IN190 - Malta The Tax Regime, Double Taxation Treaties and Double

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					IN190 - Malta: The Tax Regime, Double Taxation Treaties and Double Taxation Relief

In assessing the tax efficiency of a jurisdiction, the following factors need to be taken into consideration:

       The tax rate on income in the home jurisdiction
       Withholding taxes suffered on income paid from one jurisdiction to the home jurisdiction
       Double taxation relief given in the home jurisdiction for taxes paid elsewhere
       Withholding taxes on subsequent dividends from the home jurisdiction

The Maltese Tax Refund System and the Effective Tax Rate

Companies operating in Malta are subject to a corporate tax rate of 35%. However, shareholders enjoy low effective rates of
Maltese tax as Malta’s full imputation system of taxation allows generous unilateral relief and tax refunds on the distribution of

Trading Income - Shareholders can apply for a tax refund of 6/7ths of the tax paid by the company on those trading profits that
have been used to pay a dividend. This results in an effective Maltese tax rate of 5% on trading income.

Passive Income - Where profits are derived from passive income (ie. interest and royalties) the tax refund to the shareholder is
5/7ths of the tax paid by the Maltese company. This results in an effective Maltese tax rate of 10% on passive income.

Where the Maltese company has obtained double taxation relief on the foreign passive income the tax refund to the shareholder
is 2/3rds of the tax paid by the Maltese company.

Participating Holding Exemption

The participating holding exemption, exempts the dividends and capital gains derived from a participating holding in a non-
resident company, from income tax.

To qualify as a participating holding, the shareholding of the Maltese company in the foreign company must satisfy at least one
of the following conditions:

       The holding is 10% or more of the equity capital of the foreign company or
       The holding is a substantial equity investment of at least €1,164,000 and the holding is held for an uninterrupted period
       of at least 183 days or
       The Maltese company:
                Holds at least 1 equity share and has an option over the balance or
                Holds at least 1 equity share and has power to appoint a director

Double Tax Relief for Maltese Companies

Maltese companies enjoy exemption from or reduced withholding taxes on income paid from another jurisdiction.

Income received from foreign sources may have been liable to foreign taxes and may also be subject to withholding taxes.
Mitigation of these taxes can be obtained by claiming unilateral relief.

Foreign tax suffered, is allowed as a tax credit against the tax chargeable in Malta. The credit allowed must not exceed the total
tax liability in Malta and to claim the unilateral relief the company must demonstrate that:

       The income arose from a foreign source
       The income was subject to foreign tax
       The amount of the foreign tax suffered
Flat Rate Foreign Income Tax Credit

An alternative option to claiming double tax relief, is to claim a flat rate foreign income tax credit.

The flat rate foreign tax credit is calculated at 25% of the foreign income or gain before allowable expenses.

The net foreign income received, plus the tax credit, less allowable expenses, is then subject to Maltese income tax at 35% with
relief for the deemed credit (up to a maximum of 85% of the Maltese tax payable). An example is provided below:

The effective tax rate on net income after expenses is therefore 13.38%.

On distribution of the profits, the shareholder can claim a 2/3rds tax refund on the tax suffered by the Maltese company,
effectively reducing the overall tax rate even further.

Tax Treaty and EU Directive Relief

Malta has an extensive network of double taxation treaties. A list of Malta’s double tax treaties is detailed in the Appendix below.
As a full member of the EU, Malta has access to the benefits of the EU Parent Subsidiary Directive and the EU Interest and
Royalty Directive.

Additional Information

If you would like further information regarding the Malta corporate tax regime, please speak to your usual contact or Sean
Dowden at the Dixcart office in Malta. Robert Homem in our Madeira office and Laurence Binge in the UK can also offer advice
on the opportunities available through the jurisdiction of Malta. Alternatively you can contact us.

Dixcart Guernsey            Dixcart Trust Corporation Limited
                Contact:    Alan Corlett or John Nelson
                Address:    PO Box 161, Dixcart House, Sir William Place,
                            St Peter Port, Guernsey, CI, GY1 4EZ
                     Tel:   +44 (0)1481 723996        Fax:    +44 (0)1481 727417
             Full Fiduciary Licence granted by the Guernsey Financial Services Commission

Dixcart Isle of Man         Dixcart Management (IOM) Limited
                Contact:    Simon Kelly
                Address:    69 Athol Street, Douglas,
                            Isle of Man, IM1 1JE
                     Tel:   +44 (0) 1624 649250       Fax:      +44 (0) 1624 615603
                     Licensed by the Isle of Man Financial Supervision Commission

Dixcart Madeira             Dixcart Management (Madeira) Lda
                Contact:    John Dias or Carlos Lourenco
                Address:    Avenida do Infante 50, 9004-521,
                            Funchal, Madeira, Portugal
                     Tel:   +351 291 225019         Fax:    +351 291 226418

Dixcart Malta               Dixcart Management Malta Limited
                Contact:    Sean Dowden
                Address:    Level 15, The Business Tower, Portomaso,
                            St Julians, STJ 4011, Malta
                     Tel:   +356 2248 4000           Fax:      +356 2248 4050

Dixcart Nevis               Dixcart Management Nevis Limited
                Contact:    John Terry
                Address:    PO Box 598, Dixcart House, Fort Charles, Charlestown, Nevis,
                            St. Kitts and Nevis, West Indies
                     Tel:   +1 869 469 2829            Fax:  +1 869 469 6509

Dixcart Sark                Dixcart Management Limited
                Contact:    Alex Magell
                Address:    Le Grand Dixcart
                            Sark, Channel Islands, GY9 0SD
                     Tel:   +44 (0)1481 832444      Fax:   +44 (0)1481 832394
             Full Fiduciary Licence granted by the Guernsey Financial Services Commission

Dixcart Switzerland         Dixcart Corporate Services Sàrl
                Contact:    Christine Breitler
                Address:    3, rue du Port, PO Box 3083,
                            1211 Geneva 3, Switzerland
                     Tel:   +41 22 320 37 65         Fax:       +41 22 800 32 05

Dixcart UK                  Dixcart International Limited
                Contact:    Laurence Binge or Joe Dunne
                Address:    Hillbrow House, Hillbrow Road, Esher,
                            Surrey, KT10 9NW, UK
                     Tel:   +44 (0) 1372 461400      Fax:    +44 (0) 1372 461401

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