Fiscal Benefits of Setting Up a Company in Malta
In many ways, Malta is extremely cost-effective as a location in which to establish one’s business. Particularly attractive is its favourable fiscal regime where foreign investors are concerned. The main pillars of the international taxation system of Malta are tax refunds and tax relief, while Malta’s vast treaty network includes double-taxation agreements with over fifty countries with the aim of avoiding the eventuality of the same income being taxed more than once where a company carries on operations in more than one country.
Malta is the only EU Member State which has in place a full imputation system of company taxation, around which the tax refund system is built. This functions as follows: the shareholders receive a credit for the company tax paid on distributed profits (dividends) which makes them eligible for a refund as soon as the credit exceeds their tax liability. Corporate income tax is charged at a rate of 35%. However, once the dividends are distributed, a shareholder may claim a refund of six-sevenths (6/7) of the tax credit if the dividend is distributed from active trading income, and a refund of five-sevenths (5/7) if it is distributed out of passive interest and royalties.
Apart from the refund system, there is the so-called ‘participation exemption’. The rules pertaining to participation exemption provide that the gains on the sale of participating holdings (i.e. shares in non-Maltese entities) are exempt from tax in Malta, regardless of where the foreign entity is located. Many of the double-taxation treaties provide that the profits made by a company incorporated in Malta on the sale of shares in foreign companies (as long as their assets do not consist mainly in immovable property) are only taxable in Malta. The provisions of the participation exemption render the gain not subject to tax, with the added advantage that the gain may then be distributed to non-residents by the Maltese company free of withholding taxes (as repatriation of profits is tax free).
Apart from the full imputation system, participation exemptions, and the advantageous network of double-taxation treaties, Maltese tax legislation has many other benefits on offer, among them: companies may be migrated/re-domiciled both to and from Malta, with no exit taxes incurred; there is a taxation scheme for groups of companies which allows the offset of losses between group companies; and there is a tax exemption on income derived by collective investment schemes.
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This information has been provided merely for information purposes and does not constitute legal or specialist advice. Should more information be sought it is recommended to contact Valletta Legal.
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