Companies & Trust, Tax Incentives in Malta


Malta’s taxation system is designed to:

  • promote international investment in Malta
  • support actively the development of financial services in Malta
  • ensure that company profits are not taxed twice - i.e. at company and again at shareholder level

Under Malta’s tax system, a company is considered resident if it is incorporated in Malta or, in the case of a foreign body of persons, if its control and management are exercised in Malta.

All companies pay 35% on chargeable income; however tax paid by the company is then imputed to the shareholder in the event of a dividend distribution. As Malta operates a full imputation system, there is no withholding tax on dividends.

Upon distribution of dividends, shareholders will be entitled to a refund of a part or whole of the tax paid by the company on the profits out of which the dividends were paid.
The amount of the tax refund is set at 6/7ths of the tax paid by the company (5/7ths in the case of passive interest and royalties). This refund will be reduced where the distributing company would have claimed double taxation relief.

The resident shareholder will be taxable for the total amount of net dividend and refund received. The non-resident shareholder is not taxed in Malta.

When dividends received from a participating holding are distributed by a Maltese company to its shareholders such shareholders are entitled to claim a refund of 100% of the tax paid on the distributed profits.

With regard to acquisitions of participating holdings made on or after 1 January 2007, where the non resident company, having mainly passive income, is not resident or incorporated in an EU Member State or is subject to tax at a rate which is less than 15%, the following additional conditions must be satisfied:

  • the shares in the non-resident company must not be held as a portfolio investment; and
  • the non-resident company or its passive income must have been subject to tax at a rate which is not less than 5%.

Resident individual shareholders will be subject to Malta tax on the dividend and tax refund while non-resident shareholders and resident corporate shareholders in receipt of the dividend and tax refund will not be subject to tax thereon.

As from 1 January, 2007 a participation exemption has also been introduced. This exempts dividends derived from participating holdings and gains derived from the disposal of such holdings. The participation exemption is also subject to the anti-abuse provisions described above for participating holdings. Where the participation exemption applies obviously the refund system in respect of participating holdings will not apply.
If the conditions to qualify as a participating holding or for the participation exemption to apply are not met the normal general tax system including the normal tax refunds will be applicable.

Although Malta is a civil law jurisdiction, since 1988 it has had legislation in force that provides for the creation of trusts. At the end of 2004, Malta’s trust legislation was extensively amended to make Maltese trusts more widely applicable and to reflect the latest developments in trust administration and regulation. The new law simplifies and accelerates the process of setting up a trust. It is also very flexible and requires high standards of consumer protection.

Trusts

Despite being a civil law jurisdiction, legislation regulating trusts has been in force in Malta since 1988. In 2004, the ‘Trusts and Trustees Act’ was enacted which extensively amended the regulation of trusts to the effect that trusts were introduced as domestic institutes and which legislation reflected the latest developments in trust administration and regulation. A Maltese trust may be created verbally, in writing, by operation of law or by a judicial decision. A trust can be set up whereby the settlor is the sole beneficiary (bare trust). Trusts can be set up to regulate inter vivos settlements (that is, done during the lifetime of the settlor) or to regulate causa mortis devolutions (the so-called, testamentary trusts). The law governing trusts in Malta offers flexibility to settlors, whilst at the same time providing for safeguards to protect the interests of all the stakeholders in the arrangement.

Foundations

Since 2007, a detailed law governing foundations has been enacted in Malta. This regulates two types of foundations namely: ‘private foundations’ which are set up in the interests of the beneficiaries and which can operate both during the lifetime of the founder, as well as after his demise and ‘public foundations’ which are set up for charitable, social or altruistic purposes.

Investment Services

Malta has firmly established itself as a financial services centre of repute as a result of a robust but flexible regulatory regime and the seriousness and pro-business attitude of the regulator. The comparatively low operational costs and the applicable fiscal benefits are certainly an added advantage. A significant number of highly respected names in the banking, insurance, investment services and funds industry have today set up an operation in Malta.

The Global Financial Centres Index, published by the City of London ranked Malta 4th out of 66 jurisdictions as a centre ‘that is most likely to increase in importance over the next few years’ and also ranked Malta 5th  amongst the ‘top financial centres, where organizations may open new operations in the next 2 to 3 years’.  Furthermore, the World Economic Forum’s Competitiveness Index 2009-2010 has ranked Malta’s banking system as the 13th soundest in the world.

Ship Registration

All types of vessels - from pleasure yachts to cruise liners, to container ships, to oil tankers, to oil rigs - may be registered under the Malta flag provided they are wholly owned by Maltese citizens, by Maltese companies, or by bodies corporate/entities established outside Malta which appoint a resident agent. Maltese law also provides for bareboat charter registration of foreign ships under the Malta flag as well as for bareboat registration of Maltese ships under a foreign flag.

Employment Employment Licenses

Foreign nationals including citizens of the member states of the EU require a permit to work in Malta.

EU Nationals

Albeit nationals of the European Union require a permit to be employed in Malta. This is normally granted automatically unless the Government of Malta sees that the granting of the permit is against public policy, public security or public health. The prospective employer applies for the permit known as the Employment License.

EU nationals that are self-employed persons do not need a permit to exercise their trade or business other than the permits related to the nature of the trade or business.

NON-EU Nationals

Non-EU nationals also require a permit which is applied for by the prospective employer. This is normally granted unless apart from the reasons quoted above, there is supply on the local labour market for the post that the foreign national would eventually be occupying.
Applications for employment licences are to be accompanied by the following documentation:

  • A detailed curriculum vitae including any testimonials
  • Three passport-sized photographs
  • A processing fee

Malta Enterprise

Malta Enterprise is the focal point for enterprise in Malta. Its role is to act as a single point of contact for all enterprise considering trade, investment or commercial links with Malta. The organization is committed to creating the right environment for successful enterprise in Malta. It provides a range of practical services and solutions to Maltese enterprises seeking to internationalise their operations and to international companies seeking to trade with or invest in Malta.

Malta Enterprise provides a comprehensive package of assistance and advisory services to international companies and investors wishing to set up manufacturing, R&D, international trading, regional representation and other operations in Malta.

Malta Enterprise is dedicated to finding solutions to the particular business needs of international companies and does so by delivering a range of tailor-made services which include professional pre-investment advice and support, start-up assistance as well as a suite of post-investment services and aftercare facilities.

Malta Enterprise also offers a range of trade promotion services aimed at introducing foreign companies to suitable manufacturers, service providers, suppliers and potential strategic partners in Malta.

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