Maltese companies are taxed at a flat rate of 35% allowing for deductibility of expenses incurred in the production of the income, including interest on debt financing,and allowing unutilized losses to be carried forward unlimitedly to future years. However, under Malta’s tax system, shareholders, irrespective of their residence and upon a distribution of profits, are entitled to claim a refund of tax paid at the corporate level resulting in an effective rate of 5% in case the income is deemed to be active in nature (with the exception of profits derived, directly or indirectly, from immovable property situated in Malta or income which is subject to final withholding tax)
Advisory, consultancy and management fees are deemed to be active in nature and as a result the profits of these licenced entities are subject to an effective tax rate of 5%.
In case the dividend is paid out of profits consisting of passive interest or royalty income which is not derived, directly or indirectly, from a trade or business, where such interest or royalties have suffered foreign tax at a rate which is less than 5%, the effective tax rate will be 10%. The refund is further reduced to 2/3 of the Malta tax paid on the profits from which the relevant dividend was distributed if such profits were allocated to the distributing company’s foreign income account and the company claimed double taxation relief in respect thereof.
The driving factors determining the amount of refund include the nature of the underlying income or activity and the extent form of double taxation relief available to the company resident in Malta.
It should be highlighted that it is the payment of the dividend of the company to the shareholder that triggers off the right of the shareholder to claim a refund of the Malta tax on the profits out of which the dividend is distributed. The refund mechanism is applied across the board, except when the income is derived from immovable property situated in Malta. Refunds are generally paid within fourteen to twenty-one working days from when they become due.