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Malta Income Taxes and Tax Laws In Malta The taxation of an individual's income is progressive. In other words, the higher an individual's income, the higher the tax he pays. The rates of tax for an individual in 2005 are 15% - 35%. There are reduced rates of taxes for certain income earners. The rate of corporate tax in 2005 is fixed at 35%. There are reduced rates for certain companies. Income Tax for an Individual An individual who is a Maltese Resident pays tax on his income as a wage earner or as a self-employed person. A person who meets the criteria of a "permanent resident" (usually, a stay of more than 183 days a year) will be taxed on his income in Malta and overseas. A foreign resident who is employed in Malta pays tax only on the income he earns in Malta. An employer is obligated to deduct at source, each month the amount of tax payable on a wage. Certain payments are deductible from the taxable income of an individual that are allowable for tax purposes. Separate calculations - A couple each with separate sources of income may report separately on their income, however one of the couple must be nominated as "the representative partner" for the purposes of the tax authorities. Passive income, such as rental of an asset, is attributed to the one of the couple having the higher income. Malta individual income tax rates 2005 (single): : Tax base (LM) % 1-3,100 0% 3,101-4,100 15% 4,101-5,000 20% 5,001-6,000 25% 6,001-6,750 30% 6,751 And over 35% Reporting Dates for an Individual The tax year is the calendar year ending on December 31. The date for filing an annual return is August 30. During the year, a self-employed person must make 3 equal advance payments on April 30, August 31 and December 31. The advance payment is based on the taxable income for the previous year. Should there still be tax payable, it should be paid by the August 31 following the end of the tax year. An employed person whose employer has deducted monthly tax from his salary is not bound to file an annual return. Nevertheless, an employed person must submit a declaration by June 15. A similar declaration must be filed by an individual in respect of his income from a pension, dividend from a local corporation, and income from an investment in respect of which tax of 15% was deducted at source. Reporting and Payment Dates for a Limited Company The date for submitting a report is June 30. In practice, a report may be submitted up until September 30. Advance payments for a company are on the dates and in the amounts specified for an individual. Annual tax differentials must be paid by September 30. Corporate Tax Malta Corporate tax in 2005 is 35% There is an obligation to deduct tax at source at a rate of 15% from a dividend paid to Maltese residents. There is no obligation to deduct tax at source from a dividend paid to foreign residents. There is zero withholding tax on interest and royalties paid to foreign residents. Companies with non-resident shareholders with overseas activities may register in Malta as ITC ( International Trading Companies ) or IHC ( International Holdings Companies). By a special tax credit given to shareholders of ITC, the effective tax rates is 4.17%. The effective tax rates for shareholders of IHC is zero, when having "qualifying participation", as defined by Malta tax laws, or 11.67% for "non qualifying participation". Forms of Incorporation As a general rule - business bodies may incorporate in Malta in one of the following manners: A limited company - * A limited liability company is the most popular form with foreign investors. * A public company has the suffix P.L.C. * The minimum number of shareholders is 2. Nevertheless, a company may be set up with one shareholder. A general partnership. A limited partnership. A branch (of foreign companies). Joint ventures. Comment: From the point of view of taxation, the forms of incorporation for companies and partnerships (general/limited) constitute a legal entity separate from the shareholders / partners. REGISTRATION OF A COMPANY IN MALTA When submitting the application to incorporate, the following steps must be taken: o A bank deposit - the sum of the paid-up capital must be deposited with a bank before registration. o Submission of the Memorandum and Articles of Association - these should be delivered to the Companies Registrar. o Foreign shareholders are obliged to obtain an authorization from the Exchange Control Unit. o Payment of stamp duty (10 cents for every LM 25 of the company's capital). o Payment of a corporation registration levy (a minimum payment of LM 100 and a maximum payment of LM 573). DEDUCTION OF TAX AT SOURCE Malta tax rates for deduction at source: o Dividends- 0%. o Interest- 0%. o Royalties- 0%.
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