Malta Tax System

Malta is an excellent, alternative company jurisdiction due to the tax benefits given to investors, entrepreneurs and businesses. What we mean by alternative company jurisdiction is that Malta has the qualities of an offshore jurisdiction such as low effective tax rates and a beneficial holding company jurisdiction. However, the Malta tax system is monitored and regulated by EU standards, making it a safe and compliant onshore jurisdiction.

Malta corporate tax system works off of a Full Imputation System. In simple terms, this means that company profits are taxed at the source, but dividends distributed to shareholders are not taxed again.

This system is different from the classical system, whereby company profits are subject to tax and shareholders are taxed on dividends.

The Malta tax refund system enables shareholders of a company registered in Malta to claim up to a 6/7th tax refund of tax paid in Malta. Therefore, we can set up trading companies in Malta to have an effective tax rate of 5%.

Participation Exemption is the relief from taxation for a shareholder in a company on dividends and capital gains received from the sale of shares. However, this occurs when a Maltese company holds shares in another entity (qualifying as a Participating Holding).

Malta has come into line with the various EU directives and tax laws. However, this does open up various international tax planning opportunities for businesses. For example:

• EU Parent-Subsidiary Directive – eliminates tax obstacles in the area of profit distributions between groups of companies in the EU.
• Interest and Royalties Directive – eliminates withholding tax obstacles in the area of cross-border interest and royalty payments within a group of companies.

A Malta holding company in Malta offers several fantastic international tax planning opportunities. For business, a Malta holding company allows you to not only to consolidate subsidiary companies under one roof, but it also allows businesses to take advantage of the tax as mentioned above benefits.

An IHC offers protection for both business and personal assets. The Malta holding company is an excellent vehicle able to hold assets such as real estate holdings, shares in companies, intellectual property and more.

Malta income tax rates work off of a progressive tax rate, meaning that the more income you generate, the more tax you pay. In short, the Malta income tax rates 2019 are:

Income Tax Rates 2019

• €0 – €9,100 = 0%
• €9,101 – €14,500 = 15%
• €14,501 – €60,000 = 25%
• €60,000 onwards = 35%

While Malta does have a progressive income tax system, there are tax residence programmes available for individuals and expats in Malta.

There are two residence programmes made to reduce the tax for an individual’s living in Malta. Both these residence programmes offer special tax status by setting an individual’s tax rate on income remitted to Malta at 15%.

• Malta Global Residence Programme (GRP) – Non-EU/EEA/Swiss nationals
• The Residence Programme (TRP) – EU/EEA/Swiss nationals

Moreover, there is a tax residency programme for all nationals to apply for called the Highly Qualified Persons Rules. The programme seeks to attract highly qualified persons in the financial, gaming and aviation sectors by offering a 15% flat rate of tax on income generated in Malta. (Update: These Rules have been superseded by The Residence Programme (TRP) and the Global Residence Programme (GRP) Rules)

Retiring in Malta is a goal for many individuals in Europe because of the climate, sunshine, Maltese culture and the fantastic standard of living. However, if you’re an EU/EAA/Swiss national planning on retiring in Malta, there is a Malta Retirement Programme.

The Malta Retirement Programme sets tax rate on pension income remitted to Malta at 15%. Therefore, this allows you to know your pension tax rates as well as enjoy a better standard of living when retiring in Malta.

Note: these Malta tax residence programmes are only obtainable through the services of an Authorised Registered Mandatory.

Thomas Jacobsen, Managing Director of Papilio Services, is an Authorised Registered Mandatory, therefore if you’re interested in exploring these programmes, we can guide you accordingly following Maltese law.

• Malta has over 70 double taxation agreements with countries around the world;
• There are no withholding taxes or stamp duty on the distribution of dividends or profits to the shareholders;
• Malta has no transfer pricing rules;
• There are no capital duties, wealth taxes or inheritance tax;
• Malta has no thin cap rules;