Malta Company | Tax

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We specialize in Malta Company Formation. We help you with Malta company formation, company set up and incorporation, management services, bank account opening and taxation in order to obtain Malta Company Tax Advantages.

Malta provides unique advantages and constructive use of Malta state incentives can give you significant benefits. Tax, residency, safety and lifestyle advantages.

We are leading Company Formation professionals who are part of the FBS Kotsomitis Global Network. We will be your Partner in Malta for ALL your Malta Company Formation Needs.

Malta Tax Law – Relevant Laws and Extensive Information

In this section you will find extensive information about the Malta tax system.

Relevant Laws can be downloaded here:

• Income Tax Act
• Income Tax Management Act
• Value Added Tax Act
• Import Duties Act
• Excise Duty Act
• Eco-Contribution Act
• Companies Act
• Trusts and Trustees Act
• Merchant Shipping Act
• Employment and Industrial Relations Act
• Professional Secrecy Act
• Banking Act
• Constitution of Malta
• Financial Institutions Act
• Gaming Act
• Investment Services Act
• Lotteries and Other Games Act
• Prevention of Money Laundering Act
• Remote Gaming Regulations
• Duty on Documents and Transfers Act
• Voluntary Organisations Act
• Civil Code
• Insurance Business Act

(updated May 2011)
Important Note: to view the latest versions, click on the Refresh button while holding the Ctrl key down.

Click here for a full list of Malta’s Double Tax Treaty Agreements.

If you have difficulty in downloading the Tax Treaties/Laws, please contact us. We will send them to you.

More information can be provided on request. However, it must be noted that since some of the structures / issues may be technically complex, they are ideally discussed at a meeting with Focus Business Services’ Directors.  For bespoke advice, please click here to contact one of our officers or send us an email on enquiries@fbsmalta.com

Malta Income Tax – Extensive Information and Facts

The Income Tax Act and the Income Tax Management Act contemplate three (3)  distinct taxes:

• All Income;
• Capital Gains; and
• Transfer value of Immovable Property situated in Malta

When a gain or profit is of an income nature, it is classified into six (6) distinct categories, which classification is not only important for reporting purposes, but also for computation of income and possible deductions.

The six (6) categories of Income Tax are as follows:

1. Trading Income

Any gain derived in the course of any trade, business, profession or vocation is taxable;

2.   Employment Income

Any gain or profit derived from any employment or office (e.g. directorship or company secretarial posts);

3.  Dividends, Premiums, interest or discounts

Any  dividends, premiums, interest (which includes any gains from any sum of money in whatever currency deposited with a person carrying on the business of Banking) and discounts (gains derived from discounting bills of exchange) is taxable;

4.  Pension, Charges, Annuities or Annual Payments

Payments of a recurring nature are by nature taxable.  However, it is important to identify precisly the type of recurrent payment, as several exemptions are provided for in the Income Tax Act.  Thus, for example, although pensions are in principal taxable, a tax exemption is afforded with regard to Age Pension and Disability Pension and Pension for the Visually Impaired;

5.  Income, Rents, Royalties, Premiums and other profits derived from Immovable Property

6.  Gains or Profits not falling under any of the foregoing paragraphs

This is an umbrella provision which includes but is not limited to examiner’s fees, radio and TV participation etc.

Income Tax Charge

Income Tax is intrinsically intertwined to the notion of jurisdiction. Income Tax will arise insofar that Malta can assert a jurisdictional claim on the tax-subject, which jurisdiction is asserted on the grounds of territoriality, ordinary residence, domicile and remittance. The Maltese Commissioner of Inland Revenue may tax:

• Unless exempted, all income and capital gains arising in Malta;
• Unless exempted, all income and capital gains, wheresoever arising (in Malta or outside Malta) to persons who are both ordinarily resident and domiciled in Malta;
• Income arising outside Malta remitted to persons who are ordinarily resident in Malta but not domiciled in Malta; and
• Income arising outside Malta remitted to persons who are domiciled in Malta but not ordinarily resident in Malta.

Resident in Malta – In the case of a person who is tax resident (both ordinarily resident and domiciled) in Malta, tax is levied on all income accruing or arising from sources both within and outside Malta, in respect of:-

• Trading Income;
• Employment Income;
• Dividends, Premiums, interest or discounts;
• Pension, Charges, Annuities or Annual Payments;
• Income, Rents, Royalties, Premiums and other profits derived from Immovable Property; and
• Gains or Profits not falling under any of the foregoing

Non-Resident in Malta – In the case of a person who is not tax resident in Malta, (satisfies either but not both the tests of ordinarily resident and domiciled in Malta) tax is levied on the income remitted to Malta or arising from sources in Malta only.  Typical examples of taxation arising in Malta chargeable to non-resident would include, but are not limited to:-

• Profits or other benefits from a permanent establishment situated in Malta;
• Profits or other benefits from any office or employment exercised in Malta (including income from services);
• Income, including rent or sale derived from immovable property situated in Malta;
• The gross derived by an individual from the exercise in Malta of any profession or vocation, the remuneration of public entertainers, artists and athletes.

Definition

Resident in Malta, when applied to an individual, means an individual who stays in Malta for a period or periods exceeding in aggregate 183 days in the year of assessment.

When applied to a company, residence shall mean the place where the management and control of the company is exercised.  All companies incorporated in Malta, are by default, deemed to be resident in Malta.

Ordinary Residence is not defined in the Income Tax Act.  The term has been interpreted as denoting a prolonged and continuous stay in a particular jurisdiction and is often implied from a number of factors pertaining to the tax subject, including but not limited to the jurisdiction where the tax subject retains family ties and/or business interests.  The regularity of visits to the jurisdiction is also often a criterion to be considered for ordinary residence.

Therefore whilst the notion of residence may be determined on an objective basis by determining the number of days spent in Malta, ordinary residence is implied from a number of subjective factors, which point towards a more long-term tie with the particular jurisdiction.

Domicile

Similarly to ordinary residence, domicile is a concept which may be inferred subjectively, not objectively, on examination of the tax subject’s decision where to set up his/her sole or main residence coupled with the intention to reside there for an unlimited time.

