Malta has many favourable tax laws that make the island so attractive to international businesses and entrepreneurs. One of the Malta tax benefits is the Full Imputation System that is part of the tax law. Also known as ‘Dividend Imputation’, this system in Malta applies to both resident and non-resident shareholders.

What is a Full Imputation System?

A full imputation system is when dividends paid by a company resident in Malta carry a tax credit equivalent to the tax paid by the company on its profits out of which the dividends are distributed. In simple terms, it is a preventative measure against double taxation where company profits are taxed at the source. However, dividends distributed to shareholders from taxed company profits are not taxed again.

What is the Classical System?

“Classical corporation tax regards corporations and their owners as separate tax entities and therefore double-taxes their income, first the corporation and then the owners, on dividends and realized capital gains.” – Classical Corporation Tax as a Global Means of Tax Harmonization (link). Effectively, this means that company profits are taxed, and shareholder dividends are taxed again.

Which countries employ the Full Imputation System?

Malta is one of three countries that enforce the dividend imputation system alongside New Zealand & Australia.

The UK, South Korea and Canada have a partial imputation system whereby shareholders receiving a dividend were still entitled to a tax credit to offset their tax liability. But, the tax credit no longer necessarily represented tax paid by the company, and could not be refunded to the shareholder.

Contact us to become more tax-effective

As Malta Company Formation and Malta tax specialists, we regularly assist our clients in becoming more tax-effective within the EU and ensure our clients receive the best bespoke international tax planning advice. Contact our Malta tax advisors today for our opinion on how you can become more tax-effective as well as being as compliant within the laws as possible.

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