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Malta has become an ideal hub for business organisations to setup their holding companies and group finance activities. In addition to its beneficial tax-refund system and double taxation mechanisms, Malta manifests a highly attractive participation exemption which minimises further the costs of an organisation.

What is the participation exemption?

Maltese law grants a 100% exemption to companies registered in Malta on dividend income or capital gains derived from its corporate shareholding or from the disposal of such a holding.

Test 1 for its applicability

The dividend income or capital gains must be derived from a participating holding which is generally a non-resident company (including some types of partnerships and branches) in which the Maltese registered company holds equity shares and:

  • owns at least 10% of the equity shares; or
  • has the option to acquire the remaining balance of the equity shares; or
  • has an investment amounting to at least €1,164,700 which is kept for an uninterrupted period of at least 183 days; or
  • has an entitlement for first refusal in the event of a proposed disposal, redemption or cancellation of the remaining balance of the equity shares;
  • has an entitlement to sit on the Board; or
  • holds shares for the furtherance of its business and not for the purpose of trading.

Test 2 for its applicability – Applicable ONLY in case of foreign dividends

  • the participating holding is resident or incorporated in an EU member state; or
  • the participating holding is subject to tax at a rate of at least 15%; or
  • the participating holding has 50% or less of its income derived from passive interest or royalties.

Failure to satisfy any of these three conditions requires the satisfaction of both conditions set out in Test 3.

Test 3 for its applicability – Applicable ONLY in case of foreign dividends and if Test 2 is not satisfied


  • the investment in the participating holding must not be held as a portfolio investment; and
  • the passive interest or royalties derived by the participating holding would have been subject to tax at a rate of at least 5%.

Alternative to the Participation Exemption

Malta also offers the possibility of a 100% tax refund in respect of qualifying income. Whereas the participation exemption, not having to pay any tax, grants a cash flow advantage; in some instances the company may be required to provide evidence of tax paid in Malta, in which case it would use the full refund system.

If you would like to know more about the various ways how to benefit from the participation exemption, or to discuss any other fiscal matter, please get in touch with Bernard Gauci (bgauci@ksimalta.com) or Benjamin Griscti (bgriscti@ksimalta.com)