For a number of years, Malta’s taxation regime has offered and promoted an effective tax refund system that boasts a variety of incentives available for businesses that meet particular criteria.
Over and above the Full Imputation system which ensures that Double Taxation of the same profits or gains is lawfully avoided, Malta’s successful Tax Refund System allows for qualifying shareholders of Maltese companies to claim refunds of tax paid by the company on dividends distributed. What does this mean? In this article, you’ll find all the information you need about the Maltese Tax Refund System.
Refund of Tax
In the past, shareholders of companies in Malta could only claim tax refunds when carrying out trading activities with foreign persons. Later this evolved to the point that Malta’s tax refund system has been amended to be in alignment with EU regulations, meaning that shareholders can even claim tax refunds when doing dealings in Malta.
Fully registered shareholders of Maltese companies are entitled to claim refunds of tax charged on profits allocated to particular Tax Accounts, namely the FIA (Foreign Income Account) or the MTA (Maltese Tax Account). Generally, the rate of tax subject to a refund depends on the income earned as well as the implementation of any double taxation relief by the Maltese company on such profits. Shareholders are allowed to earn one of the following refunds:
- 6/7ths of Malta tax
- 5/7ths of Malta tax
- 2/3rds of the tax payable in Malta
- A 100% full tax refund payable in Malta
6/7 Malta Tax Refund
Most commonly, the tax refund available to shareholders of Maltese companies amounts to 6/7ths of the tax paid in Malta. This intrinsically results in an effective tax rate of 5% as a reduction from the standard corporate tax rate of 35%.
5/7 Malta Tax Refund
Shareholders may claim a refund of 5/7ths of the tax paid in Malta where: the dividend is distributed out of passive interest and royalties or from a participating holding which does not satisfy anti-abuse provisions. This results in an effective tax rate of 10%.
It is to be noted that where interests and royalties have been subject to tax at a rate of at least 5% or more, they are no longer considered passive and therefore qualify for the 6/7ths refund mentioned above.
2/3 Malta Tax Refund
Companies claiming double tax relief, as well as the Flat Rate Foreign Tax Credit (FRFTC), are subject to a 2/3rds tax refund claim. However, if FRFTC is claimed, the 2/3rds refund is calculated on the tax paid in Malta.
Full Malta Tax Refund
This is applicable to income derived from a participating holding as well if the participation holding has not been applied.
When it comes to timelines, a refund of tax is payable by not later than the 14th day following the end of the month in which the refund becomes due.
A company in Malta is required to allocate its profits to the following accounts:
- Final Taxed Account (FTA)
- Immovable Property Account (IPA)
- Foreign Income Account (FIA)
- Maltese Taxed Account (MTA)
- Untaxed Account (UA)
Where We Come in
It is important to note that specific details need to be in place to ensure an organization’s or a shareholder’s ability to avail themselves of all or some of the elements listed above particularly relevant to residency, operations and nature of income. In order to find out more, The Firstbridge Team will be happy to offer advice to suit your business and tax needs, feel free to contact Firstbridge at [email protected] for further insight and details.