Notional Interest Deduction Rules introduced in Malta
The Maltese Government has introduced new rules which aim to align the Maltese tax treatment of equity with that of debt.
With effect from basis year 2017, Maltese companies and partnerships (including Maltese permanent establishments of non-Maltese companies and partnerships) may claim a deduction for sums deemed payable by way of interest on “risk capital”.
The term “risk capital” includes share or partnership capital, share premium, positive retained earnings, loans or other debt borrowed by the undertaking which bears no interest, any other reserve resulting from a contribution to the undertaking and any other item which is shown as equity in the financial statements of the undertaking at the end of the accounting period in question.
The deduction available is calculated as the “reference rate” applied on the risk capital, the reference rate being the risk-free rate set by reference to the current yield to maturity on Malta Government Stocks with a remaining term of approx. 20 years plus a premium of 5%.
An undertaking may not claim a notional interest deduction for more than 90% of its chargeable income for the particular year, however any excess notional interest may be carried forward.
Any claim for deduction must be agreed by all shareholders/owners and the deemed interest will be treated as interest received by the shareholders/owners for Maltese purposes. Such interest should not be chargeable to tax in Malta for non-Malta resident shareholders/owners.
Distribution of profits that have been relieved from tax by a notional interest deduction is not subject to further tax in Malta.
Please contact Thomas Jacobsen for more information about what the Malta notional interest deduction may offer to companies and partnerships registered or resident in Malta.