Foreign investors who open companies in Malta are mainly attracted by the country’s taxation system. However, they can also benefit from other tax incentives in Malta, through their companies or as shareholders in these businesses.
In order to benefit from these incentives, foreign business owners are recommended to work with accounting firms in Malta. These can assess the companies and create reports based on which they can obtain the various tax incentives available. Our accountants in Malta can also prepare the paperwork related to applying for these tax incentives.
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What are the tax incentives available in Malta?
The Maltese taxation system is a very flexible one, however, in order to fully benefit from it and the incentives granted by various agencies, a company should know these incentives and whether they qualify for them.
Here are the main tax incentives available in Malta at the moment:
- the tax refund which is applied on the corporate tax which is charged at a standard rate of 35%;
- the participation exemption which applies to holding companies which meet certain requirements;
- the double taxation relief which is available under Malta’s network of agreements for the avoidance of double taxation;
- the High Net Worth Individuals schemes which are available for foreign citizens who take up residence under various relocation schemes;
- the company re-domiciliation scheme which was enabled in 2002 and under which a foreign company can relocate to Malta and continue its activities here;
- incentives on investment under the Malta Enterprise Act, Business Promotion Act, and Business Promotion Regulations.
Below, our tax advisors in Malta explain each of these programs. Also, you can rely on us for assistance in applying for those incentives which suit your business.
The tax refund scheme in Malta
The most popular tax incentive available for companies in Malta is the tax refund which also gives the uniqueness of this country’s taxation system.
This incentive applies to the distribution of dividends paid by a Maltese company to its shareholders who are entitled to obtain a refund of the tax paid by the company on the profits for which the distribution is made. The refunds consist of:
- the 6/7 refund which is granted on trading activities and which implies obtaining an effective corporate tax rate of 5%;
- the 5/7 refund which is usually granted on income resulted from passive interests, royalties, and participation holdings which do not qualify for the participation exemption and implies a reduced rate of 10%;
- the 2/3 refund which is available for companies claiming double taxation relief; in this case, the refund will be limited to the amount paid as tax in Malta;
- the 100% refund which implies obtaining a full exemption from the corporate tax under the participating holding regime.
The participation exemption in Malta
Another important tax incentive available in Malta is the participation exemption regime which applies in two different situations. The first one implies the participating holding in which a company owns at least 10% of the equity shares in a company which grants the following rights in a minimum percentage of 10 on those shares:
- voting rights;
- the right to profits from their distribution;
- the right to asset distribution if the company is wound up.
The Maltese tax authorities can also grant this tax incentive if the equity holding does not exist, but at least two of the conditions above are met.
The participation exemption also exists when:
- the investment in the foreign company is of 1,164,700 euros for a minimum period of 183 days;
- the Maltese company can acquire the remaining balance of the equity shares in the foreign company;
- the Maltese company has pre-emptive rights over the disposal, the redemption, or cancellation of the remaining equity shares in the company;
- the Maltese company has the right to be part of the Board of Directors in the foreign company;
- the holding of shares in the foreign company is for the continuation of the activity of the Maltese company, but not for trading purposes.
The tax incentive granted under the participation exemption regime refers to the exemption from taxation of the profits derived from the participating holding or the gains resulted from the disposal of the shares.
Under the double taxation relief, Maltese companies can benefit from unilateral or Commonwealth relief, but also from a flat rate foreign credit tax.
Tax incentives under the Enterprise Act in Malta
Even if the Maltese taxation system is unique thanks to the many tax refunds available, this does not stop the government to provide other benefits to those who open companies here. The Enterprise Law also contains several provisions related to industries that can benefit from several incentives.
Among these industries, we can mention all manufacturing-related ones. Maltese companies operating in these sectors can benefit from investment tax credits which can be deducted by businesses on their chargeable income. These credits are calculated in one of the following ways:
- as a percentage of the company’s expenditure on tangible assets (such as real estate) qualifying for the credit;
- as a percentage of the acquisition or development of intangible assets.
Under this scheme, the salary costs associated with the employment of a person can benefit from this incentive for up to two years.
Another important aspect related to investment incentives available for Maltese companies is that the percentage is calculated based on the size of the business and the amount of money qualifying for the deduction.
If a credit cannot be utilized during an entire year, a Maltese company has the possibility of carrying forwards the remaining amount. One of the greatest benefits of the incentives granted under the Enterprise Law is that in certain cases, such as a business’s substantial contribution to the local economy, the credit can be converted into various types of financial aids or grants.
Our accounting firm in Malta is at your service for guidance in applying for the incentives offered by the government or other authorities in this country.
Tax incentives for various industries in Malta
Malta offers plenty of financial benefits to companies registered here and that operate in various industries. Among these, innovation is one of the most appreciated. Companies conducting research and development (R&D) operations can qualify for various tax credits for the expenses related to the development or improvement of various products, processes, or services. However, these companies must meet specific requirements that can be detailed by one of our accountants in Malta.
Creative activities can also benefit from tax credits provided that they bring a significant contribution to the Maltese economy.
If you have any questions about how to access various financial incentives, you can rely on our Maltese accountants for detailed answers and procedures related to how to apply for them.
