Tax in Malta 2022 | Taxation System | Tax rates

Taxation system in Malta 2022 – Expert Advice

What you need to know about
Tax in Malta 2022

I. Malta tax benefits

Tax advantages in Malta for individuals:

  • For certain invidiuals who are non-Maltese domiciled, generally speaking the Maltese tax authorities are basically interested in the income an individual makes in Malta or on the foreign income remitted to Malta; capital gains can also be remitted without paying tax in Malta in said cases.
  • In Malta the taxation of an individual’s income is progressive – Maltese tax residents pay up to 35% tax on income and are entitled to tax deductions.
  • Individuals do not pay taxes on inheritance, gift, property, capital.
  • Tax breaks under various Maltese residence schemes.

Corporate tax advantages in Malta:

  • The corporate income tax rate for a trading company incorporated in Malta is 35%. However, the effective tax rate incurred by a registered shareholder could be lowered significantly if a refund is claimed upon the distribution of dividends by such company.
  •  Maltese IP companies deriving royalty income are subject to numerous tax benefits.
  •  Maltese iGaming and iBetting companies enjoy very low gaming taxes and license fees.
  •  Malta Shipping and Aviation Companies enjoy fiscal and non-fiscal benefits.
  •  Malta has second lowest VAT rate in EU.
  •  Various government tax incentive schemes: tax incentives for foreign investors in Malta, investment tax credits, special tax credits for small businesses, employment-related tax incentives, etc.

You can find more information about Malta tax incentives by following the link: Business Sectors in Malta

II. Indirect taxes in Malta

Taxes that are collected by an intermediary, on behalf of a fiscal authority, from the person who ultimately bears the economic burden of the tax. Such taxes typically increase the price of goods and services for the ultimate consumer, that’s why they are referred to as indirect taxes.

VAT:

The tax is charged, levied, and collected on behalf of the Government upon:

  • every supply of goods and services that takes place in Malta for a consideration by a taxable person acting as such, subject to certain exceptions;
  • every intra-community acquisition (ICA) of goods made in Malta; and
  • every importation that takes place in Malta.

Malta has the second lowest standard VAT rate in the EU of 18%. This tax rate applies for all transactions that take place in Malta, unless an exception applies (such as a reduced rate – 7% or 5%, the zero rate or an exemption, or a reason to treat the transaction as outside scope of VAT).

Import duty:

Customs duty tax is paid for by companies importing products from outside of the EU, and individuals as well. Import duties are administered by the Comptroller of Customs. The law provides for a number of exemptions, including exemptions on temporary importations.

Excise duty:

Excise duty tax is chargeable on excise goods produced in or imported into Malta. The rate of excise duty depends on the type of good which is subject to excise. These include certain alcoholic beverages, certain manufactured tobacco items, chewing gum, plastic sacks and bags, toiletries and washing preparations, certain energy products, mobile telephony services, cement, pneumatic tyres, certain ammunition cartridges, construction components and other fixtures.

Stamp duty:

The legislation that applies to Stamp Duty tax in Malta is the Duty on Documents and Transfers Act. The tax is applicable on particular documents including certain policies of insurance and transfers of particular assets such as immovable property and securities whether on death or otherwise. Maltese legislation also provides for the possibility of a stamp duty exemption in a number of instances, subject to the satisfaction of certain conditions.

A motor vehicle registration tax:

The tax in Malta is imposed on the registration of every motor vehicle (new or used) imported into Malta by a Maltese resident. The rates vary with the amount of CO2 emissions, particulate matter, age and value of the particular car.

Fuel bunkering tax:

Tax per metric ton is charged on the bunkering of certain fuel oils used for ships and their machinery and supplied free from customs and other duties. The payment of the tax is due immediately upon the release of the fuel from the bonded installation, marine terminal or marine facility on the quantity of fuel measured or calculated by Customs as having been released.

Eco tax contribution:

Eco contribution on accommodation is an environmental contribution measure to generate funds for general infrastructural improvements and to improve the kind of tourism offered by Malta.

III. Direct taxes in Malta

Direct taxation contrasts with an indirect tax, which is imposed on a transaction and paid to the government by the firm after the good/service has been bought, direct tax is a type of tax which is paid for by an individual or organization directly to the government, normally collected via the VAT registered person.

Maternity Fund & Social Security Contributions

In Malta, the Social Security Rate (also known as National Insurance) is a tax related with labour income charged to both companies and employees.

Employers are required to pay tax at the rate of 10% of the individual employee’s salary and at fixed rates, for calendar year 2022, of EUR 49.97 per week for annual salaries exceeding EUR 25,258.48, in the case where the employee is born on or after 1 January 1962. The employee is also required to pay an equivalent weekly amount.

The rates of social security generally increase annually and take effect from the commencement of the calendar year in question.

Employed Individuals:

SSC amount to 10% of the employee’s basic weekly wage, payable by both the employee and the employer, subject to a minimum and maximum contribution. The maximum contribution varies depending on the age of the insured person as follows:

  • For employees born before 1 January 1962, the current maximum weekly contribution is EUR 37.90.
  • For employees born on or after 1 January 1962, the current maximum weekly contribution is EUR 49.97.

Self-employed individuals:

SSC amount to 15% of the self-employed/self-occupied person’s annual net income earned during the previous year and are also subject to a minimum and maximum contribution. The maximum contribution varies depending on the age of the person as follows:

  • For persons born before 1 January 1962, the current maximum weekly contribution is EUR 56.85.
  • For persons born on or after 1 January 1962, the current maximum weekly contribution is EUR 74.96.

Income Tax in Malta

Determine what income and capital mean and how to distinguish between the two:

This point is extremely important as classifying a receipt as a gain of a capital nature may leave such profits or gain outside the tax net.

How do we distinguish between income and capital?

Income flows from capital – capital is static/permanent, income has the nature of recurrence.

When the source of income is sold any receipt derived from such sale is of a capital nature.

For example, a house owned as an investment is held as a capital asset, rent derived from such a house is considered to be income (rental income). If the said house owned as an investment is sold at a profit the seller would derive a capital gain and not income.

Gains derived from the sale of stock in trade constitute income; gains derived from the sale of fixed assets are of a capital gains nature.

Jurisdiction to income tax:

Malta assesses jurisdiction to tax on the basis of territoriality (Malta source income), ordinary residence and domicile (personal connections with Malta) ‐ Article 4 (1) Income Tax Act (ITA).

The scope of income tax Malta:

Source – arising in Malta.

Individuals ‐ Residence, Temporary Residence, Ordinary Residence, Domicile.

Companies ‐ Residence, Domicile.

Source jurisdiction:

“Income tax shall be payable at the rate or rates specified hereafter …accruing or derived from Malta or elsewhere, and whether received in Malta or not” ITA, Article 4.

Income which arises in Malta (is sourced in Malta) is taxable in Malta irrespective of the ordinary residence and domicile of the person who receives it. Therefore, generally speaking Malta imposes tax on all income and capital gains arising in Malta even if this income is derived by a person who is neither resident nor domiciled in Malta. This rule however at times does not apply when a double taxaton treaty or specific legislation exempts certain types of income/gains arising in Malta.

For income tax purposes in Malta, determine when income is deemed to arise in Malta.

Income is deemed to arise in Malta – basic rules:

  • If the activities which generate the income occur in Malta;
  • “Trade in” versus “Trade with” Malta;
  • Substantial link with Malta – Permanent establishment; (A non‐resident person who trades with Malta is not subject to tax in Malta. However a non‐resident person who trades in Malta will have income arising in Malta on which he is liable to pay tax in Malta.);
  • Income from immovable property – if immovable property is situated in Malta;
  • Income from services and employment income – if physically carried out in Malta;
  • Passive income such as dividends & interests – if the payer is resident in Malta;
  • Income from intangible assets – if exploited in Malta; and
  • Income from disposal of tangible property – if the property is situated in Malta.

