Company Tax System in Malta
Presented by Rutger Kriek
Taxation of Maltese Companies
•
Worldwide basis of taxation;
•
Company tax at the rate of 35%;
•
Full imputation system - Advance Tax: Tax is
ultimately borne by the shareholder depending on
tax status.
June 2011
Taxation of Maltese Companies
•
No withholding taxes on dividends paid by a Maltese
company.
•
No withholding taxes on interest or royalties paid to
non-residents.
June 2011
Holding Companies
The Participation Exemption
June 2011
Holding Companies
• An important tax exemption referred to as the
Participation Exemption provides for the exemption
from company income tax of dividends and capital
gains in relation to qualifying investments in an
affiliated company known as a ‘participating holding’.
June 2011
Holding Companies
Malta Holding
Company
Italian/Swiss
Company
Italian/Swiss Company
June 2011
Participating Holding
• 10% equity interest in
the non-resident
company or
• Less than 10% where
shares have a value of
EUR1.2m and are held
for at least 6 months
• Malta is on Italy’s white
list.
Holding Companies
Further conditions for dividend exemption:
•
•
•
EU resident or incorporated company;
Taxation test: foreign tax of 15%;
Less than half its income is derived from passive
interest or royalties.
June 2011
Trading Companies
June 2011
Imputation System
•
Full Imputation system of taxation;
•
Refund to the shareholder of 6/7ths of the tax;
•
Tax benefits arise on a dividend distribution.
June 2011
Imputation System
Example:
Profits
Tax at 35%
Profit after tax
100
(35)
65
Net Dividend
65
Refund 6/7ths
30
Total Distribution 95
Effective tax cost 5%
June 2011
Trading Companies
Malta Holding
Company
Refund
Dividend
Malta Trading
Company
June 2011
Refunds
•
Maltese companies must pay tax 18 months after
year end or upon the distribution of a dividend.
•
Tax authorities obliged to refund tax within 14 days.
June 2011
Refunds
Financial
Statements to 31
December 2008
June 2011
Tax Payment
30 June
2010
Refund 15
July 2010
Trading Companies
•
Trading activities:
Management Consultancy fees;
• Group treasury;
• Portfolio investments;
• Licensing & Financing (non passive);
• Internet gaming;
• E-commerce;
• Re-invoicing.
June 2011
Licensing and Financing
‘Passive Interest and Royalties’
June 2011
Passive Interest and Royalties
•
Interest or royalty income not being derived either
directly or indirectly from a trade or business;
•
Provided that such income has not suffered direct or
withholding tax at a rate which is less than 5%.
June 2011
Passive Interest and Royalties
•
Combination of double taxation relief and refunds
•
Effective tax cost of 6%
•
No thin capitalisation
June 2011
Passive Interest and Royalties
Example
Interest
Tax credit @25%
Income
Tax at 35%
Less: Tax Credit
Net Tax
Refund on Dividend distribution 2/3rds
Net tax cost
June 2011
100
25
125
43
-25
18
12
6
Revenue Rulings
June 2011
Advance Revenue Rulings
Inland Revenue Department provides Revenue Rulings legal certainty to international investors
•
•
Valid for 5 years and renewable for 5 years thereafter;
Valid for 2 years following a change of law affecting the
Revenue Ruling.
June 2011
Conclusion
•
Exemption on Dividend and Capital Gains;
•
No withholding taxes;
•
Treaty & Unilateral relief;
•
Effective tax cost of 5% on trading;
•
Passive interest and royalties - 6.25%;
•
Advance Revenue Rulings;
•
No exit costs.
June 2011
TAX SAVING STRUCTURES
June 2011
MALTA COMPANY
EU COMPANY
June 2011

No withholding tax on outbound
dividends

Tax exemption on income

0% withholding tax based on the PSD

Capital gains tax protection based on
several DTT’s including Denmark, Italy,
Sweden, Germany, Czech Republic,
Poland, Slovenia, Spain, Portugal, United
Kingdom

No withholding tax on outbound
dividends

Tax exemption on income

0% withholding tax based on the broad
implementation of PSD

Capital gains tax protection based on DTT
MALTA COMPANY
LUXEMBOURG HOLDING
COMPANY
June 2011

No withholding tax on outbound
dividends

Tax exemption on income

0% withholding tax based on the broad
implementation of PSD
MALTA COMPANY
DUTCH HOLDING COMPANY

June 2011
Capital gains tax protection based on DTT

No withholding tax on outbound
dividends

Licensing or financing activities
Profits subject to 0-6.25% effective tax
MALTA COMPANY

GERMAN COMPANY
June 2011

0% withholding tax on interest and royalty
payments based on DTT
MALTA COMPANY
Interest
Payment


0-6.25% effective tax on passive
interest income
No transfer pricing documentation
TREATY COUNTRY/ EU
COUNTRY AFFILIATED
DEBTOR


June 2011
Reduction of WHT based on treaty
Exemption from WHT based on EU
interest and royalty directive
MALTA COMPANY
•
Royalty
Payment
•
License
0-6.25% effective tax on passive
licensing income
No amortisation – IP contributed at
nominal value
TREATY COUNTRY/ EU
COUNTRY AFFILIATED
DEBTOR
•
•
June 2011
Reduction of WHT based on treaty
Exemption from WHT based on EU
interest and royalty directive
MALTA COMPANY
Country A
June 2011
High tax country

No withholding tax on outbound
dividends

0-5% net effective tax on trading
profits
FOREIGN SHAREHOLDER

No withholding tax on outbound
dividends

Refund on dividend distribution

Profits subject to net effective tax
of 5% plus gaming tax based on
turnover
MALTA COMPANY
MALTA LICENSED GAMING
COMPANY
June 2011
SHAREHOLDER

No withholding tax on outbound
dividends

Refund on dividend distribution

Profits subject to net effective tax
of 5%
MALTA COMPANY
MALTA E-COMMERCE
COMPANY
CYPRUS COMPANY
EFFECTIVELY MANAGED
& CONTROLLED
IN MALTA

No withholding tax on outbound
dividends

Effective management and
control in Malta

Company subject to tax on
income arising and on income
remitted to Malta only

Income not subject to tax in
Cyprus
OFFSHORE COMPANY
MALTA COMPANY



TREATY COUNTRY/ EU
COUNTRY AFFILIATED
DEBTOR
June 2011


0-6.25% effective tax
No transfer pricing documentation
No withholding tax on interest
payments
Reduction of withholding tax based
on treaty
Exemption from WHT based on EU
interest and royalty directive
OFFSHORE COMPANY

MALTA COMPANY



TREATY COUNTRY/ EU
COUNTRY AFFILIATED
DEBTOR
June 2011


Owner of IP
0-6.25% effective tax
No transfer pricing documentation
No withholding tax on royalty
payments
Reduction of withholding tax based
on treaty
Exemption from WHT based on EU
interest and royalty directive
MALTA TRUST
June 2011

Tax transparent

Income attributable to the trust
is not subject to tax in Malta

Look-through approach – income
directly
received
by
the
beneficiary

Non-residents not subject to tax
other than on income arising in
Malta or the transfer of
immovable property in Malta
QUESTIONS?