in Malta).
Interest – The rate is 0%, provided the recipient is not owned and controlled by, and does not act on behalf of, persons ordinarily resident and domiciled in Malta, and does not carry on a trade/business in Malta through a PE with which the interest income is effectively connected.
Royalties – The rate is 0%, provided the recipient is not owned and controlled by, and does not act on behalf of, persons ordinarily resident and domiciled in Malta, and does not carry on a trade/business in Malta through a PE with which the royalty income is effectively connected.
Technical service fees – The rate is 0%, provided that such fees are not sourced to Malta (e.g. are not attributable to a PE of a nonresident in Malta).
Branch remittance tax – No
Other – Non-final withholding tax may be imposed on certain taxable income paid to nonresident companies.
Other taxes on corporations:
Capital duty – No
Payroll tax – No additional taxes are levied in relation to payroll. Income tax is withheld from salaries under the Final Settlement System.
Real property tax – There is no real property tax; however, stamp duty and income tax may apply to gains derived from the transfer of immovable property (see “Capital gains,” above).
Social security – The employer must pay social security contributions for each employee, in an amount generally equal to 10% of the employee's basic weekly wage, subject to a minimum and a maximum contribution 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 purposes.
Stamp duty – Stamp duty generally is levied on documents evidencing transfers of immovable property at a rate of 5% of the higher of the consideration or the real value. It also applies upon a transfer of marketable securities and/or an interest in a partnership, at a rate of 2% of the higher of the consideration or the real value; however, a 5% rate applies to transfers of marketable securities in a company and/or an interest in a partnership where 75% or more of the company's and/or the partnership’s assets consist of immovable property. Certain transactions may be exempt from duty. Stamp duty also is levied on certain specified documents where no transfer of property takes place, such as insurance policies.
Transfer tax – No, but see “Stamp duty,” above. Anti-avoidance rules:
Transfer pricing – No
Thin capitalization – No
Controlled foreign companies – No
Compliance for corporations:
Tax year – 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.
Consolidated returns – Consolidated returns are not permitted; each company must file a separate return. However, group loss relief is available in certain circumstances.
Filing requirements – Companies are required to make advance payments of tax during the accounting period (although certain exceptions from paying provisional tax may apply), and typically must 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. Certain exceptions to the above may apply.
Penalties – Penalties may be imposed, inter alia, for filing an incorrect return.
Rulings – An application to the Inland Revenue may be made for an advance ruling on the tax treatment of certain transactions. A ruling is binding for five years and may be subsequently renewed; however, if relevant changes are made to the law in question subsequent to the ruling, the ruling will remain binding for two years from such time.