Corporate Services

The Malta Tax System & Benefits

Malta has a competitive jurisdiction for tax planning and corporate structures and one of the advantages is the full imputation system. A company incorporated in Malta is chargeable to tax here as well and would be subject to tax on chargeable income arising in Malta, chargeable income arising outside Malta (if the income is received in or remitted to Malta) and chargeable gains realized in Malta (such gains realized outside Malta are exempt even if received in Malta).

There is a flat rate of 35% company tax but Malta operates a full imputation system. This means the overall effective tax rate for companies incorporated in Malta is 5%. Malta also has double taxation relief available domestically such as treaty relief, unilateral relief and flat rate foreign tax credit. Combining the tax relief mechanisms and the full imputation system the tax rate will typically be reduced from 35% to between 0% and 6.25%.

Full Imputation & Refundable Tax Credits

In Malta, the shareholders benefit from a tax credit derived from dividends distributed by a Maltese company. The amount is equal to the amount of underlying tax paid on the profits where the dividends where distributed from. The shareholder would therefor be able to claim six-sevenths of the Malta tax charged at a company level on its profits.

A Tax refund is not subject to any further tax in Malta and is payable from the Maltese Government within 14 days from the tax relief is due.

Double Taxation Relief

If the company is claiming relief for double taxation on foreign source profits, the shareholders would be entitled to a refund of two-thirds of the tax paid by the company in Malta. The taxation relief in Malta are available in the form of treaty relief, unilateral relief and flat rate foreign tax credit (FRFTC).

Malta has a large double taxation treaty network which includes a total of 68 treaties including all EU member states and the United States of America. The unilateral relief system is essentially the same as the treaty relief which means the treaty relief is extended beyond non-treaty countries as well. The flat rate double taxation relief is available as a notional tax credit equivalent 25% on the foreign source income. It is calculated by grossing that income by the available credit, then charged the regular company tax rate of 35%, and finally claiming the credit in the form of a regular tax credit.

Some other beneficial features of the Maltese tax system are no transfer pricing regulations or thin capitalization restrictions, no levy capital duties or wealth taxes and no exit / entry taxes on a shift of fiscal residence and / or corporate domicile.

Should you require assistance with any taxation services in Malta, please contact us using the form below and get connected with a licensed and reputable service provider. Our partners also offer full relocation services including The Malta Individual Investor Programme aimed at attracting high net-worth individuals and company formation services.

Malta Accounting Obligations

In Malta there are two accounting standards applicable to companies depending on their size. Most companies fall under the accountancy principles which conform to the International Financial Reporting Standards (IFRS). However, smaller companies (Based on profit and employee count) fall under the General Accounting Principles for Smaller Entities (GAPSE).

Bookkeeping

According to The Companies Act, every company incorporated in Malta is required to keep accounting records of receipts and expenditure, sales and purchases of goods by the company and assets and liabilities the company possesses. Apart from being a statutory obligation, it is also required to comply with tax and audit obligations. Furthermore, it allows for the preparation of reports and accounts in a timely manner and greatly improves the management reporting for important decision making throughout the year. Banks also require frequent financial statements to accommodate a credit facility.

Preparation of Financial Statements

All companies registered in Malta are required to submit financial statements of statutory accounts. These may either be prepared in accordance with International Financial Reporting Standards (IFRS) or in accordance with General Accounting Principles for Smaller Entities (GAPSE). The financial statements are to be accompanied by the income tax return for each year of assessment.

Payroll Services

When having employees there are numerous requirements an employer needs to consider and comply with. These things are salaries paid, bonuses and other allowances in additional to law requirements in relation to employee income tax and social security contributions (National Insurance). It is important that such statutory requirements are adhered to from the engagement of an employee until termination of employment.

Before employing persons in your company, you need obtain a PE number (Employment Number). This is a general number to be able to engage any employees. Also when hiring employees, the employee needs to be registered via an engagement form with Jobs+. iGaming companies have additional requirements in terms of seeking approval for the engagement of employees from the Malta Gaming Authority (MGA). Furthermore, the employer should submit the relevant forms with the Inland Revenue Department through the submission of the FS4.

VAT Regulation In Malta

Any economic activity in Malta is required to register for VAT, both self-employed and companies. Depending on your annual turnover, you must register under article 10 and would be liable to charge VAT on your taxable supplies. You would also be in a position to claim back VAT incurred throughout the course of the economic activity. When registered under article 10 you will receive a VAT number with a MT prefix and have to issue fiscal receipts or tax invoices.

If your annual turnover falls below the established thresholds, you can register under article 11 as an exempt person. In this case you will not charge VAT on your services or goods but also not able to claim back any VAT incurred for business operations.

There is also the possibility to register under article 12 – being exempt without credit status. This applies to companies receiving services from EU/outside EU or makes intra-community acquisitions of goods on which VAT is applicable and payable in Malta (exceeding a certain thresholds).

Registering For VAT In Malta

Registering for VAT in Malta is a straight forward process. Registrations are done online on the VAT Departments website and take approximately 15 minutes to complete. A copy of the ID card of the person applying is required and in case of limited liability companies, a copy of the Memorandum and Articles of Associations is required as well. Your VAT certificate will be issued within about 1 week and will be sent by post to your registered address.

It is important to register for VAT within 30 days from the start of the economic activity to avoid penalties.

Entry and Exit Thresholds

There are two thresholds which apply when a change of registration occurs (from article 11 to article 10 and vice versa). The entry threshold applies for persons exempt (registered under article 11). This is the maximum amount of turnover  per annum allowed when being exempt. The exit threshold applies when being exempt and your turnover exceeds the stipulated amount and thus need to register under article 10.

There are different thresholds depending on the economic activity. Low value added services are those where goods are included in the value of a service (such as electricians or catering services). High valued added services are those where the value of the service has a very “high content” and thus the value of the goods incorporated are minimal (such as accountants and lawyers).

The thresholds at the time of writing are as following:

• Activities consisting of mainly goods have an entry threshold of €35,000 and exit threshold if €28,000.
• Activities consisting of services with low value added have an entry threshold of €24,000 and exit threshold if €19,000.
• Other activities have an entry threshold of €14,000 and exit threshold of €12,000.

Note: In the 2018 Maltese Budget, a proposal to increase the countries VAT threshold from €14,000 EUR to €20,000 was approved.

VAT Returns in Malta

VAT returns are normally to be submitted each quarter or on a annual basis. There is a €20 penalty applicable per month if the the return is filed late. The processing of submissions for refunds takes no more than 90 days. If this refund is not paid back in time, a interest of 0.54% per month is applicable.