Malta Participation Exemption

Malta Participation Exemption | Papilio Services Limited

Where a holding of shares by a Maltese company (including a Maltese partnership en commandite with its capital divided into shares) in another entity (including companies and limited liability partnerships) qualifies as a participating holding, the Maltese company may claim a participating exemption from Maltese tax on income and (capital) gains derived from such participating holding.

The Malta participation exemption is subject to some anti-abuse rules and is available for income where the subsidiary is either (i) resident or incorporated in a EU country, or (ii) is subject to foreign tax of at least 15%, or (iii) does not have 50% or more of its income from passive interest and royalties.

However, if none of the above is satisfied, but the income from the entity (or its passive interest and royalties) has been subject to foreign tax of at least 5% and the investment in the entity does not constitute a portfolio investment, the participation exemption should be available to the Maltese company.

Gains derived from a participating holding are not subject to the above anti-abuse rules, and the Maltese company may claim a participation exemption without having regard to the above.

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

Malta as a holding company jurisdiction or Participating Holding

Malta participation exemption arises when a participating holding arises where:

  • a Maltese company holds directly  at least 10% of the equity shares of another entity.  The 10% must confer the right to at least 10% of 2 out of the following 3 equity rights: i) the voting rights, ii) the dividend rights and iii) the rights to assets on a winding up of the equity shares; or
  • where a Maltese company 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
  • where a Maltese company is an equity shareholder investing at least one million, one hundred and sixty four thousand euro (€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
  • where a Maltese company is an equity shareholder in another entity and is entitled to, at its option, call for and acquire the entire balance of the equity shares not held by it; or
  • where a Maltese company is an equity shareholder in another entity and is entitled to first refusal in the event of a proposed disposal, redemption or cancellation of all the equity shares in the other entity not held by the Maltese company; or
  • where a Maltese company is an equity shareholder in another entity where the holding of such shares is for the furtherance of the business of the Maltese company and is not held as trading stock for the purpose of a trade.

Malta’s Participation Exemption – equity holding

Equity holding means a holding of the share capital in a company which is not a property company where the shareholding entitles the shareholder to at least any 2 of the following 3 equity rights: i) a right to vote, ii) a right to profits available for distribution to shareholders and iii) 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 an entitlement to at least 2 of the equity holding rights.

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Malta Double Taxation Relief

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The Malta Tax System

Malta Tax Accounts