As a general rule all tax subjects are assigned domicile, and it is not possible to have more than one domicile at any given time.  By way of default, every individual acquires the domicile of his/her father at birth.  The domicile of origin shall be retained by the individual, even after establishing his/her residence outside his/her country of domicile, unless it is proven that the individual’s intention is to reside permanently in his/her new abode, severing all ties with his/her country of domicile and never showing any intention of returning to his/her domicile of choice.

Permanent Establishment (OECD Model definition) means a fixed place of business through which an enterprise’s business is wholly or partly carried on, and includes a place of management, branch, office, factory, workshop, mine, oil or gas well, quarry or any other place of extraction of natural resources.

Income Tax Exemptions

Tax exemptions are set forth in Article 12 of the Income Tax Act, Chapter 123 of the Laws of Malta, and include the following:

• Income of the University of Malta;
• Allowances and benfits payable under the Social Security Act;
• Any interest, discount, premium or royalties accruing to a person not resident in Malta, provided that such person is not engaged in trade or business in Malta through a permanent establishment;
• Any gains or profits accruing to or derived by any person not resident in Malta on a transfer of units in a Collective Investment Scheme or any units and instruments related to linked long term business of insurance;
• The income of any Retirement Fund registered or otherwise authorised under the Special Funds (Regulation) Act;
• The income of any institution, trust, bequest or foundation of a public character which is engaged in philanthropic activities;
• The income of any political party including the income of clubs adhering to political parties;
• Wound and disability pensions;
• Capital sums received by way of commutation of pension, retiring or death gratuity or received as consolidated compensation for death or injuries;
• The income arising from a scholarship held by a person receiving full time instruction at a university, college or similar education institution;
• The income of trade unions;
• The profits of non-resident ship-owners;
• The income of a club or similar institution operated exclusively for social welfare, civic improvement, pleasure or recreation and for non-profit purposes;
• The income of a philharmonic society which constitutes a band club;
• The income of a club or similar institution that constitutes a sports club;
• Any dividend paid or payable out of gains or profits deriving from the production of petroleum in Malta;
• The income of a co-operative society;
• Any subsidy related to the Common Agricultural Policy;
• The income of a Collective Investment Scheme other than income from immovable property situated in Malta;
• Any financial assistance received by an individual from his estranged spouse in respect of the maintenance of a child;
• Any income or gains derived by a company registered in Malta from a Participating Exemption;
• Royalties and similar income derived from patents in respect of inventions, whether in the course of a trade, business, profession, vocation or otherwise.

For bespoke Income Tax advice, please click here to contact our tax advisors or send us an email on enquiries@fbsmalta.com 

Individuals Tax Rates in Malta

Tax rates for resident single persons for chargeable income for 2012

Tax rates for resident married couples for chargeable income for 2012

Provided that married couples may, at their discretion opt to be taxed separately by applying single rates of income rather than aggregate their income in a joint computation.

Income Tax Benefits for Professionals

The Highly Qualified Persons Rules 2011 (“the Rules”) enacted by means of Legal Notice 106 of 2011 in March 2011 but with retrospective effect as of 1 January 2011,  prescribe a preferential income tax bracket to a number of highly qualified professionals.  The intention of the legislator is to further incentivise foreign direct investment in Malta on a personal and not just on a corporate level, with a personal income tax of just 15% by way of derogation from the statutory individual tax brackets.  Any income in excess of EUR 5,000,000 per annum shall not be subject to any further tax in Malta.

Eligible employments and offices are set forth in the Schedule to the Rules and pertain to the Financial Services and Insurance industry, and solely to companies which are licensed, authorised or recognised by the Malta Financial Services Authority, to conduct the business of financial business in and from Malta under Article 12 of the Financial Institutions Act.  Eligible offices include the following:-

• Chief Executive Officer;
• Chief Risk Officer;
• Chief Financial Officer;
• Chief Technology Officer;
• Portfolio Managers;
• Chief Investment Officer;
• Senior Traders;
• Senior Analysts;
• Actuarial Professionals;
• Chief Underwriting Officers;
• Head of marketing;
• Head of Investor Relations

In order to be eligible, the individual must meet all the following conditions set forth in the Rules:

• Have a qualifying contract of employment in excess of EUR 75,000 (exclusive of any fringe benefits) received in respect of work and duties carried out in Malta, or in respect of any period spent ouside Malta in connection with such work or duties;
• Be offered protection as an employee under Maltese Law irrespective of the legal relationship for the exercising of his work or duty – (consultancy services are excluded);
• Be employed in a senior position;
• Is in possession of professional qualifications (at least five years professional experience);
• Fully discloses and declares emoluments received in respect of income from a qualifying contract of employment in Malta;
• Can sufficiently maintain himself/herself and members of immediate family, without recourse to social assistance in Malta;
• Resides in adequate residence in Malta (both for himself/herself and her immediate family without recourse to local social assistance);
• In possession of valid travel documents;
• In possession of health insurance for himself / herself and immediate family;
• Is not domiciled in Malta.

Eligible individuals must submit a written declaration to the MFSA, which when endorsed has to be submited to the Maltese Commissioner of Inland Revenue, together with the applicant’s income tax return.  Applicants shall be required to disclose all such information and documents as the Commissioner of Inland Revenue may require to attest the veracity of the claim. Any individual who has been employed for a period of at least two (2) years preceding the 1 January 2011, for the performance of his duties in Malta shall not be eligible under the scheme.

The eligibility date for the applicability of the scheme shall vary in the case of EEA,  Swiss and third country nationals.  EEA and Swiss nationals shall be entitled to benefit from the scheme for a maximum period of five (5) year as from year of first year of assessment in Malta.  The applicable rate for non-nationals is four (4) years.  If the applicants were employed for the performance of duties in Malta for up to two (2) years prior to 1 January 2011, then the aforesaid eligible period shall be reduced accordingly.

The aforesaid benefits shall be deemed to have been withdrawn with retrospective effect if a beneficiary is a third-country national (non-EU/EEA/Swiss) who:-

• physically stays in Malta, in the aggregate for more than 1,460 days (4 calendar years);
• acquries real estate rights over immovable property in Malta (directly through the acquisition of immovable property in Malta and/or equity in corporte entities which hold immovable property rights in Malta).

