Right in the heart of the Mediterranean, Malta is a small archipelago with a land area of around 316 square kilometres spread over three islands. A parliamentary republic, it is a member of the EU, the OSCE and the Council of Europe. The Malta corporate tax rate is one of the best within the European Union.
Many expats choose to come to the Maltese islands to do business because of its fiscal environment. Here, tax refunds are offered to non-residents, so foreigners can enjoy the large financial benefits that come with lower taxes. Here’s an overview of general business information to make life easier for anyone thinking of relocating.
Company Registration Types
Much of what happens in the world of business is ultimately governed by the Maltese Companies Act. Three types of company can be incorporated: limited liability companies, partnerships en nom collectif, and partnerships en commandite.
First, limited liability companies. These can be public or private, and are characterised by restrictions on transferring shares, limits on the number of members (a maximum of 50), and a prohibition on going public with shares or debentures. Private companies have a minimum authorised share capital of €1,164.69, and at least 20% must be paid on subscription. For public companies, those numbers are higher: the minimum authorised share capital is €46,587.47, and the minimum to be paid on subscription is 25%.
Partnerships en nom collectif consist of two or more partners, each of whom is jointly liable. In order to set up a partnership en nom collectif and register it with the Maltese authorities, you must first establish a registered office in the country.
Finally, there are partnerships en commandite. Again, these consist of two or more partners. Here, though, the partnership’s obligations can be divided into two sections: one or more general partners are responsible unlimitedly and jointly liable, while limited partners have limited liability. To be precise, limited partners can only be liable for the amount of their own contributions. A partnership en commandite can divide its capital into shares.
Companies Subject to Income Tax
The Maltese corporate tax rate is set at 35%. If a company is both resident and domiciled in the country, then its taxable income includes worldwide income as well as certain capital gains.
However, there are exemptions for companies which are either not resident or not domiciled in the country. In this case, they must pay tax on income and certain capital gains, and income from outside the country which enters a Maltese bank account. However, there is no obligation to pay tax on capital gains from outside the country.
Each year’s taxable profits are determined as follows: the profits which are reported in the company’s audited financial statements are adjusted. Non-deductible expenses are added, and exempt income deducted.
All of the following entities are subject to corporate income tax:
- Partnerships en commandite, with capital divided into shares
- Limited liability companies, including companies constituted as such under local law
- Bodies of persons of a nature similar to the above partnerships and companies, constituted, incorporated or registered outside the country
- Cooperative societies registered as such in the country
- Fellowships, societies and associations of persons, incorporated or unincorporated. These can be either vested with legal personality or not.
In the case of partnerships with are not partnerships en commandiate with capital divided into shares, tax is not levied on the partnership itself, and is instead levied on the partners.
Withholding Taxes
An attraction for foreigners who want to do business in the Maltese islands is the fact that the government does not levy withholding tax on dividends paid to shareholders.
In addition, royalties are not subject to withholding tax. However, it is important to take note of the “investment income provisions”. Under these regulations, certain investment income may be subject to a withholding tax, set at 15%. This includes interest paid by banks with Maltese licences and other public entities.
Investment income may also be subject to a withholding tax, in the case that it is payable to a CIS (collective investment scheme) which currently invests at least 85% of its total investments in securities based in the country. Corporate or government bonds are taxed at a rate of 10%, and bank interest is taxed at a rate of 15%.
Non-residents’ Tax Refunds
Tax refunds are offered by the Maltese government on distributed products which have been liable to tax within the country. Note that there is an exception governing profits from real estate, as well as profits which are subject to a final withholding tax. To qualify for this refund, profits must be distributed in one of the following ways: to non-resident shareholders, or to a Maltese holding company which is owned in its entirety by non-residents.
Tax refund rates vary as follows: first, 6/7 of the Malta corporate tax which has been paid on the products distributed (here, the total Malta corporate tax burden is equal to 5%). Second, 5/7 of the Maltese tax which has been paid in the case of a dividend which has been distributed from royalties of passive interest. Finally, 2/3 of the Maltese tax which has been paid in the case of a distributed dividend that was derived from foreign sourced income, which was relieved from double taxation.
Alone in Europe, this tax refund system makes the Maltese islands a hotspot for international businesspeople. Nowhere else in the continent can such a possibility of corporate tax minimising be found – and, to make it an even more attractive destination, the country is located close to financial hubs of Europe, Africa and the Middle East.
Tax Incentives
A number of tax incentives are offered by the Maltese government, as follows:
- Aviation – this covers income which is derived from the ownership, leasing or use of an aircraft, in the case that it is used for international transport (both passengers and goods are covered). This income is considered to be arising outside of the country, so falls under the exemptions already discussed.
- Freeport activities – In the south of the country, around Marsaxlokk Bay, the Freeport is a unique, customs-free zone. Protected by the Freeports Act of 1989, it offers several tax incentives to companies who hold a licence from the Freeport Authority. These incentives include stamp duty, withholding tax (again, there are exceptions for distributions to Maltese residents), exemption from customs duties, death duties and exchange control.
- Industrial development – the 2008 Investment Aid Regulations introduced rules goerning Investment Tax Credits. These are available for companies which conduct business involving certain qualifying activities. Check to see if your business is covered, as the qualifying activities include manufacturing, research and development, information and communication technology, innovation, logistics operations, and the already-mentioned companies working in the Freeport.
These investment tax credits are calculated by using a percentage of the qualifying capital expenditure, or the case of jobs created, the cost of wages. Rates depend on the size of the enterprise: 50% if it is small, 40% if it is medium-sized, and 30% if it is large. These tax credits are deducted from tax due.
The Business Promotion Act (PBA) offers additional incentives, firstly on investment allowances over and above the initial costs related to the plant and its machinery, land, and industrial buildings. Secondly, it has a reduced tax rate of 19.25% if profits are reinvested.
- R&D activities – The Maltese authorities have introduced a number of incentives to encourage businesses to pursue R&D. Tax credits are calculated as a percentage of qualifying R&D expenditure, which can be 10.5% or 35%. Incentives are also offered to enterprises which engage in certain activities – back office operations, e-business, warehouse development, film servicing, and the reinvestment of profits.
- Shipping – Shipping organisations do not have to pay income tax on any income which they derive from shipping activities. They must pay some taxes annually, though, based on tonnage. Furthermore, non-resident shipping companies are taxed on all profits, including the transport of passengers, goods, mail or livestock, shipped in the country. However, they are not taxed on profits raising from goods brought into the country for trans-shipment, or for brief calls in port.
Double Tax Treaties
Malta has signed double tax treaties with a number of countries, including; Albania, Australia, Austria, Bahrain, Barbados, Belgium, Bulgaria, Canada, China, Croatia, Cyprus, Czech Republic, Denmark, Egypt, Estonia, Finland, France, Georgia, Germany, Greece, Hong Kong, Hungary, Iceland, India, Ireland, Isle of Man, Italy, Jersey, Jordan, Korea, Kuwait, Latvia, Lebanon, Libya, Lithuania, Luxembourg, Malaysia, Montenegro, Morocco, Netherlands, Norway, Pakistan, Poland, Portugal, Qatar, Romania, San Marino, Serbia, Singapore, Slovakia, Slovenia, South Africa, Spain, Sweden, Switzerland, Syria, Tunisia, UAE, United Kingdom, and United States of America. This can enormously benefit expats who want to set up a business. More detailed, country-specific info can also be found, if this general business information does not cover everything you need to know for your particular needs.
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