Malta - PKF International › media › 10026019 › malta-tax-guide-2015-16.pdf · Malta. PKF Worldwide Tax Guide 2015/16 1 ... sundry other related taxation and business issues;

2015/16

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PKF Worldwide Tax Guide 2015/16 1

FOREWORD A country's tax regime is always a key factor for any business considering moving into new markets. What is the corporate tax rate? Are there any incentives for overseas businesses? Are there double tax treaties in place? How will foreign source income be taxed? Since 1994, the PKF network of independent member firms, administered by PKF International Limited, has produced the PKF Worldwide Tax Guide (WWTG) to provide international businesses with the answers to these key tax questions. As you will appreciate, the production of the WWTG is a huge team effort and we would like to thank all tax experts within PKF member firms who gave up their time to contribute the vital information on their country's taxes that forms the heart of this publication. The PKF Worldwide Tax Guide 2015/16 (WWTG) is an annual publication that provides an overview of the taxation and business regulation regimes of the world's most significant trading countries. In compiling this publication, member firms of the PKF network have based their summaries on information current on 1 January 2015, while also noting imminent changes where necessary. On a country-by-country basis, each summary such as this one, addresses the major taxes applicable to business; how taxable income is determined; sundry other related taxation and business issues; and the country's personal tax regime. The final section of each country summary sets out the Double Tax Treaty and Non-Treaty rates of tax withholding relating to the payment of dividends, interest, royalties and other related payments. While the WWTG should not to be regarded as offering a complete explanation of the taxation issues in each country, we hope readers will use the publication as their first point of reference and then use the services of their local PKF member firm to provide specific information and advice. Services provided by member firms include: Assurance & Advisory;

Financial Planning / Wealth Management;

Corporate Finance;

Management Consultancy;

IT Consultancy;

Insolvency - Corporate and Personal;

Taxation;

Forensic Accounting; and,

Hotel Consultancy. In addition to the printed version of the WWTG, individual country taxation guides such as this are available in PDF format which can be downloaded from the PKF website at www.pkf.com

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IMPORTANT DISCLAIMER This publication should not be regarded as offering a complete explanation of the taxation matters that are contained within this publication. This publication has been sold or distributed on the express terms and understanding that the publishers and the authors are not responsible for the results of any actions which are undertaken on the basis of the information which is contained within this publication, nor for any error in, or omission from, this publication. The publishers and the authors expressly disclaim all and any liability and responsibility to any person, entity or corporation who acts or fails to act as a consequence of any reliance upon the whole or any part of the contents of this publication. Accordingly no person, entity or corporation should act or rely upon any matter or information as contained or implied within this publication without first obtaining advice from an appropriately qualified professional person or firm of advisors, and ensuring that such advice specifically relates to their particular circumstances. PKF International is a family of legally independent member firms administered by PKF International Limited (PKFI). Neither PKFI nor the member firms of the network generally accept any responsibility or liability for the actions or inactions on the part of any individual member firm or firms. PKF INTERNATIONAL LIMITED JUNE 2015 © PKF INTERNATIONAL LIMITED All RIGHTS RESERVED USE APPROVED WITH ATTRIBUTION

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STRUCTURE OF COUNTRY DESCRIPTIONS A. TAXES PAYABLE

COMPANY TAX CAPITAL GAINS TAX VALUE ADDED TAX (VAT) OIL BUNKERING TAX STAMP DUTY WEALTH AND CAPITAL TAXES GAMING TAX SOCIAL INSURANCE CONTRIBUTIONS COMPANY ADMINISTRATION AND COMPLIANCE

B. DETERMINATION OF TAXABLE INCOME

CAPITAL ALLOWANCES TAXATION OF DIVIDENDS: PARTICIPATION EXEMPTION INTEREST DEDUCTIONS CAPITAL AND TRADING LOSSES BRANCH PROFITS TAX TAX ON TRANSFER OF IMMOVABLE PROPERTY TAX ON RENTAL INCOME ADVANCE REVENUE RULINGS SPECIAL TYPES OF ENTITY

C. FOREIGN TAX RELIEF D. CORPORATE GROUPS E. RELATED PARTY TRANSACTIONS F. WITHHOLDING TAXES G. EXCHANGE CONTROLS H. PERSONAL TAX I. TREATY AND NON-TREATY WITHHOLDING TAX RATES

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MEMBER FIRM For further advice or information please contact: City Name Contact information Birkirkara George M Mangion +356 21 484373 [email protected] BASIC FACTS Full name: Republic of Malta Capital: Valletta Main language: Maltese, English Population: 446,547 (2013 estimate) Major religion: Christianity Monetary unit: Euro (EUR) Internet domain: .mt Int. dialling code: +356 KEY TAX POINTS • Malta operates the full imputation system where dividends paid by a Maltese company carry a

tax credit equivalent to the tax paid by the company on the distributed profits. • Shareholders are taxed on the gross dividend but are entitled to tax credits of the tax paid by

the company on the profits so distributed. • Malta does not have CFC Rules, Thin Capitalisation or transfer pricing rules. • Malta does not have net wealth tax and inheritance tax. • Tax payers (both individuals and companies) who are ordinarily resident and domiciled in Malta

are subject to income tax in Malta on their worldwide income and certain capital gains. • Malta operates the “remittance basis”. Taxpayers who are either not ordinarily resident or are

not domiciled in Malta are subject to tax on their income arising in Malta and on their foreign income only if that is received in Malta. In such case, foreign capital gains are not taxable in Malta even if received in Malta.