For bespoke Income Tax advice, please click here to contact our tax advisors or send us an email on enquiries@fbsmalta.com 

Malta Corporate Tax Rates,  Special Tax Rates and Tax Losses

Corporate Tax Rates

All companies resident in Malta are subject to income tax on company profits at a rate of 35%. However, this is subject to Malta’s full imputation tax system, wherein tax paid by a company in Malta is, on the distribution of a final dividends, imputed to the shareholder as a tax credit against the shareholders’ tax liability. Therefore, a shareholder will, upon a distribution of the dividend, be entitled to a refund in part or in full of any advance tax levied on the distributing company.

The full imputation tax credit thereby renders Maltese companies highly efficient tax vehicles, with a number of applicable refunds to shareholders possible: (6/7ths refund, 5/7ths refund and 2/3rds refund)

Click here for a more detailed illustration of the Malta Full Imputation Tax System.

Special Tax Rates

As a rule of thumb, income and corporate tax rate is at 35%. However, different tax rates apply in accordance to bespoke tax regimes. A concise summary of special tax rates, derogating from the aforesaid bespoke tax rate, is set forth in the table below:

Tax Losses

Trading Losses

Losses incurred in any trade, business, profession or vocation during the year preceding the assessment, which may not be set off against capital gains or income, may be carried forward and set off against total income for any subsequent years in succession.

This provision is especially helpful for start-up businesses, thereby allowing them to amortise their losses over subsequent years.

Group Tax Relief

The Malta Income Tax Act permits tax consolidation and sets forth circumstances in which members of a group of companies may surrender trade (but not capital gains) losses to one another.

Read full article for a more thorough understanding of group tax relief.

Contact one of our officers to initiate the incorporation of a Maltese registered company and start reaping the full benefits of an onshore, low-tax, EU jurisdiction. Simply fill in the contact box below or contact us by email on enquiries@fbsmalta.com or by calling at +356 2338 1500

Malta Capital Allowances and Deductions

The Deduction and Wear and Tear of Plant and Machinery Rules (S.L. 123.01) sets forth the depreciation of plant and machinery used in the creation of income.

Unless otherwise set forth in the aforesaid rules, the depreciation is calculated on a straight-line method and may only be availed of upon evidence attesting the proper costs of the assets.

Deductions

Article 14 of the Income Tax Act prescribes the tax deductions allowable on chargeable income, as follows:

• Sums payable by such person by way of interest upon any money borrowed by him where the interest was payable on capital employed in acquiring the income;
• Rent paid by a tenant of land or buildings occupied by him for the purpose of acquiring the income;
• Any sum expended for repairs of premises, plant or machinery employed in acquiring the income, or for the renewal, repair or alteration of any implement, utensil or article so employed;
• Bad debts incurred in any trade, business, profession or vocation;
• Any sum contributed by an employer to a pension;
• A deduction in respect of the wear and tear of any plant and machinery, and any premises being an industrial building or structure arising out of the use or employment of such property in the production of the income;
• Any expenditure on scientific research incurred by a person engaged in any trade, business, profession or vocation;
• Any expenditure on patents or patent rights incurred by a person engaged in a trade, business or vocation;
• In respect of plant and machinery first used and employed in the year immediately preceding the year of assessment, an initial deduction of 20% of the capital expenditure thereon;
• In respect of premises being an industrial building or structure first used and employed in the year immediately preceeding the year of assessment, an initial deduction of 10% of the capital expenditure;
• Any sums or expenses paid or incurred by or on behalf of a candidate for election as member of the House of Representatives on account of or in respect of the conduct or management of such election;
• Any expenditure incurred by a person engaged in a trade, business, profession or vocation for the purpose of promoting that trade, business, profession, or vocation including any expenditure on market research, samples, fairs and exhibitions;
• Any expenditure of a capital nature on intellectual property rights incurred by a person enaged in a trade, business, profession or vocation whcih was incurred in the use and benefit of the trade, business, profession or vocation;
• Any sum paid by an employer to a childcare centre in respect of childcare services for children of his employees up to a maximum of  €935 per child;
• Any alimony payments paid to an estranged spouse;
• School fees, up to €1,400 per child attending secondary school or  €1,000 per child attending primary school or kindergarten;
• Child care fees up to €1,000;
• Homes for the elderly fees up  to €2,000;
• Sports fees up to €100

In addition to the aforesaid, Article 74 of the Value Added Tax Act, Chapter 406 of the Laws of Malta allows for tax deduction on:

• Interest paid under the VAT Act by the Commissioner of VAT to any person is treated as income of that person;
• Interest paid or payable under the VAT Act by any person to the Commissioner of VAT is treated as an expense incurred in the production of the income of that person.

Non – Allowable Deductions

Article 26 of the Income Tax Act enlists the deductions which may not be deducted from chargeable income, such as:

• Domestic or private expenses other than alimony payments and school fees;
• Any outgoings and expenses to the extent of which they are not wholly and exclusively incurred in the production of the income, and not being necessarily incurred in the performance of the relative employment or office;
• Any loss, diminution, exhaustion or withdrawal of capital, any sum employed or intended to be employed as capital;
• The cost of any improvements;
• Any loss or expense recoverable under any insurance or contract of indemnity;
• Rent of any premises or part of premises not paid for the purpose of producing the income;
• Any ex gratia payments

For bespoke Income Tax, Capital Allowances and Deductions advices, please click here to contact our tax advisors or send us an email on enquiries@fbsmalta.com 

Malta Income Tax Official Forms

Persons who are tax resident in Malta for income tax purposes are obliged to submit returns to the Maltese Commissioner of Inland Revenue by means of bespoke applications or notification forms as may be prescribed in the Malta Income Tax Act or by the Maltese Commissioner of Inland Revenue.  A full list of the aforesaid income tax official forms, are set forth below:

• Application for the Registration of an Employer by a Company
• Application for the Registration of an Employer by an Individual
• Authorisation of Tax Representative
• CGT Schedule C
• CGT Schedule D
• CGT Schedule E
• CGT Schedule F
• Child Care E-Filing Sheet
• DDT1
  Notarial notice of inter vivos transfer
• DDT3
  Notice of promise of sale or transfer of immovable property
• DDT4
  Notarial notice of causa mortis declarations
• E-Return Support Files
• Expatriate Taxpayer Registration Form
• FB1
  Fringe benefits personal history sheet
• FB2
  Application for a reduced rate for point to point service or delivery
• Foreign Language Schools E-Filing Sheet
• FS3
  Payee statement of earnings
• FS3
  Payee statement of earnings (1997-2007)
• FS4
  Payee status declaration
• FS5
  Payer’s monthly payment advice
• FS5
  Payer’s monthly payment advice (up to 2007)
• FS7
  Payer’s annual reconciliation statement (EUR)
• FS7
  Payer’s annual reconciliation statement
• PE Number De-Activation Form
• PE Number Re-Activation Form
• PR1
  Application under the residents scheme regulations, 2004
• Private Homes for the Elderly E-Filing Sheet
• Private Schools E-Filing Sheet
• Profit and Loss Account
• PT Reduction Form
• Registration as a Data Provider
• Registration as a Tax Practitioner
• Registration for Refund
• Registration for Shipping Declarations
• Registration for the FSS Service
• Registration of Users by a Firm
• Return Attachment 13
  Deduction for Childcare Facilities at the Workplace
• Return Attachment 14
  Deduction for Fees Paid in Respect of Tertiary Studies
• Return Attachment 17
  Highly Qualified Persons-Article 56(21), Income Tax Act
• Sports Fees Claim for Deduction
• SSC Refund 15(5)
• SSC Refund 15(6)
• SSC Refund 15(7)
• SSC Refund 15(8)
• TA22
  Part time self employed
• TA23
  Part time employment
• TIFD Spreadsheet
• Trusts01
  Registration of a Trust

For bespoke Income Tax advice, please click here to contact our tax advisors or send us an email on enquiries@fbsmalta.com

Malta Capital Gains Tax – Tax Charge, Profit Determination, Exemptions

In terms of Article 5 of the Income Tax Act, Chapter 123 of the Laws of Malta, capital gains derived by a person from a transfer of a capital asset, insofar as they are gains of an income nature.

As a general rule, capital gains shall apply on:

• Gains or profits arising from any transfer of the ownership or usufruct of any immovable property or usufruct of any immovable property or the assignnment or cession of any rights over such property;
• Gains or profits arising from the transfer of the ownership or usufruct of or from the assignment or cession of any rights over any securities, business, goodwill, business permits, copyright, patents, trademarks and trade-names; and
• Gains or profits arising from the transfer of the beneficial interest in a Trust;
• Gains or profits arising from a transfer of securities.

The ascertainment of the gains or profits arising from any transfer of immovable property is determined by means of the Capital Gains Rules (S.L. 123.27) which is calculated by compiling the cost of acquisition, inflation, any ground rent, any permissibile deductions, maintenance etc;

Interestingly, a transfer includes any assignment, sale, emphytheusis, partition, donation, settlement of property on trust, distribution and reversion of property settled on Trust etc; The intention of the legislator was thereto to include not only outright transfer or sale, but also other circumstances where a capital asset may be transferred, other than a direct transfer, e.g. a dilution of share capital through a fresh allotment of ordinary shares or a partition of an immovable property.

Donation shall be deemed to constitute a sale. However, no tax is payable where a donation is made to the spouse, descendant or ascendants of the transferor, nor to any philanthropic institutions.

Whilst capital gains are taxable only if such gains are of a capital nature, Article 5A of the Income Tax Act prescribes that, unless otherwise exempt, such as in the case of the transfer of an immovable used as the own residence of the transferor for a minimum of three (3) years from date of acquisition, capital gains shall always be chargeable pursuant to any immvoable property situated in Malta.

Capital Gains Tax Charge

Gains of a capital nature are not taxable in Malta, whilst gains of an income nature are, barring statutory Exemptions, always taxable. The litmus test in determing whether capital gains are taxable or not, is tied to badges of trade.

Badges of trade are subjective tests which help evaluate whether the gain is of a capital nature (and therefore not taxable) or of an income nature (and therefore taxable).  Badges of trade include, but are not limited to:

• frequency of transactions;
• profit-seeking motive;
• supplementary works;
• affinity to one’s own trade;
• quantity of the goods; and
• interval of time between purchase and re-sale

Badges of trade should be assessed cumulatively and objectively.  The acquisiation of goods for speculation usually entails a gain of an income nature and would be taxable.

Where the gain is of a capital nature, the next test would be whether the gain is exempt or not.  Unless listed in the Exemptions, any gains of a captial nature deriving from immovable property in Malta, securities, business goodwill, trademarks, trade names, copyright and beneficial interest in a trust, be, as a rule of thumb taxable.

Profit Determination

The Capital Gains Rules set forth the computational rules for the computation of capital gains tax. The amount of capital gains tax is, generally set at 12%, subsequent to the payment of a provisional capital gain.

Specific inflation rules may apply subsequent to the transfer of immovable property in Malta.

Capital Gains Exemptions

The following transactions are exempt from capital gains tax:

• Transfer of shares listed on a stock exchange recognised under the Financial Markets Act, not being securities in a Collective Investment Scheme;
• Transfer of securities listed on a stock exchange recognised under the Financial Markets Act being securities in a Collective Investment Scheme held in a prescribed fund;
• Transfer of units and like instruments relating to long term business of insurance;
• In the case of non-residents, the disposal of any units in a Collective Investment Scheme;
• In the case of non-residents, the disposal of shares or securities in a company, the assets of which do not consist principally of immovable property situated in Malta;
• Transfer of Immovable property assigned between spouses consequent to a judicial or consensual separation;
• Transfer of Immovable property which formed part of the community of acquests between the spouses or was otherwise owned in common between them and is assigned to one of the spouses on the dissolution of the community or is partitioned between the spouses, or the surviving spouse and the heirs of the deceased spouse;
• Transfer of Immovable Poperty used by the transferor as own residence for three years immediately preceding the date of transfer and such residence is vacated within twelve (12) months of vacating the premises;
• Expropriation of property by the Government of Malta;
• Assignment of property on emphyteusis for fifty (50) years years or less;
• Where an asset is transferred from one company to another company, within the same Group of Companies;
• Where a transfer involving an exchange of shares on restructuring of holding upon mergers, demergers, divisions and amalgamations and reorganisations takes place

For bespoke Tax advice, please click here to contact our tax advisors or send us an email on enquiries@fbsmalta.com

Malta Immovable Property Tax, Charge and Rates. Inheritance Tax

Tax Charge and Rates

Tax is imposed on the immovable property’s owner (individuals and/or legal persons) in Malta, upon the transfer of the immovable property, in the following manner:

• Immovable property which is transferred inter vivos shall be taxable at 12% of the transfer price, if the subject property has been in the possession of the transferor for more than seven (7) years immediately preceding the transfer.

