Tax Refund in Malta on Foreign & Local income

Tax Refund in Malta – A detailed overview for Foreign & Local income
Updated on
February 13, 2023

The Maltese rates of taxation are amongst some of the most attractive in the European Union. The system adheres to the specific guidelines set by the OECD, is within the jurisdiction of a white listing and has the approval of the European Commission. Due to such generous Tax Refund system and depending on the individual’s circumstance, a company paying a taxation rate of 35%, in effect, is only paying between 5 and 10%. Companies dealing in shipping are actually exempt.

Maltese Taxation

Agreements between the Maltese administration and other countries regarding taxation were redrawn in 2007. The Income Tax Management Act and the Income Tax Act were adapted to comply with the European Commission’s legislation to disband the International Trading Companies Act. A fully implemented procedure for dividend taxation has been kept. The amendments led to the creation of a new procedure for the refund of taxation for the companies with Maltese registration from 1st January 2007. Consequently, the Maltese financial sector has great influence in the Mediterranean and southern Europe. A definition of Maltese registration is that a company has its main base on the island or a division of a company from overseas does.

Tax Refund

Of course, any company that is regarded as having Maltese registration through being based there in a permanent manner, is liable for the regular rate of 35% taxation on its global income. The Maltese government has particular guidelines regarding the payment of dividends to shareholders. When shareholders receive their dividends, there is also a tax credit that matches the tax on a company’s profits when the tax is paid. The highest band of tax for an individual is the same as for the Corporate Tax. The result of this system is that shareholders are not liable for any further taxation on any dividends they have received from a Maltese registered company. There are various tax implications depending on whether a company is judged to be resident on the island or not.

Refunding Of Taxation And Accounts

There is a set of Maltese accounts to which profits are distributed. These accounts include a Final Taxed Account, Foreign Income Account, an Immovable Property Account, a Maltese Taxed Account and lastly, an Untaxed Account.

Taxation Of Dividends From Maltese Taxed Accounts And Foreign Income Accounts

The Maltese administration have a system for any dividends that are paid on a company’s Foreign Income Accounts and Maltese Taxed Account. Shareholders who receive dividends are liable for tax, but they also receive a credit for the tax that is paid by the company. The highest rate of tax for individuals is the same as the rate for Corporate Tax which means that the shareholder is never liable for any additional taxation on dividends received from Foreign Income Accounts and Maltese Taxed Accounts.

Untaxed Account Dividends

Any profits in Untaxed Accounts are exempt from taxation. Maltese based shareholders who have been paid with dividends from these, are liable for a Withholding Tax of 15%. Untaxed Account dividends that are paid to shareholders who aren’t Maltese based, are not liable for a Withholding Tax.

Immovable Property Accounts And Final Taxed Account Dividends

Some incomes that have already been taxed at the source of the Immovable Property Account and the Final Taxed Account are not liable for Corporate Income Tax, nor is there any additional taxation for the shareholder.

Eligibility For A Refunding Of Tax

Refunds of taxation are reliant on how profits have been distributed, if an account is eligible and then the size of the refund differs between accounts. A refund of six-sevenths is acceptable on profits that have resulted from trade which effectively sets the rate of tax at 5%. A refund of five-sevenths is acceptable on the profits on any income from royalties or passive incomes which results in setting the tax at 10%. A refund of two-thirds is for passive foreign income where a relief of double taxation has already been adequately cleared. A refund of 100% is for profits which arise from participating holdings. And there is a choice to receive an exemption or a full refund.

Participating Holdings

The tax on participating holdings can be refunded as either a Participation Exemption or as a 100% refund. The main beneficiaries are incomes and Capital Gains that arise from a Maltese registered company which has received income from any company that is not Maltese based.

How The Refunding Of Tax Is Assessed

Following a review in 2010, the system for assessing tax returns in Malta has now become far more streamlined. As a result, a company’s tax returns are assessed at the same time as any claims for the refunding of tax from the company. If no irregularities are found, the Income Tax Commission then informs the company or their advisers of the approval and states the amount of tax to be paid. Once that bill has been settled, the refund of tax is issued and arrives in the company’s account no more than five days later.

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