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Tax Refunds and Dividend Taxation in Malta

Is there a levy on dividends paid overseas? 

Since 1994 Malta has allowed shareholders of certain companies an effective tax rate of 4.17%. This was achieved through a series of tax refunds based on the dividends a company distributed to its shareholders and was known as the International Trading Company (ITC) regime. In March 2006, the EU Commission formally requested Malta to abolish the regime. Malta abolished the ITC regime effective as from 1st January 2007 and introduced a new tax refund system.

Introducing a new tax refund system

In response to the EU Commissions request, Malta amended its income tax legislation to become fully complaint with EU law. New provisions were inserted to the Income Tax Act and Income Tax Management Act with the effect of introducing a new tax refund system. Malta’s new legislation has introduced legal stability, increased flexibility and extended the refund system to all shareholders of companies registered in Malta on or after 1st January 2007.

The new tax refund system does not constitute a complete departure from the old system (ITC regime). It is based on the same concepts of the ITC regime but has been revamped to remove its ring-fenced benefits and the discrimination against shareholders resident in Malta.

Companies which enable their shareholder to claim a tax refund are no longer restricted to carry out trading activities only with persons outside Malta.

This amendment has opened up the gateway for Maltese companies to carry out multiple holding and trading activities, both in Malta and abroad, without prejudicing the possibility to claim for a refund. The amendments have retained the full imputation system for profits distributed from the Maltese Taxed Account and the Foreign Income Account. The legislative changes have also introduced new types of refunds and eliminated the need to obtain a special status in order to validate a claim for refund. The new system entitles both resident and non-resident shareholders of companies registered in Malta on or after 1st January 2007 to claim one the following refunds:

  • 6/7ths of the Malta tax
  • 5/7ths of the Malta tax
  • 2/3rds of the tax payable in Malta
  • Full refund of the tax payable in Malta


The new refund system has also been extended to Maltese branches of overseas companies. Foreign companies who may opt not to operate through a subsidiary may structure their activities through a Maltese branch and yet claim refunds of tax upon the distribution of profits. The extension of tax refunds to branches creates new structuring possibilities. For more details on Maltese branches please see our section on Branches of Oversea companies.

Tax Accounting

Under the new tax refund system profits derived by a Maltese company are allocated to one of the following taxed accounts.

  • Final Taxed Account
  • Immovable Property Account
  • Foreign Income Account
  • Maltese Taxed Account
  • Untaxed Account


Taxation of Dividends

Dividends from the Foreign Income Account (FTA) and Maltese Taxed Account (MTA)
Malta operates a full imputation system for dividends paid from a company’s Maltese Taxed Account and the Foreign Income Account. Dividends are subject to tax in the hands of the shareholder however, shareholders receive a full imputation credit for the tax paid by the company. Since the highest tax rate for individuals is equal to the corporate tax rate in Malta, the full imputation system ensures that the shareholder is not subject to further tax on dividends distributed from the Maltese Taxed Account and the Foreign Income Account. The full imputation system eliminates economic double taxation.

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Dividends from the Untaxed Account


Profits which are exempted from tax are allocated to the Untaxed Account. Dividends from the untaxed account paid to resident shareholders are subject to a 15% withholding tax.
No withholding tax is levied when dividends from the Untaxed Account are distributed to non-resident shareholders.

Dividends from the Final Taxed Account and the Immovable Property Account

Certain types of income which have suffered a tax at source are not subject to corporate income tax. These types of income are allocated to the Final Taxed Account or the Immovable Property Account. Dividends paid from the Final Taxed Account or the Immovable Property Account are not subject to further tax at the level of the shareholder.

Withholding Tax on outbound dividend distributions

Malta does not levy withholding tax on distribution to non-resident shareholders

Tax Refunds

Shareholder/s of a company registered in Malta are entitled to claim certain types of refunds. Tax Refunds may be claimed when income is allocated and distributed from the Maltese Taxed Account and Foreign Income Account. No refunds may be claimed on income allocated to the Final Taxed Account and Immovable Property Account. Shareholders of the following legal persons may claim refunds of tax paid in Malta:

  • Companies incorporated under the Laws of Malta
  • Companies not incorporated under the laws of Malta which are managed and controlled in Malta
  • Companies not incorporated in Malta and not managed in Malta but which operate through a branch in Malta.

Refunds may be claimed both by Maltese resident and non-resident shareholders. Under certain conditions, the tax refund may also be subject to further tax in Malta.

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6/7ths Tax Refund

A 6/7ths refund may be claimed on the distribution of any income allocated to the Foreign Income Account (FIA) and Maltese Taxed Account (MTA) subject to the following conditions:

  • Company is not entitled to claim double tax relief on income allocated to FIA
  • Income is not qualified as ‘ passive interest or royalties’

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5/7ths Refund

  • Company is not entitled to claim double tax relief on income allocated to the FIA.
  • Income is qualified ‘ passive interest or royalties’

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2/3rds Refund

Shareholders of a Maltese company may claim a 2/3rds refund on the distribution of any income allocated to the Maltese Taxed Account and Foreign Income Account. Under this type of refund:

  • Company may claim double tax relief
  • Company may claim a Flat Rate Foreign Tax Credit on income arising outside Malta and allocated to the foreign income account
  • Any type of income may allocated to the FTA (or MTA) including ‘passive interest and royalties’

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Full Tax Refund

  • Applicable to income derived from a participating holding’
  • Anti – abuse provisions may apply (see section on Holding companies for more details).

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Timing of Refunds

A refund of tax due by the Commissioner of Inland Revenue is payable by not later than the 14th day following the end of the month in which the refund becomes due. A company may opt to pay its Malta tax due by not later than 18 months after the accounting year-end date.

Example
ABC Limited was registered on 1st January 2007. The first accounting period of ABC Limited ends on 31st December 2007.

Tax Return

Filed by not later than 30th September 2008

Malta Tax

Paid by not later than 30 June 2009

Claim for refund

May be filed on 30th June 2009

Payment of Refund

Not later than 14t July 2009

Alternatively, the audit ABC Limited may be concluded earlier than the deadlines stipulated above, such as 28 February 2008.

Tax return

Filed on 28 February 2008

Malta Tax

Paid on 28 February 2008

Claim for refund

Filed on 28 February 2008

Payment of refund

Not later than 14th March 2008

 

For more information, kindly contact:

Neville Cutajar - Managing Partner: This email address is being protected from spambots. You need JavaScript enabled to view it.

 

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