• Malta does not impose withholding tax on payment of dividends, interest or royalties, although

there are some exceptions. A. TAXES PAYABLE COMPANY TAX A company incorporated in Malta is deemed to be both domiciled and resident in Malta from the date of incorporation. A company not incorporated in Malta is considered resident in Malta if the management and control of its business is exercised in Malta.

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Companies which are resident and domiciled in Malta are subject to income tax on their worldwide income at a flat rate of 35%. In certain circumstances, depending upon the business activity from which the profit has been generated, recipients of dividend income may become entitled to refunds of company tax paid. In certain circumstances, these refunds reduce the effective tax burden on distributed profits to between 0% and 10%. Companies that are either resident or domiciled are taxable in Malta on the remittance basis. Therefore, income and taxable chargeable gains arising in Malta and on foreign income received in Malta. Foreign capital gains are not taxable, regardless of whether received in Malta. Companies that are neither not resident nor domiciled (i.e. incorporated) in Malta are only chargeable to tax in Malta in respect of income and gains arising in Malta. The refundable tax system applies both to profits allocated to Maltese Taxed Account as well as to profits allocated to its foreign income account. Refunds are available both to residents and non-residents. A registered shareholder in receipt of dividend from a company that is registered in Malta may claim a refund six-sevenths of the tax paid by the company on that income. The rate of refund is reduced to a refund of five-sevenths when profits on which the dividend is distributed consists of passive interest and royalties. When double taxation relief has been claimed, the registered shareholder is entitled to a two thirds refund of Maltese tax paid. CAPITAL GAINS TAX Capital gains are subject to tax if they are derived from the transfer (including any alienation under any title) of: • Immovable property; • Securities, defined as shares and stock and such like instruments that participate in any way in

the profits of the company and whose return is not limited to a fixed rate of return, units in a collective investment scheme and units and such like instruments relating to linked long term business of insurance;

• Business, goodwill, business permits, copyright, patents, trademarks and trade-names; • Beneficial interest in a trust; • Interest in a partnership; and, • Market value of shares through a change in the issued share capital or voting rights of a

company. No tax is payable by non-residents on capital gains arising on transfers of company shares or securities except where such gains are derived from the transfer of shares or securities in companies whose assets consist wholly or principally of immovable property situated in Malta. VALUE ADDED TAX (VAT) VAT is imposed on importation of goods into Malta, on every intra-Community acquisition into Malta and on every supply of goods and services made in Malta for a consideration in the course of business.

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The standard VAT rate in Malta is 18%. A reduced rate of 7% VAT applies to the supply of hotel accommodation and 5% on certain supplies including electricity, confectionery, medical accessories and printed matters, items for the exclusive use of disabled and works of arts, collectors’ items and antiques. Also, certain supplies are zero-rated (known as exempt with credit supplies). These include exports and export-related services, the transfer of goods placed or while they are placed under a customs duty suspension regime, international transport of person, the supply and repair of commercial aircraft and vessels, food (excluding confectionery and food supplied in the course of catering), pharmaceuticals and intra-Community supplies of goods to persons registered for VAT purposes in another EU state. Other exemptions are termed exemptions without credit. When the activity of the business consists of or includes exempt without credit supplies, the input tax relating to those supplies is not recoverable. Exempt without credit supplies include: the transfer and the letting of immovable property (excluding inter alia commercial letting and hotel accommodation), insurance services, credit, banking and certain investment services, lotto and lotteries including remote gaming, health and welfare, cultural services and education. VAT on Intra-Community acquisitions When a taxable person makes an intra-Community acquisition in Malta, i.e. he receives a supply of goods from a person who is registered in another EU State where such goods are transported from one EU State to another, he will be liable for the payment of VAT in Malta on that transaction, unless the goods are exempt from VAT. Acquisition VAT is also imposed on any other person (other than a private individual) who makes an intra-Community acquisition of goods with a value exceeding EUR 10,000. Such persons may also opt to account for and pay such VAT if their intra-Community acquisitions do not exceed this amount. VAT on imports VAT is imposed at the rate of 18% (and at 5% in respect of the goods subject to a reduced rate of VAT mentioned in the preceding paragraph) of the taxable value of the goods that are not in free circulation in the EU and that are imported into Malta. It is collected by the Comptroller of Customs on behalf of the Commissioner of VAT at the time of the release of the goods together with any duties payable on the imports. A number of importations are exempt from VAT. Place of Supply of telecommunications, broadcasting and electronically supplied services As of 1st January 2015, the place of supply of telecommunications, broadcasting and electronically supplied services is the place of the customer meaning that Maltese operators are obliged to account for and charge the tax of the Member States of the European Union where their customers are founded which could be a compliance burden if the supplier as customers established in different Member States of the European Union. Therefore, operators have two options for complying with this legal obligation- register and comply with the VAT rules of all the Member States of The European Union where their customers are located; or register under the MINI One Stop Shop (MOSS) which is a simplification measure which the EU Commission proposed to ease compliance.

