Malta’s Participation Exemption

Participation Exemption is an exemption from taxation for a shareholder in a company on dividends received, and potential capital gains arising on the sale of shares.

When a Maltese company holds shares in another entity (including companies and limited liability partnerships) qualifying as a Participating Holding, consequently, the Maltese company may claim a Participating Exemption from Maltese tax on income and capital gains.

Participating Holding

Malta Participation Exemption is found when a Maltese company holds equity shares in another entity and the Maltese company:

  • Holds directly at least 10% of the equity shares of another entity such as a company, body of persons or CIS. The 10% must confer the right to at least two out of the following three equity rights:
    • the voting rights,
    • the dividend rights
    • the rights to assets on a winding-up of the equity shares; or
  • Is an equity shareholder in another entity and is entitled to either sit on the Board or appoint a person to sit on the Board of the other entity; or
  • Is an equity shareholder investing at least €1,164,000 (or the equivalent sum in a foreign currency) for an uninterrupted period of not less than 183 days in another entity; or
  • Is an equity shareholder and is entitled to, at its option, call for and acquire the entire balance of the equity shares not held by it; or
  • Is an equity shareholder and is entitled to the first refusal in the event of proposed disposal, redemption or cancellation of all the equity shares; or
  • Is holding shares for the furtherance of its own business, and the holding is not held as trading stock for trade.

Anti-Abuse Conditions for Participation Exemption

Concerning dividends, the Participation Exemption is relevant if the entity in which the Participation Holding held is accountable to one of the below conditions:

  • Is a resident or incorporated in an EU country
  • Is subject to foreign tax of at least 15%
  • Has 50% or less of its income from passive interest or royalties
  • Is not a portfolio investment and has been subject to tax at a rate of at least 5%

However, if the conditions for the application of the Participation Exemption concerning dividends do not apply in the case of gains derived from the transfer of a Participating Holding, such gains are therefore exempt with no further prerequisites. 

Malta Participation Exemption is not available in situations where immovable property (or any rights over the immovable property) situated in Malta is owned, directly or indirectly, by the subsidiary of the Maltese company.

Malta’s Participation Exemption – Equity Holding

Equity holding means a holding of the share capital in a company where the shareholding entitles the shareholder to at least any two of the following three equity rights:

  1. a right to vote,
  2. a right to profits available for distribution to shareholders and
  3. a right to assets available for distribution on a winding up of that company.

The Commissioner of Inland Revenue may also determine that an equity holding exists if, in substance, the Maltese company holds entitlement to at least two of the equity holding rights.

Malta Tax Refund System
Malta Tax System
Malta Double Taxation Relief
Malta Holding Company

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