MALTA COMPANIES: VAT and TAXATION
The tax regime
governing taxation of profits of a Malta Company depends on the source of
the company's income. There are basically four sources of income
from which a Malta Company can derive profits and each source of income
has its own level of taxation.
For a start, let us
look at this table:
| Source
of income |
Corporate
Tax Paid |
Refund
of tax to shareholders |
Effective
tax |
| |
|
|
|
|
Dividend
income from holding activities with participating holding in
subsidiary (where the parent company (a) holds at least 10% of the
equity in the subsidiary or (b) invests a minimum of Eur 1.5 million
in the subsidiary and holds that investment for more than 183 days) |
nil |
nil |
zero |
|
Capital
gains accruing from the disposal of a participating holding |
nil |
nil |
zero |
|
Dividend
income from holding activities without participating holding in
subsidiary or other company income not falling within any other
category |
35% |
6/7ths
of corporate tax paid |
5% |
| Trading
income |
35% |
6/7ths
of corporate tax paid |
5% |
| Passive
income (interest, royalties etc) |
35% |
5/7ths
of corporate tax paid |
10% |
Let us assume the
company makes a yearly profit on its global transactions of EUR
1,000. Let us further assume a profit of Eur 250 from each source of
income listed above. At the end of the accounting year the company
pays corporate tax on its global profits, with the exception of dividends
received from a participating holding, which is exempt from corporate tax
(subject to certain minor limitations relating to anti-abuse provisions).
Therefore the company
pays corporate tax at 35% on dividend income from non-participating
holdings, on trading income and on passive income. Using the figures
assumed above, in all the company pays Eur 262.50 tax on its profit from
these three sources of income, i.e. Eur 250 x 3 x 35%. The
remaining balance of Eur 737.50 is distributed as a dividend to the
shareholders. At this stage, Maltese
Income Tax law provides that the shareholders of the company may claim a
refund from the Inland Revenue of the corporate tax already paid by the
company, according to the table
above. The refund is paid to the shareholder within 21 days of the
claim being submitted. Using our example therefore:
| |
Profit |
Tax
paid |
Distribution
to share holders (net of tax) |
Refund
of tax
to shareholders |
| Source
of income: |
|
|
|
|
| a)
dividend from participating holding or capital gain from
disposal of same |
250.00 |
nil
(exempt) |
250.00 |
nil
(exempt) |
| b)
dividend from non-participating holding |
250.00 |
87.50 |
162.50 |
75.00 |
| c)
trading income |
250.00 |
87.50 |
162.50 |
75.00 |
| d)
passive income |
250.00 |
87.50 |
162.50 |
62.50 |
| |
|
|
|
|
| Totals |
1,000.00 |
262.50 |
737.50 |
212.50 |
| Effective
dividend received by shareholders |
|
737.50 |
212.50 |
|
Effective
receipt in total by
shareholder
950.00 |
|
Effective tax
rate
5 % |
Therefore using
the above figures as an example, from the profit generated by the company
of Eur 1,000, the shareholder effectively receives Eur 950.00, which means
that only Eur 50.00 is paid by way of final tax - that is an effective tax
rate of 5%. No withholding taxes, stamp duties or exchange control
restrictions apply on distribution of the dividends to the
shareholders or on the tax refunded to the shareholder. Therefore
apart from the "effective tax" there are no other taxes or restrictions on the exportation of
the dividends and tax refunds from Malta.
Naturally, the figures
can vary depending on the sources of income of the company and the above
is only by way of example. Let us take another example:
| |
Profit |
Tax
paid |
Distribution
to share holders (net of tax) |
Refund
of tax |
| Source
of income: |
|
|
|
|
| a)
dividend from participating holding or capital gain from
disposal of same |
500.00 |
nil
(exempt) |
500.00 |
nil
(exempt) |
| b)
dividend from non-participating holding |
0 |
0 |
0 |
0 |
| c)
trading income |
500.00 |
175.00 |
325.00 |
150.00 |
| d)
passive income |
0 |
0 |
0 |
0 |
| |
|
|
|
|
| Totals |
1,000.00 |
175.00 |
825.00 |
150.00 |
| Effective
dividend received by shareholders |
|
825.00 |
150.00 |
|
Effective
receipt in total by
shareholder
975.00 |
|
Effective tax
rate
2. 50% |
Therefore using
the above figures as an example, from the profit generated by the company
of Eur 1,000, the shareholder effectively receives Eur 975.00, which means
that only Eur 25.00 is paid by way of final tax - that is an effective tax
rate of 2.50%.
Malta has forty two Double
Taxation Agreements in place. For the full text of all the Double Taxation Agreements click
here.
As from the 1st May 2004, Malta has
joined the European Union and therefore Malta companies will have an EU VAT number which will render them more
transparent and better able to carry on trade within the European Union.
However to obtain a VAT number, the companies must be managed and
controlled from Malta.
VAT should have no major impact on
these companies because most of the VAT they charge or pay will be
'neutral' under the reverse charge mechanism and VAT paid by these
companies for services and supplies received can be set-off as output vat
against their input VAT. VAT regulations are complex and we
suggest that you contact
us with any enquires you might have.
We would however point out that before
we can provide detailed legal or technical advice in relation to Malta
Companies, we would require to be professionally retained.
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Copyright 2000: Griscti & Chetcuti, Advocates
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