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VAT Treatment of Yacht and Aircraft Leasing For the purpose of VAT, the lease of the boat is a supply of services with the right of deduction of input VAT by the lessor, where the right of input VAT applies. For sailing boats or motor boats over 24 meters in length there is a 30% reduction in the effective VAT rate subject to certain terms and conditions. In addition, Malta provides for a leasing set-up by means of which a lower effective rate of VAT can be availed of for the use of aircraft in the EU airspace. This is achieved through a VAT aircraft leasing procedure newly launched and that allows the payment of VAT exclusively on the portion of use of the aircraft within the EU. VAT will also be refunded in the following scenarios: • Eligible expenses incurred by private schools for the construction of new buildings; • On the acquisition of new cars provided they satisfy certain criteria relating to size and

emissions; • On the acquisition of a new bicycle (capped at EUR 150); and, • On the cost of sports equipment acquired by sports associations recognised by the Malta Sports

Council. OIL BUNKERING TAX A flat rate of tax per metric ton is charged on the bunkering of certain fuel oils used for ships and their machinery and supplied free from customs and other duties. The payment of the tax is due immediately upon the release of the fuel from the bonded installation, marine terminal or marine facility on the quantity of fuel measured or calculated by Customs as having been released. STAMP DUTY A duty is levied on documents relating particularly to transfers of property, marketable securities (including shares), insurance policies, and auction sales. Duty on transfers of immovable property is at the rate of 5% of which 1% provisional tax is paid upon the entering of a promise of sale agreement. The rate of duty of the transfer of shares in Property Company is 5%, and, otherwise reduced to 2% on market value. There are a number of limitations and exemptions apply, including an exemption from duty on transfers of immovable property between companies forming part of the same group, transfers of shares upon certain restructuring of holdings within a group of companies, a reduced rate of duty on the acquisition of property to be used as one’s ordinary residence as well as division of immovable property between co-owners. Also, an exemption is being afforded to first time property buyers till 30th June 2015 whereby no duty is charged on the first Euro 150,000 where the buyer did not previously own or hold immovable property in Malta directly or indirectly. WEALTH AND CAPITAL TAXES No taxes are levied on net wealth as such. In the case of corporations, no tax is levied on the basis of the capital of the business, but an annual registration fee, which may reach a maximum of EUR 1,400 (paper submission) or EUR 1,200 (electronic submission), is charged by reference to the company’s

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authorised share capital. GAMING TAX Winnings are not subject to tax, but a gaming tax is chargeable on licensed entities. The amount and calculation of the tax depends on the type of licence held and where this is calculated by reference to the entity’s betting results, it is capped at EUR 466,000. Betting and lotteries are strictly regulated. SOCIAL INSURANCE CONTRIBUTIONS Social insurance contributions in respect of an employed person are payable both by the employer and by the employee. The rate is, in each case, is equivalent to 10% of the basic wage payable by each of the employee and employer. However, this is subject to a maximum and minimum rate. Currently the minimum weekly contribution stands at EUR 16.63 (or 10% of basic weekly wage if this is lower but the employer continues to pay the said minimum). The maximum weekly contribution varies depending on the age of the employee. In respect of an employee born before 1/1/1962, the maximum weekly contribution stands at EUR 34.31 whereas in the case of an employee born on or after 1/1/1962, the maximum weekly contribution stands at EUR 41.83. COMPANY ADMINISTRATION AND COMPLIANCE Tax Year The default tax year for a company is 31 December, that is a calendar year. A company may apply to the Commissioner of Inland Revenue to adopt a financial year other than 31 December. Filing of Tax Returns and Payment The directors of every company are required to furnish the shareholders annually at a general meeting with a set of financial statements. Financial statements submitted to shareholders may be prepared either in IFRSs as adopted by the EU, or GAPSE. The annual financial statements, together with the director’s report and auditors’ report must be filed with the Registrar of Companies within ten months from the end of the financial year. The financial statements must be approved by at least two directors for companies. Companies are bound to make three provisional tax payments computed by reference to the amount of tax chargeable in previous year. The provisional tax is payable in three installments: 20% by 30 April, 30% by 31 August and 50% by 21 December. Provisional tax payments are on account of the final tax liability. A tax return must be filed within nine months from the year end or 31 March of the following year, whichever is later. Penalties are imposed for failure to file a return on time or submitting an incorrect tax return. A final tax payment is due by the date the tax return is submitted. Interest is payable at the rate of 0.75% per month or part thereof on any unpaid balances and outstanding refunds. Exemptions In certain circumstances, a company may qualify for an exemption from paying provisional tax payments and final tax payment is due within 18 months after the year end.