Where the subject property has been retained by the transferor for a period of less than seven (7) years immediately preceding the transfer, the transferor may elect, either to (i) pay 12% of the transfer price; or (ii) pay 35% on the gain on the sale.

No capital gains is payable where the subject property was the ordinary residence of the transferor for three (3) years immediately preceding the transfer.

• In the case of immovable property, a distinction is made between property inherited prior to the 24 November 1992 and immovable property inherited after this date

Immovable property inherited prior to 24 November 1992 shall be taxable at 7% of transfer value, whereas immovable property inherited after this date is taxable at a rate of 12% of the difference between the transfer value and the cost of acquisition.

• In the case of immovable property transferred by donation, the litmus test is whether the property is transferred within 5 years from date of the acquisition.

In the event of immovable property transferred within 5 years from acquisition, the transferor may elect, either to (i) pay 12% of the value price; or (ii) pay 35% on the gain on the sale.

Conversely, no discretion is permissible in the case of immovable property transferred after 5 years from acquisition, and the transferor shall pay tax equal to 12% of the difference between the transfer value and the acquisition value.

Inheritance Tax

There are no inheritances taxes payable in Malta. However, transfer of immovable property and securities causa mortis may be susceptible to Duty on Documents Tax.

For bespoke Tax advice, please click here to contact our tax advisors or send us an email on enquiries@fbsmalta.com

Malta Duty on Documents and Transfers – Summary Table and Rates

Duty on Documents and Transfers is a tax levied on the fair market value of the asset which is transferred. For the purposes of Duty, transfer includes any assignment, conveyance, sale, partition, donation, sale, redemption of ground rent etc;

Malta Duty on Documents is charged upon the execution of specified documents, when such documents (policy of insurance, bills of sale, banking credit card, notarial deeds, redemption of ground rent filed in Court etc;) are executed in Malta or when use thereof is made in Malta.

A summary of the transfers that attract duty on documents and the applicable rates is set forth in the following table:

For bespoke Tax advice, please click here to contact our tax advisors or send us an email on enquiries@fbsmalta.com

Malta Value Added Tax Overview

Maltese VAT is regulated by the Value Added Tax Act – Chapter 406 of the Laws of Malta, periodically updated by means of separate Legal Notices  which transpose EU VAT Directives.

As of 1 January 2010, Council Directive 2008/9/EC of 12 February 2008 laying down detailed rules for the refund of value added tax, provided for in Directive 2006/112/EC, to taxable persons not established in the member State of Refund but established in another Member State, more commonly known as “The Eight Directive” has been transposed by means of Legal Notice 357 of 2009.  Further changes to the Value Added Tax Act, shall be done in furtherance to announced changes to the place of supply rules to be implemented as of 1 January 2013 and 1 January 2015, notably in telecommunications, broadcasting and electronically supplied services.

Other notable changes was the implementation of new rules for recapitulative statements which tansposed Council Directive 2008/117/EC on the common system of value added tax to combat tax evasion connected with intra-Community transactions, whereby as of 1 January 2010, taxable persons making supplies of intra-community supplies of goods to customers identified with a valid VAT registration number in another Member State must file a recapitulative statement which have to be submitted electronically, by not later than the fifteenth day of the month following the relative calendar month.

The Maltese Commissioner of VAT shall issue a VAT certification attesting VAT Registration, provided that the following conditions are met:

• The applicant is a taxable person carrying out an economic activity;
• The economic activity has a turnover which exceeds the minimum threshold prescribed by law;
• The applicant is established in Malta.

In the case of corporate taxable persons, these are, as from date of incorporation, deemed to be  income tax resident in Malta, unless their effective management and control is exercised outside Malta.  However, for the purposes of VAT, the threshold of presence is greater than Income Tax.  The Value Added Tax lays down a number of rules to determine whether a person is “established” in Malta, as follows:-

• A taxable person is established in a country if he has established his economic activity or has a fixed place of establishment from which he carries on that economic activity in that country, or being a physical person who has not fixed his economic activity or who does have a fixed place of establishment in any country, has a permanent establishment or usually resides in that country;
• A non-taxable legal person shall be deemed to be established in the country where it is incorporated if it has a fixed place in that countr from which it carries out its activities;
• A non-taxable physical person is established in the country where he has a permanent establishment or usually resides.

No doubt, the aforesaid provisions have been modelled on the VAT Committee Working Paper No. 634 (2009), which has consistently equated “establishment” to the places of business where the central, core decisions concerning the general management are adopted and where the functions of central administration are carried out.  The place of establishment is inferred from maintaining a sufficient degree of permance, together with the adequate structure – human and technical resources.  It follows that post boxes and brass-plates fall outside the scope of the “establishment test”, and therefore the aforesaid taxable persons shall not be entitled to VAT Registration.

Where a VAT certificate is issued, taxable persons  must submit periodic returns detailing all taxable supplies (sales) and inputs (costs).  Returns are submitted on a quarterly basis.

Malta VAT Rates

Article 19 of the Value Added Tax Act prescribes that the applicable rate of VAT shall be of 18%, unless otherwise derogated. The Eighth Schedule to the aforesaid Act, lays down the applicable rate of VAT with regard to certain goods, which derogate from the aforesaid 18% rate. A list of such derogations are set forth in the table below:

Malta VAT Exemptions

The Fifth Schedule of the Value Added Tax Act enlists which supplies are exempt from VAT, dividing supplies into Exemptions with Credit and Exemptions without Credit

Exemptions with credit include the following:

• Exports and like transactions of goods dispatched and transported to a destination outside the EU by and on behalf of the seller;
• International goods traffic placed under a customs duty suspension regime;
• Intra-community supply of goods to a person identified on a relative invoice as a person identified for value added tax purposes by a valid and active value added tax identification number;
• International transport of persons, luggage and motor vehicles accompanying passengers and ancilllary services thereto;
• Brokers or other intermediaries;
• Sea vessels;
• The supply of aircraft destined to be used by airline operators for reward chiefly for international transport of passengers and/or goods;
• The supply of gold;
• The supply of food for human consumption (excluding foods supplied in the course of catering);
• Pharmaceutical goods;
• The supply of transport by scheduled bus service, inter-island sea transport, school transport and like transport; and
• Supplies of goods on board cruise liners

