Tax deductible Expenses

The general rule as to whether an expense is tax deductible, is that the  expense should be incurred wholly and exclusively in the production of the taxable income. There needs to be a close relation between the expense and the income generated. Expenses that are of a capital nature, are taken as costs in the form of capital and initial allowances, over the useful economic life of the asset. 

Tax Depreciation in Malta 

For tax deductibility purposes, accounting depreciation is not an allowable cost, however for assets that are used in the production of the taxable income, statutory capital allowances are allowable, and the Minimum number of years over which assets are depreciated are the following:

​Furniture, fittings and soft furnishings: 10 years

Computers and electronic equipment: 4 years

Computer software: 4 years

Air conditioners: 6 years

Catering Equipment: 6 years

Electrical and Plumbing Installations: 15 years

Lifts: 10 years

Industrial buildings and structures, including hotels, have an initial allowance of 10%, and capital allowances of 2% annually using the straight-line method.

Capital allowances are allowed in full in the year of acquisition and no capital allowances are allowed in the year of disposal.  ​​​

Capital allowances are only deducted from income derived from the activity in which the assets were used

2/3 tax refund 

Distributions of profits allocated to the FIA that were;

(i)  taxed at the company's level in or after Basis Year 2007 and
(ii) a claim for double taxation relief (excluding Flat rate foreign
tax credit) was made.   

The 2/3 tax refund can be claimed on the total tax charge, as opposed
to the net tax charge (that is net of double taxation relief), however the refund would be limited to the actual Malta tax paid.

In cases where the foreign tax suffered was 15% or higher, the Malta
tax could be therefore reduced to NIL through this tax refund mechanism.   

For distributions from the FIA when the company claimed the flat rate foreign tax credit on these profits; one could claim the 2/3's tax refund (this time on the Malta tax only, not the total tax charge) and obtain a lower Malta tax leakage of 6.25%. 

When professionally planned and setup, Malta companies can be used to obtain attractive tax planning opportunities internationally and to structure business activities to obtain a more tax efficient operation. We can offer you valuable Tax advice for you and your business using Malta's corporate Tax system. We can help you plan and build a tax efficient corporate structure in Malta and service your company's compliance requirements together with planning dividends, issuing dividend warrants and preparing tax refund applications.        

Jurisdiction to Tax

​A Company that is registered in Malta, is deemed to be tax resident and domiciled in Malta and therefore taxed on its worldwide income.  

​
A Company that is instead registered in another country but effectively managed and controlled in or from Malta, is considered to be tax resident in Malta. 

Company Tax

6/7 tax refund

on dividends that are being distributed from profits allocated to:

(a) Malta Tax Account (MTA)

(b) Foreign Income Account (FIA) but excluding;

  (i) when the company distributing the profits claimed any form of double taxation relief;

  (ii) dividends received (by the distributing company) from a participating holding that does not satisfy the anti abuse provisions for the participation       exemption to apply. 

 (iii) dividends paid out from passive interest or royalties.

This could result in just a 5% Malta Tax Leakage. 

5/7 tax refund 

Applicable to:  

(i) dividends received (by the distributing company) from a participating holding that does not satisfy the anti abuse provisions for the participation exemption to apply.

​(ii) dividends paid out from passive interest or royalties

This could result in a 10% Malta Tax Leakage. 

Malta's Tax Refundable Mechanism

In 2007,  a new tax regime was introduced in Malta which removed the requirement that the company; generating the profits that would in turn issue a dividend to its shareholders; traded only outside Malta. This was replaced with a system of Tax accounting and tax refunds at the shareholder's level, which gave rise to a  number of tax planning opportunities.  

For Shareholders duly registered with the International tax unit of the Inland Revenue Department, Tax refunds can be claimed on the company's profits that were allocated to the Malta Tax Account (mainly Malta Trading Income) and the Foreign Income Account (Foreign passive income such as interest or royalties).   

Alternative to Participation Exemption

For participating holdings in non-resident companies, instead of applying the participation exemption one could be charged to tax (less double tax relief) on the dividends and/or capital gains, and obtain a full (100%) refund of the tax paid by the distributing company. If any of the conditions to apply the participation exemption or the full tax refund cannot be satisfied, the income or gains would be taxed in Malta. However on distributing the profits by means of a dividend, the shareholder could apply for a refund of the tax suffered by the Maltese company, thereby reducing the Malta tax to 6.25%.   

Other reasons to invest in Malta

1. No withholding tax on dividends distributed from Maltese companies
   
2. No Malta tax on Interest or royalties accruing to non-residents,
   
3. No Malta tax on Gains or profits earned by non-residents on a transfer of units in a Collective Investment Scheme, 
   
4. No Malta tax on the transfer of shares in Maltese companies listed on the Malta Stock Exchange
   
5. No tax on capital
   

Participation Exemption

For qualifying holdings, there is a full exemption to Maltese tax of any income or gains by a Maltese company from a participating holding and from the transfer of this holding.    

The participating holding must be:

 (i) tax resident or incorporated in the European Union; and

(ii) either;

    a) subject to tax at a rate of at least 15% or 

    b) has 50% or less of its income derived from passive interest or royalties or

    c) is not held as a portfolio investment and it, or any of its passive interest or royalties, has been subject to tax at a rate of at least 5%

Equity holding (which must be at least 10%) must entitle the Maltese Company to any two of the three rights mentioned below;
(i) min 10% right to vote;
(ii) min 10% right to profits available for distribution;
(iii) min 10% right to assets available for distribution on winding up

OR
B) Is an equity shareholder in the company and is entitled to purchase the balance of the equity shares of the company, or has the right of first refusal to purchase such shares, or is entitled to sit as, or appoint, a director on the Board of that company
OR
Is an equity shareholder which holds an investment of a minimum of €1,164,000 in the company (held for an uninterrupted period of at least 183 days)

OR Holds the shares in the company for the progress of its own business and the holding is not held as trading stock for the purpose of a trade

The tax exemption of the gain made on the subsequent transfer of the participating holding, would be tax exempt as long as; 

(i) the participating holding is not a property Company

(ii) the beneficial owner of the gain or profit is not resident in Malta, and not owned and controlled by, directly or indirectly, nor acts on behalf of an individual/s ordinarily resident and domiciled in Malta