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B. DETERMINATION OF TAXABLE INCOME The audited financial statements of the company will normally form the basis of the tax computation, but adjustments will be necessary in order to arrive at the company’s income chargeable to tax. The general rule is that tax deductions are allowed only with respect to expenses incurred wholly and exclusively in the production of the income but the law contains special rules on various items. Adjustments would typically include the write-back of depreciation and a deduction for statutory capital allowances, the write-back of provisions and of expenses that do not satisfy the tax deduction rules, and the application of other special income tax rules such as those relative to the determination of income from the letting of immovable property and of capital gains. CAPITAL ALLOWANCES A taxpayer is not allowed to claim accounting depreciation as a deduction but may claim the statutory capital allowances on fixed assets used in the production of his income. The assets that qualify for capital allowances are: • Plant and machinery, including machinery, equipment, fixtures, motor vehicles and similar fixed

assets; and, • Industrial buildings and structures, including hotel buildings but excluding the cost of land. The rules specify the minimum number of years over which the cost of the industrial buildings and various categories of plant and machinery may be written off. In the case of industrial buildings an initial deduction of 10% and 2% annual deduction of the cost of the acquisition of the asset is available. All wear and tear allowances are computed on the straight line method. Capital allowances may only be deducted from income derived from the activity in which the respective assets are used. The rules allow for proportional deduction where the asset is used partly in the production of income and partly for other purposes. When an asset that qualified for capital allowances is sold, transferred, destroyed, or otherwise put out of use, a balancing statement is to be prepared. If the tax written down value is higher than the value on disposal, the difference is allowed as a further capital allowance (balancing allowance). If the tax written down value is lower, the difference represents a balancing charge, but the charge cannot exceed the total capital allowances granted on that asset. The balancing charge is either added to the taxpayer’s chargeable income or, at the option of the taxpayer and subject to specific conditions, deducted for capital allowances purposes from the cost of acquisition of any fixed asset replacing the asset that has been disposed of. TAXATION OF DIVIDENDS: PARTICIPATION EXEMPTION With effect from 1 January 2007, income and gains derived by a company registered in Malta from a participating holding or from the transfer of such holding are 100% exempt from tax. A participating holding is found where a company resident in Malta holds equity shares in another entity and the former: (a) Holds directly at least 10% of the equity shares of the company invested in, which holding

confers an entitlement to at least any two of the following rights:

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(i) Right to vote; (ii) Right to profits available for distribution; (iii) Right to assets available for distribution on a winding up; or,

(b) Is an equity holder which holds an investment of a minimum sum of EUR 1,164,000 (or the

equivalent sum in another currency)and the investment is held for an uninterrupted period of not less than 183 days; or,

(c) Is an equity shareholder and is entitled to purchase the balance of the equity shares or has the

right of first refusal to purchase such shares or is entitled to sit as, or appoint, a director on the Board; or,

(d) Holds the shares or units for the furtherance of its own business and the holding is not held as

trading stock for the purpose of a trade. Malta’s participation exemption is also extended to holdings in other entities, such as a Maltese limited partnership (the capital of which is not divided into shares), a non-resident body of persons (with similar characteristics to the Maltese limited partnership) or a collective investment vehicle that provides for limited liability of investors, provided the above conditions for the application of the participation exemption are satisfied. The PE is also available to branch profits, and the following income is exempt from tax: • Income attributable to a permanent establishment (including a branch) of a Maltese company

where the PE is situated outside Malta; and, • Gains derived from the transfer of such permanent establishment. Other Conditions for Application of the Exemption With respect to dividends, the participation exemption is applicable if the entity in which the participating holding is held: a) Is resident or incorporated in a country or territory which forms part of the European Union; or, b) Is subject to tax at a rate of at least 15%; or, c) Has 50% or less of its income derived from passive interest or royalties; or, d) Is not a portfolio investment and it has been subject to tax at a rate of at least 5%. The conditions for the application of the participation exemption with respect to dividends do not apply in the case of gains derived from the alienation of a participating holding. Such gains are therefore exempt with no further conditions. Where the participating holding relates to a non-resident company, an alternative to the participation exemption is the full (100%) refund. The relative dividends and capital gains will be taxed in Malta (subject to double tax relief), however, upon a dividend distribution, the shareholders are entitled to a full refund (100%) of the tax paid by the distributing company.