Supplies which are exempt without credit include the following:

• The letting and/or transfer of immovable property;
• Insurance services;
• Credit, banking and other services;
• Cultural and religious services;
• The supply by non-profit organisations of services related to sport or physical recreation provided to persons taking part in sport or educational eduction;
• Services related to certain exempt services e.g. supply of staff by religious and philosophical institutions;
• Services by non-profit making organisations to their members;
• Lotteries and supplies related to gambling;
• Postal Services;
• Health and Welfare;
• Education or educational research;
• Broadcasting by public radio and television bodies other than those of a commercial nature; and
• The supply of water services by a public authority

Malta VAT Registration

Registration for VAT is obligatory to all “taxable persons” – defined in Section 5 of the VAT Act as any person (physical or legal), who carries on an economic activity, whatever the purpose or result of that activity.

An economic activity consists of any or more of the following:

• Any trade or business;
• Any profession or vocation and the provision of any personal services;
• The exploitation of tangible and intangible property for the purpose of obtaining income therefore from a continuing basis;
• The provision by a club, association or organisation of the facilities and advantages available to its members;
• The admission, for a consideration, of persons to any premises.

However, a taxable person whose turnover does not exceed €7,000 in a relevant period (1 January to 31 December) shall be exempt from registration.

A taxable person established in Malta shall register for VAT must register for VAT within thirty (30) days from the date on which he/she makes a supply for consideration in Malta other than an exempt without credit supply.

Likewise a taxable person established in Malta who supplies services within the territory of another Member State for which the tax is payable solely by the recipient shall apply to be registered for VAT by not later than thirty (30) days from the date on which he/she makes a supply for consideration.

Similarly, small undertakings, which fall below the thresholds set forth in the Sixth Schedule of the VAT Act, may opt for Voluntary Registration with the Commissioner of VAT.

Furthermore, non-taxable legal person intending to make an intracommunity acquisition in Malta must apply for registration by not later than the date of such acquisition.

Taxable persons established in Malta, receiving a service for which they are liable to pay VAT, must also be registered for VAT purposes. This would typically be the case of Remote Gaming Companies and Collective Investment Schemes, which are exempt without credit on supplies, but which exemption is only permissible insofar as supplies acquired are intrinsic and inherent to their licensable activity. Any supply of service which is not intrinsic and inherent to their licensable activity would not be deemed to be an exempt supply and would constitute a liability on these taxable persons to pay VAT.

Registration is submitted by means of a submission of an application form and must be accompanied by the identity card / passport copy of the taxable person. Where the taxable person is a body corporate a copy of the constitutive document, such as the Memorandum and Articles of Association together with a copy of the identity card or passport copy of the director or any other officer of the corporate entity must be submitted with the application form.

The Commissioner of VAT shall issue a VAT certificate, upon satisfaction on the following cumulative conditions:

• The applicant is a taxable person carrying out an economic activity;
• The economic activity has a turnover which exceeds the minimum threshold prescribed by law;
• The applicant is established in Malta.

Although all companies registered in Malta are automatically income tax resident in Malta, unless their effective management and control is exercised outside Malta, for the purposes of VAT, the company must prove and maintain its establishment in Malta, by maintaining its effective management and control in Malta, by having a resident director or by maintaining a presence in Malta by means of an office.

Voluntary Registration

A person may opt for registration as an exempt person when the turnover of the business is below the thresholds established in the Sixth Schedule of the VAT Act, set forth below:

• €35,000 – economic activities consisting principally in the supply of goods;
• €24,000 – economic activities consisting principally in the supply of goods with a relatively low added value;
• €14,000 – Any other economic activity.

However, in terms of the Value Added Tax (Exemption from Registration) Regulations 2010 (L.N. 524 of 2010), any taxable person whose turnover does not exceed €7,000 in a relevant period (1 January to 31 December) may not opt for registration.

The turnover of a business is calculated on the total value of sales, excluding:

• Exempt without credit supplies;
• The transfer of a business as a going concern;
• The sale of fixed assets;

Supplies made to the business and deemed to be made by that business under the reverse charge provisions.

Any person whose turnover is below the established entry threshold may apply to register under article 11 of the VAT Act in order to be exempt from charging VAT when supplying taxable goods or taxable services.

A person registered under Article 11 of the VAT Act would not be able to claim deduction or any input VAT that may be incurred pursuant to his economic activity.

A person who is registered as an exempt person is required to:

• Issue fiscal receipts or tax invoices, as the case may be, on all supplies made;
• Submit a declaration (simplified tax return) at the end of each calendar year which must be submitted by the 15th February of the following year

An exempt taxable person intending to make Intra-Community Acquisitions and pay VAT thereon in Malta, must also register also under Article 12 to obtain a valid identification number for this purpose and qualify for such an arrangement. Registration under Article 12 is necessary if the total value of such purchases exceeds the threshold of €10,000 since the start of the calendar year.

Right of Registration

Registration for VAT is obligatory to all “taxable persons” – defined in Section 5 of the VAT Act as any person (physical or legal), who carries on an economic activity, whatever the purpose or result of that activity.

An economic activity consists of any or more of the following:

• Any trade or business;
• Any profession or vocation and the provision of any personal services;
• The exploitation of tangible and intangible property for the purpose of obtaining income therefore from a continuing basis;
• The provision by a club, association or organisation of the facilities and advantages available to its members;
• the admission, for a consideration, of persons to any premises.

A person who does not carry out an economic activity but who, sporadically, makes an intra-community supply of new means of transport, shall be treated as a taxable person.

Based on this definition, a purely Holding Company, the sole purpose of which is to acquire holdings in other undertakings without involving itself in the management of those undertakings would not qualify as a taxable person, and would therefore not be eligible for VAT registration.

It is however possible for a Maltese company to partake the business of both a holding and a trading company simultaneously.

