The country also boasts a multilingual society, with Maltese being the national language, and English an official language. Furthermore, Italian is widely spoken and understood by the Maltese population. A working knowledge of French, German or Spanish is also present in certain sectors. The Maltese economy has proved it has the fundamentals to weather the turbulence of Libya, its neighbour. These fundamentals lie deeply in its tax and investment climate.

Investment Climate

Malta’s official currency is the Euro. It has abolished all exchange controls with its accession in the EU.  The company has a free market economy which prohibits price fixing. Prices are hence established by the work of the market forces of demand and supply.

The finance industry operates in a highly regulated environment based on EU rules, in particular the directives on banking, insurance and capital adequacy.  Malta has always endeavored to attract foreign investment. It also targets enterprises with high value added potential, with a variety of incentives granted under the Malta Enterprise Act. These are usually effected through investment tax credits. ICT companies andaviation companies are a few of the several industries benefiting from such incentives.

Taxation of Local Companies

Malta has a favourable tax system which compounded with excellent infrastructure and telecommunications, has contributed to its reputation as a leading financial centre. Companies registered or resident in Malta are subject to income tax on chargeable income at a standard rate of 35%. However, Malta operates a full imputation system whereby any income tax paid by the company is credited to the shareholder upon a distribution of profits, so as to avoid any double taxation of corporate profits.

Tax accounting and refunds

Maltese companies are required to adopt a system of tax accounting which utilizes different tax accounts, namely:

• The Final Tax Account ( FTA )
• The Immovable Property Account ( IPA )
• The  Foreign income Account ( FIA )
• The Maltese Taxed Account (MTA)
• The Untaxed account ( UA )

The distinction between these accounts is important since the allocation of profits determines whether they give rise to special tax refunds in the hands of the shareholders. This refund is only available for distributions from the FIA and the MTA and is equivalent to either 2/3^rd, 5/7ths, 6/7ths or 100% of the company income tax. The effective rate of Malta tax will therefore range from 0% to 10% after deductions of the Malta’s imputation and refundable credits.  This refund system is applicable to both companies incorporated in Malta as well as foreign companies resident in Malta and registered as such.

Participating exemption

A participating holding exists when a Malta company holds directly at least 10% of the equity shares of a non-resident company. Subject to satisfying further conditions, any dividends and gains derived by a Malta resident company or from the disposal of a participating holding are exempt from Malta tax under the participation exemption regime.

Other Exemptions

The Income tax Act also provides an important exemption when dealing with payments of interest, discounts, premiums or royalties made by a Malta company to any person not resident in Malta. This exemption is valid subject to two conditions;-

• The interest/ royalties are not effectively connected with a permanent establishment in Malta of the non-resident person and
• The beneficial owner of the interest / royalties is a person not resident in Malta and such person is not owned and controlled by , directly or indirectly , nor acts on behalf of persons who are ordinarily resident and domiciled in Malta.

Other issues

1. CFC legislation. -The objective of controlled foreign corporation (CFC) legislation is to bring to tax the relative portion of a foreign company’s profits when a resident of the country holds a substantial part of the capital of that foreign company. Profits will thus be taxed in the resident’s home territory. This does not apply to Malta since there is no CFC legislation in Maltese tax law.

2. Thin Capitalisation Rules. These rules typically govern the gearing of companies, where a company is excessively dependent on loan capital, rather than on equity. Certain jurisdictions put a limit on (or even disallow) the interest deductions arising above a certain level due to high gearing. This is not the case with Malta which has no such restrictions in place. In fact Malta goes even further by granting an exemption on interest payments to any person not resident in Malta, as mentioned earlier on.

3. Transfer pricing. Malta has no specific transfer prices rules in its legislation.

4. Recent legal amendments enable the setting up of Protected Cell Companies (PCC) offering significant benefits to insurance brokers and insurance managers. Following these innovative amendments, companies carrying out the business of insurance may be transformed into a PCC (subject to being licensed by the MFSA), enabling the insurance activities to be carried out by the cells formed under the PCC structure, offering a muchmore flexible regime to conduct these business activities.

Disclaimer: The above information is being provided as a general guide only and should not be considered as a substitute for professional advice. For further information or for professional advice, kindly contact us on: (+356) 2144 4962 / (+356) 2149 0452 or on info@dfkmalta.com.

We create value through excellence, teamwork, innovation and integrity. Through our unwavering commitment to customer service we have developed an outstanding track record of successful client relationships.

Phone

(+356) 2144 4962 / (+356) 2149 0452

Fax

(+356) 21 49 8387

Address

36/2,
Manol Mansion,
De Paule Avenue,
Balzan BZN 9022 – Malta

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