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INTEREST DEDUCTIONS There is no interest ceiling limitations or debt to equity ratio. Sums payable by such person by way of interest upon any money borrowed by the tax payer, where the Commissioner is satisfied that the interest was payable on capital employed in acquiring the income is deductible. CAPITAL AND TRADING LOSSES Trading and Capital Losses incurred in a trade or business may be carried forward indefinitely. The carry back of losses is not allowed. BRANCH PROFITS TAX A branch of an oversea company (the business of which is managed and controlled outside Malta) would be taxable in Malta only on income arising in Malta and on income arising outside Malta but received in Malta. The income of the branch would be taxed at the same rate as that of a Maltese company. Non-resident shareholders of overseas companies may qualify for refunds of tax, provided that the relevant conditions are satisfied. Malta does not impose branch remittance tax. TAX ON TRANSFER OF IMMOVABLE PROPERTY With effect from 1st January 2015, a taxpayer may no longer opt to be taxed at 35% on the capital gain. A final withholding tax of 8% (previously 12%) of the property’s value will apply on all transfers of immovable property subject to two exceptions and a transitional measure as follows: • A final withholding tax of 10% of the property’s value will be applicable on transfers of property

which was acquired prior to 1st January 2004; • A final withholding tax of 5% of the property’s value will be applicable on transfers of property

which is transferred not later than five years from the date of acquisition where the transferor is an individual who does not habitually trade in property;

As a transition measure, the current system will continue to apply to any transfers of property which occur following the entry into force of this new system where the Commissioner for Revenue was notified of the prospective transfer by 17th November 2014 by way of registration of the promise of sale or notification of the transfer. TAX ON RENTAL INCOME In 2014 the Government introduced the option to landlords to be taxed at the rate of 15% on the gross income from rented property. This is being introduced as an incentive to regularise the local rent market. SUPPORT MEASURES – MICRO INVEST SCHEME Investment aid primarily takes the form of tax credits. Eligible enterprises will benefit from tax credits calculated as a percentage of the value of the investment project and wages costs. A tax credit equivalent to 45% of the costs incurred may be approved for enterprises operating from Malta and a further 20% additional bonus is applicable to those operating from Gozo.

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The maximum eligible tax credit may not exceed EUR 30,000 for Maltese based and EUR 50,000 for Gozo based enterprises respectively over any period exceeding three consecutive years. Each year there are various incentives and schemes proposed in the Budget measures to target different areas. ADVANCE REVENUE RULINGS Maltese tax law allows a tax payer to apply for an advance revenue ruling. The ruling binds the tax position for five years and renewable for a further five-year period unless there is a change in the law. If the law on the particular subject is changed during the operation of a ruling, that ruling remains binding either until the end of the relative five-year period or for two years following the amendment, whichever is the shorter. The advance rulings are available in a number of situations including whether a transaction constitutes tax avoidance, whether a holding qualifies as a participating holding and determining the tax treatment of a transaction that constitutes international business. Revenue rulings on matters not specified in the law are not legally binding. SPECIAL TYPES OF ENTITY Maltese law provides for a favourable fiscal framework for the provision of financial services, and endeavours to establish Malta as an attractive, regulated international business centre. (i) Collective Investment Schemes

A fundamental concept which was introduced under the Collective Investment Scheme rules is the classification between prescribed and non-prescribed funds. Such classification determines the tax treatment of the Collective Investment Scheme and its investors.

A prescribed fund is a resident fund that has declared that the value of its assets situated in Malta at a particular date equals at least 85% of the value of its total assets.

Withholding tax on such funds varies between 10% and 15% depending on the type of income. Tax at 15% will be withheld on any capital gains realized by resident investors on disposal of non-prescribed funds (i.e. funds whose assets are non-Maltese).

Dividends paid by a non-resident non-prescribed fund to a resident investor carry a final 15% withholding tax. Dividends paid to non-resident investors are exempt from withholding tax.

(ii) Funds and Fund Managers

Fund Managers are taxed at 35%, as are Investment Services companies, but are entitled to claim an exhaustive list of reliefs such as a double deduction of salaries paid to Maltese personnel in the first ten years of commencement. Fund Managers may opt to be regulated by the Highly Qualified Persons Rules (see H. Personal Taxes below for more details).

Funds themselves which, if set up as a separate vehicle, may also be set up as a SICAV or unit trust, are exempt from income tax in Malta but may not benefit under any of the tax treaties. It is proposed that the VAT exemption relating to fund management is extended to supplies of services consisting of the management of collective investment schemes licensed under the Investment Services Act.

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(iii) Captive Insurance Companies

Captive insurance companies (also known as affiliated insurance companies under Maltese law) are taxed as a normal company. With effect from July 2004, it has also been possible to set up a protected cell company. Both captives and protected cell companies are taxed as ordinary companies in Malta and are, therefore, entitled to the refunds stipulated above. Insurance contracts entered into by licensed entities are not subject to VAT while insurance contracts covering risks that are located outside of Malta are not subject to Stamp Duty.

(iv) Trusts

A trust is an obligation which binds a person or persons (called the ‘trustees’) to deal with property over which they have control (called ‘the trust property’) for the benefit of persons (called the beneficiaries) or for a charitable purpose in accordance with the terms of the trust. The setting up of trusts in Malta is regulated by the Trusts and Trustees Act.

In certain cases, trusts are considered to be transparent for tax purposes, in the sense that income attributable to a trust is not charged to tax in the hands of the trustee if it is distributed to a beneficiary. Also, when all the beneficiaries of a trust are not ordinary resident and domiciled in Malta and when all the income attributable to a trust does not arise in Malta, there is no tax impact under Maltese tax law. Beneficiaries are charged to tax on income distributed by the trustees. Income attributable to a trust that is not so distributed to beneficiaries is charged to tax in the hands of the trustee at the rate of 35%.