Malta VAT Official Forms

Taxable persons registered for VAT, or who wish to be registered for VAT, have to submit returns by means of bespoke applications or notification forms as may be prescribed in the Malta Value Added Tax Act or by the Malta VAT Department.  A full list of the aforesaid forms and applications, are set forth below:

• Add Business Premises Form
• Application for Deregistration Form
• Change of Address Form
• Change of Economic Activity Form
• Change Register Type Form
• Fiscal Receipt Books Order Form
• New VAT Registration Form
• Notice of Payment in Terms of Articles 21(2), 21(3) and 21(5)
• Partnership Registration Form
• Reprint of Certificate Form
• Request for Reactivation Form

For bespoke VAT advice, please click here to contact our tax advisors or send us an email on enquiries@fbsmalta.com

Malta Non-Recoverable VAT

Item 3 of the Tenth Schedule of the VAT Act enlists taxable services which are not treated as input tax for the purposes of VAT, which include the following:

• Tobacco or tobacco products, unless purchased for resale;
• Alcoholic beverages, unless purchased for resale;
• Works of art and antiques, i.e. paintings, drawings and pastels executed by hand, other than hand-painted or hand-decorated manufactured articles; original engravings, prints and lithographs; original sculptures and statuary, in any material; antiques of an age exceeding one hundred years; collections and collectors’ pieces of zoological, botanical, mineralogical, anatomical, historical, archaeological, palaeontological and ethnographic interest, unless purchased for resale;
• Motor vehicles, vessels or aircraft, excluding vessels and aircraft acquired for the purpose of being provided under a charter or hire agreement, unless purchased for resale or unless acquired and used for the purpose of the carriage of goods or passengers for a consideration;
• Goods and services for the purpose of repairing, maintaining and keeping motor vehicles, vessels or aircraft and fuel used therein;
• Car leasing by a lessee, including VAT incurred on fuel;
• The supply of any goods and services used in the provision of receptions, entertainment or hospitality except where that supply is made in the normal course of an economic activity;
• The supply of goods and services used in the provision by a person to his employees of transport or entertainment, except where the transport is provided on vehicles with a seating capacity of not less than seven.

For bespoke VAT and Non-Recoverable VAT advices, please click here to contact our tax advisors or send us an email on enquiries@fbsmalta.com

Intra – EU Goods Trading in Malta – Information and Facts

Taxable persons who undertake sales to or purchase from (including triangular trade) other EU Member States need to submit the following forms, in addition to the quarterly VAT Return:

EU Acquisitions (Purchases):

1. Intrastat (detailed reporting of all physical arrivals of goods – all items – in Malta)
2. Inclusion in VAT Return (on a total basis)

EU Supplies (Sales):

1. Intrastat (detailed reporting of all physical departures of goods – all items – in Malta)
2. Inclusion in VAT Return (on a total basis with 0% VAT rate)

Submission Deadlines:

1. VAT Return – 45 days from the end of VAT reporting quarter
2. Intrastat – 10 working days of the following month from when the month in which the goods were imported / exported.

Intrastat

The intrastat reporting thresholds both for intracommunity supplies and intracommunity acquisitions for 2010 are set at €700 (calculated on an annual cumulative basis)

The government entity which processes Intrastat is the National Statistics Office (“NSO”), Malta. Supplementary declarations may be filed manually or electronically.

Recapitulative statement

Every taxable person must submit a recapitulative statement for the following supplies made to taxable persons and non-taxable legal persons identified for purposes of VAT:

• exempt intra-Community supplies of goods;
• services, other than services that are exempted from the tax in the Member State where the transaction is taxable, and for which the recipient is liable to pay the tax

Recapitulative Statements have to be drawn up for each calendar month and are to be submitted online to the VAT Department by not later than the fifteenth day of the month following the relative calendar month.

However, a Recapitulative Statement must be submitted for each calendar quarter by not later than the fifteenth day of the month following the end of the quarter, where the total quarterly amount, excluding VAT, of the supplies of goods does not exceed either in respect of the quarter concerned or in respect of any of the previous four quarters the sum of €50,000 (fifty thousand Euro).

The option referred to above shall cease to be applicable after the end of the month during which the total value, excluding VAT, of supplies of goods exceeds in respect of the current quarter the sum of €50,000 (fifty thousand Euro). In this case, a recapitulative statement shall be drawn up for any month which may have elapsed since the beginning of the quarter by not later than the fifteenth day of the month following the last month in the relative reporting period.

Notwithstanding the above, on supplies of services for which the customer is liable for payment of the tax, the supplier may submit an online Recapitulative Statement for each calendar quarter by not later than the fifteenth day of the month following the end of the quarter irrespective of the total value of services supplied.

Provided that, on supplies of both goods and services then the rules for the goods shall prevail, and the Recapitulative Statement shall be made every month or every calendar quarter if the threshold is not exceeded.

The values relative to the supplies of goods or services required to be reported in the Recapitulative Statement shall be declared in the period of submission during which VAT became chargeable.

For bespoke VAT advice, please click here to contact our tax advisors or send us an email on enquiries@fbsmalta.com

Malta Import Duty

The Import Duties Act – Chapter 337 of the Laws of Malta prescribes the import duty chargeable on goods produced and manufactured outside the EU and which are imported for consumption in Malta.

The Applicable rate of import duty are set forth in the Customs Code in the Fourth Schedule of the Import Duties Act.  The applicable customs tariff shall be determined in accordance to the provisions of the Agreement on Implementation of Article VII of the General Agreement of Tariffs and Trade 1994 and ranges from 0% to 25%.

Malta Excise Duty

The Excise Duty Act – Chapter 382 of the Laws of Malta,  prescribes the rates of excise duty payable on selected goods which are produced, imported and placed on the market in Malta.  Excise goods, typically include:

• Tobacco and Cigarette Products;
• Alcoholic Beverages;
• Mobile Telephony Products

Eco Tax

The Eco – Contribution Act, Chapter 473 of the Laws of Malta, is levied by the Commissioner of Value Added Tax, on goods which are harmful to the environment, namely:

• Plastic, Glass and Metal Containers for beverages;
• Toiletries and Washing Preparations;
• Plastic Tableware and Kitchenware;
• Packaging of Plastics;
• Gum;
• Ammunition;
• Mattresses and Articles of Bedding;
• Plastic Bags;
• Tyres;
• Batteries and Accumulators;
• Petroleum Oils;
• Oil Filters;
• White goods and electronic equipment

For bespoke Import / Excise Duty / Eco Tax advices, please click here to contact our tax advisors or send us an email on enquiries@fbsmalta.com

Malta Shipping Company Tax Advantages

Maltese Law affords a number of fiscal benefits to ship owners or bareboat charterers operating tonnage tax ships – vessels of at least 1,000 net tonnes registered under the Malta flag and owned, chartered, managed or administered by a Shipping Organisation.

