Maltese International Holding Companies
While the Maltese international company is an onshore company, it is distinguished from other onshore Maltese companies by the privileged tax treatment of its non-resident shareholders. Therefore at shareholder level, the tax advantages of the Maltese international company come into play through a system of credit and refunds. These significantly reduce the ultimate tax paid by the non-Malta-resident shareholder or beneficiary. “Onshore” status is thus translated into tax efficiency.
This preferential tax treatment results from the application of the normal tax rules applicable in Malta: the tax imputation and refunds mechanisms.
The Tax Imputation System
In terms of the imputation system, the company deducts tax at source as an advance payment of the shareholder’s tax liability. Therefore, where the tax deducted at source exceeds the shareholder’s liability, the shareholder is entitled to a refund.
The tax imputation system is applicable to Maltese-residents and non-residents alike. The dividend distribution received by the shareholder is grossed up and treated as chargeable income in the hands of the shareholder. Tax is imposed on this pre-tax dividend at the rates applicable to the given taxpayer: 27.5% in the case of the non-resident shareholder of an international company. The shareholder then qualifies for a tax credit for all tax incurred at corporate level (35%). Therefore at assessment stage, the shareholder immediately qualifies for a refund of 7.5% of tax paid at source.
In the spirit of avoiding any incidence of double or even triple taxation in Malta on foreign income, on the distribution of company profits, the shareholder or beneficiary becomes entitled to claim the following refunds:
1. A full refund where profit distribution is made out of income and capital gains derived from foreign overseas assets qualifying as a “participating holding” e.g. dividends, as well as capital gains arising on the disposal of a participating holding (see below);
2. A refund equivalent to two-thirds (2/3rds) of the Maltese tax paid by the company in respect of profit distributions of other foreign sourced income (e.g. Interests and royalties, and profits paid by an International Trading Company.)
Refunds to shareholders are by law payable not later than the fourteenth day from the end of the month in which they become due. Furthermore, tax so refunded is exempt from Maltese taxation in the hands of the shareholder of the Malta company.
No Withholding Taxes, Exit Charges
Domestic tax legislation does not impose withholding taxes in Malta. In this way, there is no “exit charge” from Malta on all types of income outflows and this domestic law provision overrides any withholding tax rates stipulated in Malta’s double taxation treaties.
Maltese tax legislation permits group tax relief between companies resident in Malta. Unlike Denmark, no group relief is allowed in cross-border transactions.
See also:
International Holding Company (Index)