As the trust itself merely consists of property and/or other assets, there is no economic activity carried on and, therefore, it is outside the scope of VAT. Since the trustee’s services essentially consist of management and administration of assets, it is considered that any sums that the trustee is entitled to appropriate from the trust assets by way of remuneration do not constitute a consideration for services rendered.

Therefore, no economic activity is deemed to be carried out, where such remuneration is specified under the terms of the deed of the trust. However, if the trustee exploits the property of the trust for a consideration, this exploitation is considered as an economic activity and, if such activity is taxable under Maltese VAT legislation, the trustee has to register for VAT in Malta.

(v) Foundations

Under Maltese law foundations may be treated as companies for tax purposes and are subject to the normal corporate tax rate. Foundations may also opt to be taxed in the same manner as a trust. In such cases the relevant provisions governing taxation of trusts will apply.

(vi) Shipping Activities

Income derived by licensed shipping companies from shipping activities is exempt from income tax in Malta, provided that (i) all registration fees and tonnage taxes have been duly paid and (ii) separate accounts have been kept clearly distinguishing the payments and receipts related to shipping activities from payments and receipts in respect of any other business.

Any income derived by a ship manager from ship management activities is also exempt. Furthermore, any gains /income derived from the transfer of a tonnage ship, and/or shares in

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the said tonnage ship, which is owned, chartered, managed, administered or operated by the shipping organisation, are also exempt from tax. Non-resident officers and employees of the shipping organisation are exempt from paying social security contributions in Malta. Furthermore, there is no duty chargeable in respect of instruments involving the registration or transfer of general matters concerning shipping organisations.

(vii) Aviation Companies The Parliament has enacted a new Aircraft Registration Act, 2010 to encourage the aviation industry in Malta which regulates the registration of aircraft and aircraft mortgages. Highlights of the aviation tax package include: • Any income which is derived from the ownership, leasing or operation of aircraft or aircraft

engines which is used for or employed in the international transport of passengers or goods is exempt from tax in Malta, since such income is deemed to arise outside Malta for Maltese income tax purposes.

• Competitive capital allowances of the aircraft and other related objects for wear and tear

spans, for instance a minimum of 6 years for an aircraft airframe. • No withholding taxes on lease and royalty payments made by Maltese lessees to non-

residents in respect of aircraft operated in the international transport of passengers or goods.

• No withholding taxes on interest payments made by Maltese lessees to non-resident

financial lessors. • Fringe benefit exemption: fringe benefits arising from the private use of aircraft by non-

residents individuals who are shareholders, employees or officers of companies involved in the international transport of goods or passengers are not taxable.

• Recent amendments allow for an eligible employment with an undertaking holding an air

operators’ certificate, to be subject to the Highly Qualified Persons’ Rules (refer to section H).

C. FOREIGN TAX RELIEF Malta provides for four types of relief from international double taxation, namely: • Treaty relief

Treaty relief is available by way of credit for foreign tax paid on income from a territory with which Malta has concluded a double tax treaty. Treaty relief is generally provided in the form of an ordinary credit, limited to the amount agreed between Malta and the relevant foreign territory. The tax suffered in a relevant foreign territory applies on the basis of the ordinary credit method (based on a source-by-source and country-by-country basis). Malta has an extensive tax treaty network, with most treaties following the OECD Model.

• Unilateral relief Relief from double taxation is also possible on a unilateral basis where tax is suffered outside Malta on income received from a country with which Malta has not concluded a treaty Any tax

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suffered outside Malta, would, limitedly to the Malta tax charge on the income, be allowed as a credit against tax chargeable in Malta.

• Relief in respect of Commonwealth income tax Commonwealth Tax Relief is available in respect of income tax or tax of a similar nature charged under any law in any country of the Commonwealth, if the law of such Commonwealth country has provided for relief in respect of tax charged on income both in that Country and in Malt.

• Flat-rate foreign tax credit (FRFTC) FRFTC takes the form of a notional tax credit of 25% for deemed foreign taxes incurred on qualifying income. This type of relief is only available to companies and on income allocated to the foreign income account and does not require evidence of the foreign tax actually paid.

D. CORPORATE GROUPS Two companies resident in Malta neither of which is resident for tax purposes in any other country shall be deemed to be members of a group of companies if one is the 51% subsidiary of the other or both are 51% subsidiaries of a third company resident in Malta. For the purposes of the group relief provisions, a company shall be deemed to be a 51% subsidiary of another company if: • More than 50% of its ordinary share capital and voting rights are owned directly or indirectly by

the parent company; and, • The parent company is beneficially entitled either directly or indirectly to more than 50% of any

profits available for distribution to the ordinary shareholders of the subsidiary company; and, • The parent company would be beneficially entitled either directly or indirectly to more than

50% of any assets of the subsidiary company available for distribution to its ordinary shareholders on a winding up.

