Net tax liability in the hands of non-resident shareholders:
0 – 6.25%
1. Tax system applicable to Maltese Int’l. Holding Companies
Maltese operational companies and IHCs are subject to the normal corporate tax rate applicable to all onshore companies (35%) on their worldwide income. However, by virtue of the extensive network of double taxation agreements, together with the full imputation system of taxation and a system of tax refunds, non-resident shareholders qualify for the following tax refunds:
If the subsidiary is a ‘participating holding‘:
a full refund of the corporate tax paid by the IHC on dividends it receives from foreign companies in which it holds shares and on the gains it makes from the disposal of the shares held in the foreign companies: final tax rate is 0%.
no withholding taxes or other taxes on the dividends distributed to the non-resident shareholders.
Therefore any profits which the foreign company makes, whatever their nature is (capital gains, dividends, investment income, interest or similar) and which are channelled back to the IHC by way of dividend, are taxed at a zero rate on condition that the IHC holds a “participating holding” in the foreign company.
If the subsidiary is NOT a ‘participating holding‘
The non-resident shareholder receives a refund of 2/3rds (66%) of the corporate tax paid by the IHC: the effective tax rate is approximately. 11.67%.
no withholding taxes or other taxes on the dividends distributed to the non-resident shareholders.
Therefore the 11.67% tax rate is the maximum tax which the shareholder will pay for non-participating holdings in foreign companies.
Moreover the use of the Flat Rate Foreign Tax Credit allowed by the Maltese Income Tax Act can further reduce the tax to a maximum liability of 6.25% depending on circumstances.
It is important to remember that any income that the IHC makes which is not a dividend distributed to it by a foreign company controlled by the IHC, but is income made directly by the IHC from other sources (direct investments by the IHC, bank interests payable directly to the IHC etc) will be taxed at 11.67% (or 6.25%) because this would be income deriving from a non-participating holding. In all cases therefore it is much more convenient for tax purposes if all the investments are made by a non-taxable foreign corporate structure (example Gibraltar company) controlled by the IHC and the foreign entity’s profit is then distributed by way of dividend to the IHC. This makes the IHCs holding in the Gibraltar company a “participating holding” and therefore the final tax rate is nil.
An IHC can also hold both “qualifying” and “non-qualifying” participation in overseas companies and in this case the tax rate will be a mixture of the two applicable rates: 0% for the qualifying shareholding and 11.67% (or 6.26%) for the non-qualifying shareholding. Naturally in this case, the effective rate of final tax will depend on the proportion of qualifying and non-qualifying shareholdings which the IHC holds.
On the distribution of dividends to non-resident shareholders or to Malta companies which are 100% owned by non-residents, a refund equivalent to 2/3 of the tax paid by the company becomes due.
Where the overseas investment is considered a qualifying participation, these shareholders are entitled to a 100% refund of the tax paid by the holding company.
These refunds are paid by the Inland Revenue Department to the non-resident shareholders within 14 days from the date of the request made to the Department.
No withholding taxes, stamp duties or exchange control restrictions apply on distribution of the profits or dividends to the shareholders and there are no taxes or restrictions on the exportation of the dividends from ITC. This means that funds finding their way to Malta may be remitted anywhere around the world.
International Holding Company Corporate Requirements
See also:
International Holding Companies