Special tax credits for small businesses in Malta
Malta is one of the best countries in Europe for starting a small business that qualifies as a micro-enterprise. Such a company can benefit from tax credits for costs related to:
- employee wages;
- machinery and equipment purchases.
Just like in other cases, a micro-enterprise must meet certain eligibility criteria. Our accountant in Malta can offer information on small business qualifying requirements.
If you need any specific accounting service in Malta, do not hesitate to reach out to our specialists.
Employment-related tax incentives in Malta
Malta has one of the lowest unemployment rates in the European Union thanks to the qualified and highly skilled workforce. The government support companies creating jobs or enrolling employees in various training courses through various tax incentives.
The programs under which these are updated or replaced by new ones which are related to the labor market conditions of a specific period of time and Maltese companies qualifying for the criteria required by the Ministry of Economy can benefit from up to 100% of the wage costs associated with the creation of new jobs.
Companies enrolling employees with government-approved training programs can also benefit from deductions related to the chargeable income on the expenditure associated with the organization of the training.
Our accountants in Malta can offer more information on employment-related tax incentives. Apart from these, all types of companies can benefit from payroll services.
Tax incentives for holding companies in Malta
Holding companies benefit from special tax rules in Malta. These can be considered tax incentives as they provide for an exemption from the corporate tax as long the companies meet a few requirements. The participation regime is also available in other EU countries, as it also falls under EU’s Parent-Subsidiary Directive.
A participation holding refers to a company that holds a minimum of 10% of the equity shares in a company (subsidiary) that has the capital divided into shares. The holding company must also respect the following criteria in relation to its 10% participation:
- the shares it holds have voting shares attached,
- it has the right to distribute the profits earned through those shares,
- it has the right to the assets of the subsidiary in case of liquidation.
If in certain cases all the conditions must be met, in others, the Maltese tax authorities may decide that only two of the above-mentioned requirements must be respected.
Other criteria under which Maltese companies can benefit from the participation exemption regime include:
- the holding company invests at least 1,164,700 euros in a non-resident company for a minimum period of 183 days,
- the Maltese-resident holding company has the right to purchase equity shares in the subsidiary,
- the holding company has the right to refuse proposals related to the disposal, cancellation, or redemption of shares in the foreign business,
- the holding company has the right to be on the foreign company’s Board of Directors,
- the shares held in the foreign company are not used for trading purposes, but only for the continuance of the business’ activity.
The profits obtained by Maltese companies meeting these requirements can obtain corporate tax exemptions provided that their subsidiaries are registered in other EU member states. The incentive is also available for Maltese holdings owning shares in non-EU resident companies as long as the latter pays the corporate tax in their home countries at a minimum rate of 15% or no more than 50% of its income comes from royalties or passive interest.
If none of the conditions presented above are met, the holding company can still benefit from this incentive if the portfolio it holds in the foreign company is a non-investment one and if the foreign company pay a withholding tax on royalties and passive interest payments of at least 5% in the country they are obtained.
The Maltese company can also refuse to claim the participation exemption and pay the standard corporate tax, and in exchange, the shareholders in the holding can claim a 100% refund of the tax paid by the business.
The holding company is one of the most flexible tools when it comes to obtaining tax incentives in Malta and for guidance on how to apply for these, our accountants are at your service. Also, should you need advice on the incentives you can claim and the tests to perform, you can ask our Maltese accountants.
Tax incentives for foreign investors in Malta
Malta is one of the most appealing investment destinations in Europe and this is reflected in the large number of projects developed by foreign businesspersons and companies. These can benefit from several tax incentives, among which:
- Malta’s double tax treaties,
- the unilateral tax relief,
- the flat rate foreign tax credit.
Malta has adopted the double taxation relief credit procedure in accordance with the Organization for Economic Co-operation and Development Model Tax Convention. These incentives are available for foreign investors from countries that have double tax treaties with Malta.
The unilateral relief provides for the relief for the foreign tax to Maltese companies and natural persons that make money outside the country and pay their taxes on the respective income in the country they obtained profits in. This incentive is also available for companies that are not registered in Malta but are domiciled here.
The flat rate foreign tax credit is available for Maltese-incorporated businesses that receive income falling under the Foreign Income Account for Maltese Tax Accounting regulations. This income can come from:
- foreign investments,
- rental income,
The tax credit refers to a 25% foreign tax on the amount of money obtained by the Maltese company.
Hight net worth persons who reside in Malta can also benefit from various tax incentives, one of the oldest schemes is the High Net Worth Individuals which is available since 2011.
For detailed information on all the tax incentives available for companies and natural persons, do not hesitate to discuss with our accountants in Malta.
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Other benefits for companies in Malta
The Maltese authorities also provide other incentives that are not related to taxation under the same laws mentioned above. These usually take the form of cash grants and even financial assistance for companies in the tourism sector (hotels and restaurants). Soft loans, loan guarantees, interest rate subsidies, and even childcare day centers subsidies are also part of the non-tax incentives developed by the government for companies in various industries.
If you are interested in a specific incentive, do not hesitate to address your questions to our accountant in Malta.
For complete information on all the tax incentives granted here, do not hesitate to contact our accountants in Malta. We can also help you apply for these incentives.