The remittance system of taxation in Malta
A company incorporated under the laws of Malta is considered ordinarily resident and domiciled in Malta. Companies which are ordinarily resident and domiciled in Malta are subject to tax on their world-wide income. A company which is not incorporated in Malta but is managed and controlled in Malta is subject to tax on a remittance basis on its foreign sourced income.
Companies subject to tax on a remittance basis are taxed on:
- Income and capital gains deemed to arise in Malta
- Income deemed arise outside Malta and remitted to Malta
Companies subject to the remittance basis are not taxed on:
- Income deemed to arise outside Malta which is not remitted to Malta
- Capital gains arising outside Malta
Companies which are not incorporated in Malta are considered to be resident in Malta when their management and control is shifted to Malta.
Management and Control
The Income Tax Act does not define the concept of management and control within context Maltese tax system. The notion of management and control is a factual notion and all facts and circumstances have to be reviewed to establish whether a company or a body of persons were managed and controlled in Malta. There are various factors which indicate that management and control was exercised in Malta:
- Directors are resident in Malta
- Head office of the company is located in Malta
- Minutes of the board meeting show that most important decisions were taken in Malta
- Management decisions were taken in Malta
- Company operates a Maltese bank account
- Financial Statements are audited by a Maltese auditor
The Remittance Basis of Taxation
Shifting tax residence to Malta may create various fiscal opportunities. Companies incorporated outside Malta which shift their management and control to Malta are subject to tax on a remittance basis on their income arising outside Malta. Under the remittance basis a company is not taxed on any income arising outside Malta which is not remitted to Malta. Similarly capital gains arising outside Malta are completely excluded from income tax in Malta. Tax refunds and the participation exemption will apply when companies remit their foreign sourced income to Malta. A company incorporated outside Malta may transfer its management and control to Malta to gain access to a tax treaty.
Several treaties concluded by Malta allocate fiscal residence for the purpose of the treaty to the State where the place of effective management is situated. However, certain treaties contain limitation of benefits clauses aimed directly at the remittance basis of taxation operated by Malta.
A company incorporated outside Malta which shifts its management to Malta and which derives income from sources outside Malta has 3 options at its disposal:
Option 1: All foreign sourced income is received in Malta
All the foreign sourced income received in Malta is subject to tax in Malta. The company however gains access to Maltas tax refund system and the participation exemption regime. The company may dispose of its foreign assets and participations without suffering tax on such gains in Malta.
Moving management and control to Malta and receiving foreign sourced income in Malta may be still be attractive when a company incorporated outside Malta might wish to utilise Maltas participation exemption regime and the tax refund system without the need to transfer its investments to a Maltese incorporated company which may trigger tax at the point of transfer.
Option 2: No income is remitted to Malta
If the company opts not to remit its foreign sourced income to Malta, no tax is levied in Malta on its foreign sourced income. The income may be received in any country other than Malta such as an offshore bank account. Significant tax benefits may accrue to the investor where the country of incorporation does not tax the income which is not received in Malta.
Option 3: Part of the income is remitted to Malta
The company may opt to receive in Malta part of its foreign sourced income. Tax exposure in Malta on foreign sourced income will be limited to that portion of income which is received in Malta.
Why should you consider migrating your company to Malta?
Shifting tax residence to Malta may create potential opportunities to companies which are not domiciled in Malta:
- Access to Maltas remittance basis of taxation
- Access to the Maltas tax refund system
- Access to Maltas participation exemption regime
- Access to Maltas double tax treaty network
- Access to EU Directives (unless the company is considered to be resident in a non-EU country for tax purposes under the terms of a double tax treaty concluded with that State)
- No tax imposed on inbound migration
- No exit taxes in Malta (outbound migration)
- No CFC legislation
- Preliminary advice and structuring
- Registration and implementation
- Registered head office
- Assistance in opening a bank account in Malta
- Accountancy services
- Statutory audit
- Tax compliance
- Back office duties and administrative support
- Other filing and registrations
- Fiduciary Services
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