The Taxation of
Malta International Trading Companies:
Net tax liability in the hands of non-resident shareholders: 4.17%
Table of Contents
Taxation system
While Malta’s International Trading Companies are subject to the normal corporate tax rate applicable to all onshore companies, the extensive network of double taxation agreements, together with the full imputation system of taxation and provisions for tax refunds contained in the legislation make Malta a very tax efficient jurisdiction for non-resident shareholders.
An ITC is taxed at the normal company rate of tax which is currently 35%. For companies registered prior to 1st January 2007, upon a receipt of a dividend from an ITC, non-resident shareholders are:
taxed at a flat rate of 27.5% on the gross amount of the dividend and are credited with the amount of tax paid by the company on the profits out of which the dividend was paid;
entitled to a refund of two-thirds of the Malta tax paid by the company on the same profits. This refund is payable not later than the fourteenth day following the end of the month in which the refund becomes due.
Tax computation
The following example illustrates the tax workings relating to ITCs:
| Tax Computation for
Non-resident shareholders (or Malta company wholly owned by non-residents) |
US$ | US$ |
| ITC’s Chargeable income | 100.00 | |
| Less: Tax paid by ITC (@ 35%) | (35.00) | |
| Net dividend received from ITC | 65.00 | |
| Tax Liability
(27.5% of ITC’s pre-tax profits) |
(27.500) | |
| Tax Credit (Tax paid by ITC) | + 35 | |
| Refund of 2/3 of tax paid by ITC
(on application) |
+ 23.33 | |
| Net Refund | +30.83 | |
| Net Dividend after Tax | 95.83 | |
| Effective Tax Liability | 4.17% |
Procedure for Refund
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.
Advance Revenue Rulings
International trading and holding companies may request an advance ruling on their taxable status. Such a ruling guarantees the tax position of the company for a minimum period of five years and may be renewed for a further period of five years. Any changes in the tax legislation during these periods will not become operative before the lapse of two years from the coming into force of the new law.
Other taxes
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.
Applicability of the ITC Regime
The system of tax refunds described above applies to companies registered in Malta until 31st December 2006. For information about the new corporate tax regime and tax refunds, now available to all shareholders, refer to the new Company Tax System section.
See also:
