Download our Mobile App on:

Malta provides an opportunity to corporate and private shareholders to claim a tax refund of the original tax rate suffered by a Maltese company, thus reducing the effective tax incurred by them in Malta significantly, generally ranging between 0 and 6.25%.

The rate of the tax refund which could be claimed by a shareholder may vary due to factors such as:

  1. the nature of the underlying profits out of which the dividend is distributed and the tax account from where such profits are being distributed; and
  2. the application of double taxation relief by the Maltese distributing company on the profits distributed.

Malta offers four rates of tax refunds:

  1. 6/7ths of the tax suffered in Malta by a Maltese Company;
  2. 5/7ths of the tax suffered in Malta by a Maltese Company;
  3. 2/3rds of tax suffered in Malta by a Maltese Company; or
  4. 100% tax refund.

6/7ths Tax Refund

The most commonly applied tax refund rate which generally applies to income derived from trade; irrespective if carried out in Malta or not. This brings an effective corporate tax rate of only 5%. When combined with double taxation relief this rate could be lowered even further.

5/7ths Tax Refund

Generally applies when the dividends being distributed are derived from profits consisting of passive interest or royalties. This brings an effective corporate tax rate of only 10%. In most instances, this tax refund would be combined with a double taxation relief hence reducing the effective tax rate considerably lower.

2/3rds Tax Refund

Distribution of dividends derived from profits which would have been allocated to the Foreign Income Account and in respect of which the company would have claimed double taxation relief, would entitle the shareholder to a 2/3rds refund of the Malta tax.

100% Tax Refund

This is possible upon the distribution of dividends consisting in income derived from certain investments. This requires the satisfaction of the conditions necessary for the application of the Participation Exemption

Approach

A 4-step approach is normally involved in claiming any of the 4 types of tax refunds:

Step 1: The Maltese company suffers an initial corporate tax of 35% (e.g. on €100 profit the tax suffered is €35);

Step 2: The Maltese company distributes the remaining profits (i.e. the €65) to its shareholders by way of dividends or bonus shares without any further taxes being levied;

Step 3: The shareholder files a claim for tax refund to the Maltese tax authorities requesting a refund of the €65 initially suffered either of 6/7ths, 5/7ths, 2/3rds or 100%;

Step 4: The Maltese tax authorities are bound to pay the refund within a reasonable timeframe by a bank transfer to the shareholder.