Companies which are resident for tax purposes in Malta but also in another tax jurisdiction will not benefit from Group Relief Provisions. E. RELATED PARTY TRANSACTIONS There is no specific transfer pricing legislation. Malta has a general anti-avoidance provision which gives the Commissioner of Inland Revenue (CIR) the right to disregard any artificial or fictitious scheme that reduces the amount of tax payable by the taxpayer. Additionally, where the sole or main purpose of the taxpayer is to obtain any advantage which has the effect of avoiding, reducing or postponing liability to tax, the CIR may determine the liability to tax. F. WITHHOLDING TAXES Malta does not impose withholding tax on dividends, interest and royalties except for a 15% withholding tax when untaxed profits are paid to a resident individual.

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G. EXCHANGE CONTROLS Malta does not have any exchange controls. H. PERSONAL TAX Personal income tax is paid on all income tax accruing in or derived from Malta and on income accruing in or delivered from abroad by persons domiciled and ordinarily resident in Malta. Income arising outside Malta to a person who is not ordinarily resident in Malta or not domiciled in Malta will be taxed only if it is received in Malta. Expatriate employees are not considered to be ordinarily resident in Malta if they do not work or reside in Malta for more than 183 days in any one-year. The term income involves gains and profits from any trade, business, profession or vocation; gains or profits from any employment or office; dividends and interest; pensions, annuities or other annual payments; and rents, royalties or other profits derived from ownership of property. Personal Income Tax Rates for the Year 2015 The highest personal income tax rate of 35% applicable to individuals who earn less than EUR 60,000 is further reduced to 25% under single, married and parent computations. Income over EUR 60,000 will remain taxable at 35%. The tax rate applicable to an individual earning income from dividends remains as was applicable prior to the changes to the tax brackets in 2013. The tax free bracket has been kept at EUR 8,500, however persons earning only the minimum wage are not subject to tax on the whole amount (refer to table below). This also applies to pensioners whose pension does not exceed the minimum wage. The married rates of tax shall also be applicable to those persons joined under a civil union.

Rates Single Computation Tax Bands

Married Computation Tax Bands

Parent Computation Tax Bands

0% Up to EUR 8,500 Up to EUR 11,900 Up to EUR 9,800 15% EUR 8,501 - EUR 14,500 EUR 11,901- EUR 21,200 EUR 9,801 - EUR 15,800 25% EUR 14,501- EUR 19,500 EUR 21,201- EUR 28,700 EUR 15,801- EUR 21,200 25%1 EUR 19,501- EUR 60,000 EUR 28,701- EUR 60,000 EUR 21,201- EUR 60,000 35% Over EUR 60,000 Over EUR 60,000 Over EUR 60,000

¹ Not applicable to dividend income which remains taxable at 35%. Fringe Benefits Certain benefits such as use of cars for private purposes, rent, school fees, free meals as well as share options are added to the salaries of employees and taxed accordingly. All cash allowances paid to employees with the exception of cash allowances paid in respect of the use of employee-owned cars for business purposes are equally fully taxable. Employees are responsible for the disclosure of fringe benefits provided by third parties over which the employer has no control. Incentive for Investment Services Expatriates Qualifying Expatriates who are employed in an Investment Services Company may opt for a 10-year exemption on certain fringe benefits, including accommodation expenses, use of a car, a subvention

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of EUR 600 a month and school fees for their children. Highly Qualified Persons Rules From 1 January 2010, subject to terms and conditions, an individual who is not an ordinary resident in Malta, and who derives income subject to tax in Malta, under a qualifying contract of employment, received in respect of work or duties carried out in Malta, may elect for this income to be charged at a flat rate of 15%. The minimum employment income for basis year 2015 must be EUR 81,457, while any employment income over EUR 5,000,000 is not subject to tax. Eligible employment includes certain classes of employment with licensed companies under the terms of the Financial Institutions Act, licensed gaming companies as well as with aviation companies. The Residence Programme Rules (RPR) The program is effective from 1 July 2013 and applies to EU/EEA /Swiss Nationals. The applicant must be an individual is not a citizen of Malta and is not domiciled in Malta and must hold “Qualifying Property Holding”. Purchased property, after 1 July 2013, for at least EUR 275,000 if in the north of Malta, EUR 220,000 if the property is in Gozo or in the south of Malta; or rented property for at least EUR 9,600 per annum if in the north of Malta and EUR 8,750 if the property is in Gozo or in the south of Malta. Qualifying property holding must not be a shared property and must be occupied as the principal place of residence worldwide. Tax Status • Flat rate of Malta income tax of 15% on income remitted to Malta (as opposed to progressive

personal tax rates of up to 35%) of main applicant and certain dependents and can claim double taxation relief;

• Minimum tax payment of EUR 15,000 per annum (no additional minimum tax payment in

respect of dependents; • Any other realised income including realised capital gains arising in Malta on the transfer of a

capital asset (other than immovable property situated in Malta) chargeable to Malta income tax at 35%;

• Any realised capital gain on the transfer of immovable property situated in Malta subject to a

final tax of 12% of the transfer value (unless opt for 35% on resulting capital gain if disposal made within 12 years of date of purchase);

• Any realised capital gain arising outside of Malta falls outside the scope of Malta income tax in

view of non-Malta domicile of individual and irrespective of whether remitted to Malta or not. Global Residence Programme Rules (GRR) Similar to the position under the RPR Rules, any foreign income derived by beneficiaries or their dependents and remitted to Malta is taxed at the reduced rate of 15%(flat rate) subject to the satisfaction of the conditions included therein. In addition other tax benefits are similar under both programs. The conditions to be satisfied under the GRR (including the conditions in relation to the qualifying property holding) are substantially in line with the conditions of the RPR.

