Apart from relief in terms of a double taxation treaty Maltese tax legislation contains domestic rules aimed at ensuring that income originating from overseas is not subject to double taxation even if there is no double taxation agreement in existence. Relief is provided on a unilateral basis (Unilateral Relief), through a Flat Rate Foreign Tax Credit (FRFTC), underlying relief and Commonwealth Relief.
Unilateral Relief is available where treaty is not available. With regard to investments held by Maltese companies in foreign companies, the relief also extends to underlying taxes suffered abroad, that is, the taxes suffered by the foreign company on the profits distributed to the Maltese company.
The FRFTC may be claimed instead of treaty relief and the unilateral relief. The FRFTC assumes a deemed foreign tax of 25% of the income received in Malta, regardless of the amount of tax actually paid abroad and this may be claimed even where no tax abroad has actually been suffered. The 25% deemed foreign tax is allowed as a credit against the Malta tax due on the gross income after allowing for any deductible expenses. The combination of the FRFTC and tax refunds available to shareholders (see above) may produce very interesting tax-efficient results.
Companies incorporated in Malta are treated as domiciled and ordinarily resident in Malta and taxable on world-wide income. Companies incorporated outside Malta that are managed and controlled in Malta are treated as resident (but not domiciled) in Malta and taxed on income arising in Malta and income (but not capital gains) arising abroad and received in Malta. Companies incorporated outside Malta that are not managed and controlled in Malta are taxed only on income arising in Malta.
It is possible for foreign companies to set up a branch in Malta and carry on business through a branch. The profits attributable to the branch are taxable in Malta and the overall tax burden can be significantly reduced through tax refunds available to the head office. Foreign companies can be re-domiciled to Malta
Companies are taxed at a flat rate of 35% on their chargeable income and capital gains. There is no separate capital gains tax or corporate tax. Gains realised from the transfer of shares, securities, intellectual property and certain other intangible property are treated as part of the income for the year and are taxed at 35%.
The transfer of immovable property situated in Malta is taxed at 12% of the transfer price but the law provides for an option (applicable in certain cases) for tax to be charged at 35% on the capital gain realised. Local bank interest and other investment income are taxed at source at 15%.
Maltese tax legislation contains measures aimed at attracting the setting up of companies operating internationally and and holding structures. These measures take the form of refunds of tax paid to the shareholders of a Maltese company and to a foreign company having a Maltese branch as well as in the form of Participation Exemption on proceeds or profits derived by a Maltese company.