Double Taxation Relief
The Maltese tax regime governing the Malta double taxation relief includes treaty relief, unilateral relief and the flat rate foreign tax credit (FRFTC).
Malta has entered into double taxation treaties with over 80 countries including most of the major European trading nations and is currently in the process of negotiating others. These treaties are in the main based on the OECD model. Malta grants relief from double taxation under the credit method on a source by source and country by country basis.
Malta allows relief from double taxation on a unilateral basis where overseas tax is suffered on income received from a country with which Malta does not have a treaty.
Overseas Malta Tax
The overseas tax suffered may be allowed as a credit against tax chargeable in Malta on the gross amount, limited to the total tax liability in Malta on the particular income. Unilateral relief for underlying tax suffered is also available under these provisions where the taxpayer holding shares in the foreign company is a Maltese resident company.
Malta is a full member of the EU since 2004 and the protection against double taxation afforded by the EU Parent Subsidiary Directive and the EU Interest and Royalties Directive may be availed of by Maltese companies.
The flat rate foreign tax credit (FRFTC) is available to a Maltese resident company which receives income or capital gains from overseas which are allocated to its Foreign Income Account. This credit is calculated at 25% of the amount of the overseas income or gains received by the company before deductions and it provides double taxation relief for foreign tax suffered on income received from a country with which Malta does not have a treaty and where unilateral relief is not available, e.g. where evidence of foreign tax on the overseas income is not available or is not presented. In practice the flat rate foreign tax credit also acts as a means of unilateral tax sparing relief in respect of foreign tax suffered at lower rates.