Shipping Companies registered under the Merchant Shipping Act are entitled to the following benefits:

• Automatic exemption from income tax in Malta on income derived from shipping activities of Maltese tonnage tax ships;
• Automatic exemption from donation and succession duty on the capital represented for Maltese tonnage tax ships;
• Automatic exemption from duty on documents and transfers (stamp duties) payable on the sale or transfer of Maltese tonnage tax ships, and on the allotment or transfer of any share or stock in any company owning such vessels;
• Any non-resident officers, masters and crew-members of Maltese tonnage tax ships are exempt from the provisions of the Social Security Act.

Below are some more attractive advantages of registration under the Malta flag:

• Registration of hulls/ vessels under construction and mortgages over such vessel is permitted;
• No restrictions on the nationality of the master, officers and crew serving on Maltese vessels;
• Uncomplicated and efficient procedure for registration and deletion of Maltese vessels, as well as for the registration and discharge of mortgages;
• Efficient procedures for the sale or transfer of shares or stock in Maltese shipping companies;
• No trading restrictions imposed on Maltese registered vessels.

Click here for a more thorough understanding of the TAX TREATMENT OF A NON-SHIPPING MALTA COMPANY

For bespoke Malta Shipping Company Tax advice, please click here to contact our tax advisors or send us an email on enquiries@fbsmalta.com

Malta Social Insurance System – Requirements and Range of Benefits

Malta’s social security system is administered by the Department of Social Security, which is part of the Ministry for the Family and Social Solidarity.

Anyone who is employed in Malta is required to contribute to the social security system, to be eligible to receive security benefit.  Exceptions, are made under the Social Security Act, Chapter 318 of the Laws of Malta, with respect to the following:

• Employment of a casual nature otherwise than for the purposes of the employer’s trade or business;
• Employment of a person who is not ordinarily resident in Malta if the employer of that person is a person not resident in Malta and has no place of business here;
• Employment by any one employer for less than eight (8) hours in a calendar week;
• Employment as secretary or clerk of a society, club, philantropic institution, school or similar body or institution, where personal service is ordinarily requried only occasionally and outside the ordinary hours of work, and which do not exceed eight (8) hours a week;
• Employment of a perons who is not ordinarily resident in Malta;
• Employment of a person who is not ordinarily resident in Malta if the employer of that person is paying contributionss in respect of that person under a scheme of soical insurance in another country;
• Employment of any of the directors in any partnership, for the purposes ot that partnership, where in such partnership has been entered into between or among persons that are related to one another, up to and including cousins of the first degree and/or their spouses, provided any such directors are themselves such partners or the spouses of such partners;
• Employment of any majority shareholder in any partnership, for the purposes of that partnership, and for this purpose any shareholder shall still be deemed to be a majority shareholder if, notwithstanding the fact that the number of his shares do not constitute a majority, the value of powers attached to his holding exceed the aggregate total value or powers attached to his holding of the other shareholders in that partnership;
• As of 6th January 1992, employment entered into prior to the 5th January 2008 of a person who has reached pensionable age prior to 5th January 2008, or employment of a widow under pensionable age, if she so elects, who is in receipt of a pension in respect of widowhood under this Act;
• Employment outside Malta as master or member of the crew of any ship or vessel registered in Malta;
• Employment on board any aircraft, other than a pilot, commander, navigator or a member of the crew.

The system funds a wide range of benefits including maternity, unemployment and disability benefits, as well as sick pay and pensions. The insured must have at least 156 weeks of paid contributions, including an annual average of at least 50 weeks of paid or credit contributions, to benefit from the aforesaid.

The pensionable age for persons born before December 31, 1951, is age 61 for men and 60 with an option to retire at 61 for women, age 62 (men and women) if born from 1952 to 1955, age 63 (both men and women) if born from 1956 to 1958; age 64 (men and women) if born from 1959 to 1961; age 65 (men and women) if born on or after January 1, 1962.

An early pension option is permissible if the insured, born on or after 1 January 1962 has accumulated 2,080 contributions, equivalent to forty (40) years contributions since attaining age 18; if the insured was born between 1952 and 1961, the minimum number of credited contributions since attaining age 18, must be of 1,820, equivalent to a minimum of thirty-five (35) years.

Contributions are deducted from salaries along with  income tax and employers are required to match the payments of their employees with a similar level of contribution. Payments are on graduated scale, up to a maximum of 10% of income.

Self-employed people are also required to contribute to the system, although self-employed EU Nationals may be exempt from payments for up to twelve (12) months, if they continue to make contributions in their own countries and hold the exemption certificate E101.

For bespoke Tax advice, please click here to contact our tax advisors or send us an email on enquiries@fbsmalta.com

Employees Social Security Contributions in Malta

Employer and employees make social security contributions in Malta on a graduated scale (as set forth in the table below). The employer deducts the social security contribution automatically from the pay-slip, along with the income tax payment.

*Students who are following a full-time course of studies or instruction under the Student-Worker Scheme, or other similar schemes (including the Extended Skills Training Schemes, but excluding the Worker-Student Schemes) involving distinct work and study periods for which they are receiving remuneration.

For bespoke Tax advice, please click here to contact our tax advisors or send us an email on enquiries@fbsmalta.com

Self-Employed Contribution Rates in Malta

Self-employed and self-occupied persons contribute to the national insurance contribution in the following scale:

Class Two Contributions are to be paid by all individuals who derive income of more than €910 from an economic activity and who are not employed.

The Social Security Act defines two (2) categories of persons that are required to pay Class 2 Contributions as follows:

Self Occupied Persons – persons who earn income from Trade, Business, Profession, Vocation or any other economic activity that exceeds €910 per annum.

Self Employed Persons – persons who receive income from rents, investments, capital gains or any other income.

Rates for Class Two Social Security Contributions are based on the annual net profit or income for the year preceding the contribution payment year.

For bespoke Income Tax advice, please click here to contact our tax advisors or send us an email on enquiries@fbsmalta.com