Dividend Tax in Malta

The Maltese taxation system is based on England’s taxation system. The Income Tax Act in Malta distinguishes between the taxation of income and capital and between their sources. Given Malta’s full imputation tax system, companies and shareholders receiving dividends can take advantage of the credit taxes amounting up to the tax applied to the profits dividends are paid from.

Below, our lawyers in Malta how dividend payments are taxed in this country. You can also rely on us for assistance in registering a company in Malta under very advantageous conditions.

What are the taxes imposed on dividend payments in Malta?

In order to understand how dividends are taxed in Malta, a foreign investor should know that the dividends are defined as the profit resulted after a company registered in this country has paid its taxes. Dividends are distributed among the shareholders in accordance with their contribution to the share capital of the business.

The taxation of dividends in Malta implies applying the corporate income tax on the annual profits of a company, however, the local taxation system is based on several important aspects among which the domicile of the business is one of the most important.

It should be noted that a Maltese company will be levied the corporate income tax under the following circumstances:

• -          companies with a tax domicile in Malta, meaning the company is registered in Malta or another country but has been moved to Malta;
• -          companies with a residency in Malta, meaning the company was registered from the beginning in Malta, or a company that was re-domiciled in Malta and has also moved its management or head office in Malta;
• -          companies with tax domicile and residence in Malta which have been registered or moved to Malta, including with their main office;
• -          the shareholders of Maltese companies as long as they are corporate shareholders.

Based on these criteria, the Maltese company can be imposed with the corporate tax, therefore the dividend tax, on their worldwide income or the revenue generated in Malta.

Our law firm in Malta can offer detailed information about the tax legislation applicable in this country, including on how dividend payments are taxed based on the residency of the company and their shareholders. We also invite you to talk to our lawyers if you are interested in starting a business here.

How is the dividend tax in Malta applied?

Companies are subject to the dividend tax in Malta based on two different criteria: residency and domiciliation. Companies that are resident and domiciled in Malta will be applied the income tax on the global income and capital gains.

Foreign companies are considered residents if they have a management board in Malta. They will be taxed as residents but not domiciled companies. Non- resident companies making profits in the country will be applied the same dividend tax as resident companies. Maltese non-resident companies distributing dividends to its shareholders may also apply for tax refunds.

The dividend tax rates in Malta

The corporate tax rate in Malta is 35%, so shareholders will be subject to the same tax on the dividends they receive. However, the tax rate may be reduced due to Malta’s double taxation agreements, but also if certain types of legal entities are opted for. Among these, the participation exemption that applies to dividends received by a Maltese resident and domiciled company and which are considered part of its chargeable income. Dividends received from participating holdings, however, are not required to appear in their annual tax returns. This way, the dividends of the holding company will be deducted from the chargeable income by legal omission.

The Maltese dividend tax based on the source of income

As mentioned earlier, the taxation of dividends occurs, just like in the case of the taxation of profits, on the source of income of the taxpayer. It is important to note that under the legislation in this country, dividends derived from an untaxed account will be exempt from taxation in Malta. However, residents of Malta receiving dividends from local companies will be imposed a 15% withholding tax on that income.

When it comes to non-resident shareholders, whether natural persons or corporate ones, these will not pay the dividend tax in Malta, or better said, they are exempt from the withholding tax.

Another important aspect to consider in respect to the dividend tax is that under Malta’s double tax agreements, any tax applied to companies, including the dividend tax, which has been paid in a foreign company’s home country will not be taxed again in Malta. However, in the case of natural persons acting as shareholders in the respective company, they can be subject to the withholding tax imposed on receiving payments from the distribution of those dividends.

Dividend payments and the participation regime in Malta

As a member of the European Union, Malta has incorporated the participation exemption regime applicable to holding companies in its national legislation. The income derived from dividend payments earned by companies are also subject to this regime which provides for many advantages for those who set up such companies here.

Under the participation exemption regime, a Maltese resident company will consider the dividend payments as chargeable income and thus it will benefit from a reduction of the corporate tax for the amount of money distributed as dividends. In order to qualify for this regime, a Maltese company must fulfill certain conditions, among which the company is required to hold at least 5% of the shares in the holding distributing the dividends. Another condition is for the holding company to be registered in another EU country and for the Maltese company to earn below 50% of the passive income from interests and royalties from that company, or it must be subject to a minimum rate of 15% as a withholding tax in the country of origin of the parent company in order to be exempt from taxation in Malta.

In order to fully understand how dividend payments are taxed in Malta and how to benefit from the full imputation and refund tax system, our lawyers are at your disposal with detailed information. 

The full tax refund in Malta

If a resident and domiciled company in Malta distributes dividends derived from a participation holding, the shareholders are allowed to file for a full tax refund with the Maltese Inland Revenue Department (IRD).  In order to qualify for a participating holding, a company must meet certain requirements.  Also, in order to benefit from the full tax refund, companies must meet some demands, such as being registered in an EU country and the corporate tax paid by the company in the foreign country must be at least 15%.

Tax refunds for foreign shareholders of Maltese companies

Foreign shareholders receiving dividends from Maltese companies are allowed to claim refunds on the respective tax. They can claim them from the income allocated to the Maltese taxed account (MTA) or from the foreign income account (FIA). Refunds can be requested under the following circumstances:

• -          from a company incorporated under the Maltese Companies Law,
• -          companies registered outside Malta but managed in Malta,
• -          from Maltese branches of foreign companies.

Both resident and non-resident shareholders can apply for one of the following refunds:

• -          6/7ths of the Maltese tax,
• -          5/7ths of the Maltese tax,
• -          2/3rds of the tax paid in Malta by a foreign company,
• -          full refund on the tax paid in Malta by a foreign company.

The taxation system in Malta grants many benefits to foreign investors. You can contact our law firm in Malta for information about company incorporation or redomiciliation. You can also rely on us if you plan on starting a business in Malta and need assistance during the registration and licensing procedures.