Income is deemed to arise in Malta – special rules:

  • Profits derived by agricultural and manufacturing activities – general rule – income derived from the sale or products grown or produced in Malta – taxed in Malta (even if sold outside Malta. However, if CIR is satisfied that the profit has increased through treatment of the product outside Malta – profits deemed to arise outside Malta;
  • Profits derived by non-resident ship owners from the carriage of passengers, mails, livestock or goods ‐ A 28, ITA – Taxable in Malta where Malta is the port of call;
  • Profits derived by cable and wireless undertakings – Taxable in Malta where Malta is the host;
  • Profits derived from international air transport of passengers (i.e. Ownership, leasing or operation of the international air transport of passengers) – Not taxable in Malta even if operated from airport in Malta;
  • Profits derived by non‐residents through agents resident in Malta – A 5, ITMA ‐ When a non‐resident person derives profits in Malta through an agent (basically any person in Malta acting for and on behalf of the non‐resident person), such profits derived by the non‐resident are taxable in Malta and the non‐ resident is chargeable and assessed to tax in the name of his Maltese resident agent; and
  • Profits derived by non‐residents through agents resident in Malta – A 5,

To distinguish:

  • Dependent agent who concludes contract for and on behalf of non‐resident principal – non‐resident is taxable in Malta in the name of the resident agent;
  • Independent agent who concludes contract in his own name and for his own behalf ‐ non‐resident is not taxable in Malta.

Types of Residence & Domicile for Malta taxation:
for INDIVIDUALS:

Residence:

The definition in Article 2 of the ITA is not very clear and does not establish any specific conditions and circumstances which determine whether an individual is resident in Malta or not. It simply requires that the individual is physically present in Malta. The reference to temporary absence implies that even if an individual is physically present for regular periods of time, the fact that he is absent (temporarily), he is still deemed to be resident for tax purposes. The period of temporary absence is not specified in the Act.

Temporary residence:

Temporary residents are persons that satisfy all the three conditions: are in Malta for a temporary purpose only; and are in Malta not with any intent to establish their residence; and have not actually resided in Malta for a period of six months (or more) in one calendar year.

Tax implications: not taxable in Malta on income arising outside Malta, even if remitted to Malta; generally taxable in Malta only on income arising in Malta.

Ordinary residence:

Requires an individual to reside in Malta for some period of time (a physical presence test: no. of days in a country > 183 days in a year); does not mean residence in a single year but it means residence as a regular status in the ordinary course of one’s life; If a person comes to Malta and stays here for more than six months in one year then he will be resident in that year but if he does that regularly than he would be treated as being ordinary resident in all those years; a person can be a resident of Malta without being ordinarily resident.

Domicile:

Legalistic concept: a person is domiciled in the country where he has his permanent home; it is residence in a country with the intention of residing permanently in that country; unitary concept ‐ a person can have only one domicile at a particular point of time; domicile is about act (staying in a country) & intention (of never leaving that country).

Three types of domicile:

1.Domicile of Origin:

  • Domicile of origin is the strongest (hardest to rebut) domicile of an individual.
  • Domicile of origin of an individual is the place of birth of the individual or the domicile of his father.
  • Where the two differ it is the domicile of the father that determines the domicile of origin.

2. Domicile of Choice:

  • This involves an individual showing that he has a stronger connection with a country other than that of his domicile of origin.
  • A domicile of origin remains in force until a domicile of choice overrides it. Additionally, the domicile of origin clings tenaciously to the individual – it may be placed in abeyance but it can never be destroyed. To the end of his life, a man’s domicile of origin retains its capacity for revival.
  • Whoever alleges a change in domicile must prove it and there is a presumption in favour of the continuance of an existing domicile.

3. Domicile by Operation of the Law:

  • This is domicile imposed by law.
  • The best example of this is where you have minor children. An infant’s domicile is that of its parents and changes when the parent’s domicile changes.
  • Another example is that of a married woman. A married woman in Malta generally takes the domicile of her husband, in theory even when legally separated.