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Malta Individual Investor Programme Malta is presently one year into the successful running of its Individual Investor Program (IIP) by virtue of which successful Applicants are granted a Maltese passport by way of privilege after a minimum twelve month period from application date. This grants holders the privilege of Maltese citizenship as well as a freedom of movement with the European Union. For the duration of the application process applicants (together with their dependents on option) are furnished with a residence card that grants them freedom of movement for a circa twelve month period within all Schengen countries. The IIP is centric to the satisfaction of a number of requirements chief amongst which is a EUR 650,000 contribution to the National Social and Development Fund, amongst other requirements to hold immovable property and Government bonds for a minimum five year period. Since the Contribution is classified as such it carries no fiscal burden and is therefore non-taxable. Tax implications may arise given the Applicants choice of taking up residence in Malta during the application process, as well as after obtaining citizenship. The considerations here vary on a case by case basis and must accordingly be treated as such. PKF Malta is fully equipped with the necessary expertise, skill and resources to provide our clients with tailored advice in this regard. I. TREATY AND NON-TREATY WITHHOLDING TAX RATES

Malta has concluded various treaty agreements with 70 countries so as to mitigate international double taxation. The following table illustrates of the treaty withholding tax when dividends, interest and royalties respectively are paid to Maltese residents. For detailed information, it is highly advisable to consult the relevant tax treaty. Note that there is no withholding tax on dividends and on interest and royalties (if not effectively connected with a permanent establishment in Malta) paid to non-residents. Therefore, in most cases, the applicable withholding tax rate will actually be 0%. Where there is no rate mentioned (denoted by a -), there is no specified treaty rate (in other words, the domestic rate applies).

Country

Dividends Minor Share-

holding %

Dividends Major Share-

holding %

Share to Qualify

% Interest

% Royalties

%

Albania 15 5 25 5 5

Australia 15 15 15 10

Austria 15 15 5 10

Bahrain 0 0 0 0

Barbados 15 5 5 5 5

Belgium 15 15

Bulgaria 30 30 0 10

Canada 15 15 15 10

China 10 5 25 10

Croatia 5 5 0 0

Cyprus 15 15 10 10

Malta


Country


holding %


holding %

Share to Qualify

% Interest

% Royalties

%

Czech Republic 5 5 0 5

Denmark 15 0 25 0 0

Egypt 10 10 10 12

Estonia 15 5 25 10 10

Finland 15 5 10 0 0

France 15 5 10 10 10

Germany 15 5 10 0 0

Greece 10 5 25 8 8

Hong Kong 0 0 0 3

Hungary 15 5 25 10 10

Iceland 15 5 10 0 5

India 15 10 25 10 15

Ireland 15 5 10 0 5

Israel 15 0 10 0

Italy 15 15 10 10

Jordan 10 10 10 10

Korea 15 5 25 10 0

Kuwait 15 10 0 10

Latvia 10 5 25 10 10

Lebanon 5 5 0 5

Libya 15 15 15 15

Lithuania 15 5 25 10 10

Luxembourg 15 5 25 0 10

Malaysia 0 0 15 15

Montenegro 10 5 25 10 10

Morocco 10 6.5 25 10 10

Netherlands 15 5 25 10 10

Norway 15 15 10 10

Pakistan 0 15 20 10 10

Poland 15 5 20 10 10

Portugal 15 10 25 10 10

Qatar 0 0 0 5

Romania 5 5 5 5

Malta


Country


holding %


holding %

Share to Qualify

% Interest

% Royalties

%

Russia 10 5 5 5

San Marino 10 5 25 0 0

Saudi Arabia 5 5 0

Serbia 10 5 25 10

Singapore 0 0 0 10 10

Slovakia 5 5 0 5

Slovenia 15 5 25 5 5

South Africa 15 5 10 10

Spain 5 0 25 0 0

Sweden 15 0 10 0 0

Switzerland 15 0 0

Syria 0 0 10 18

Tunisia 10 10 12 12

UK 10 10 10 10

Uruguay 15 10

USA 15 5 10 15 10 Malta is continually in the process of enhancing its double taxation network, the link below provides the latest signing and ratifications with contracting states as they occur and is continuously updated: http://www.mfsa.com.mt/pages/viewcontent.aspx?id=196

Documents

Malta - PKF International › media › 10026019 › malta-tax-guide-2015-16.pdf · Malta. PKF Worldwide Tax Guide 2015/16 1 ... sundry other related taxation and business issues;