Tax liability depends on whether the individual or entity deriving an income is domiciled and/or ordinarily resident in Malta.

Residence and domicile determine whether:

  • An individual is subject to tax in Malta
  • On what types of income / gains he is subject to tax in Malta

Resident & Domiciled
an individual who is BOTH ordinarily resident and domiciled in Malta is:

  • Subject to tax on a world‐wide basis
  • Subject to tax in Malta on his worldwide income whether or not such income is remitted to Malta.
  • Taxable on capital gains derived in Malta and on capital gains which arise abroad (Capital gains arising abroad are still taxable in Malta even if the gain is not remitted to Malta.)

Resident & Not domiciled
an individual is ordinarily resident but not domiciled in Malta:

  • Subject to tax in Malta on a remittance basis
  • Taxed on income and gains arising in Malta
  • Taxed on any foreign sourced income arising outside Malta only if remitted to Malta
  • Not taxed on income which arises abroad which is not remitted to Malta
  • Not taxed on capital gains arising abroad (even if remitted to Malta

Not ordinarily resident & Domiciled
an individual is domiciled but not ordinarily resident in Malta:

  • Subject to tax in Malta on a remittance basis
  • Taxed on income and gains arising in Malta
  • Taxed on any foreign sourced income arising outside Malta only if remitted to Malta
  • Not taxed on income which arises abroad which is not remitted to Malta
  • Not taxed on capital gains arising abroad (even if remitted to Malta)

Not resident & Not domiciled
an individual who is not resident and not domiciled in Malta:

  • Taxable in Malta on income & gains arising in Malta
  • Not taxable in Malta on income arising outside Malta, even if remitted to Malta
  • Taxable in Malta only on a source basis

An individual is either not resident in Malta or not domiciled in Malta and whose spouse is ordinarily resident and domiciled in Malta
such individual shall be subject to Maltese income tax on his/her worldwide income.

Types of Residence & Domicile for Malta tax rates: for COMPANIES:

Residence:

All companies incorporated in Malta are deemed to be resident in Malta for tax purposes regardless of where management and control is exercised.  Therefore a company which is incorporated in Malta will always be deemed to be tax resident in Malta even if managed & controlled outside Malta.

A company incorporated outside Malta is resident in Malta when management and control is exercised in Malta

Indicators when Management and Control is exercised in Malta:

  • Directors are resident in Malta
  • Head office of the company is located in Malta
  • Minutes of the board meeting show that most important decisions were taken in Malta
  • Management decisions were taken in Malta
  • Company operates a Maltese bank account
  • Financial Statements are audited by a Maltese auditor
  • In the case where the Maltese directors are a sham (puppet directors) and the directors in Malta are only rubber stamping decisions taking outside Malta, then the company is deemed to be managed & controlled outside Malta as the decisions are being taken outside Malta.

Domicile:

A company is domiciled in the country where the company is incorporated.
All companies incorporated under the laws of Malta are deemed to be domiciled in Malta.

Resident & Domiciled

Companies incorporated in Malta and managed and controlled in Malta:

 Subject to corporate tax in Malta on their local and foreign sourced income and capital gains – world‐wide basis of taxation

Company incorporated in Malta and managed and controlled outside Malta:

 Subject to corporate tax in Malta on their local and foreign sourced income and capital gains – world‐wide basis of taxation

Companies incorporated outside Malta which are managed and controlled in Malta:

  • Subject to tax in Malta on a remittance basis
  • Subject to tax on income and gains which are derived in Malta
  • Subject to tax on foreign sourced income remitted to Malta
  • No tax on foreign sourced income which is NOT remitted to Malta
  • Exempt from tax on gains which arise outside Malta irrespective of whether such gains are remitted to Malta

Not resident & Not domiciled

Companies not incorporated in Malta and not managed and controlled in Malta: 

  • Subject to tax on a source basis
  • Subject to tax on income and gains which are derived from Maltese sources
  • Foreign sourced income and gains are not subject to tax in Malta even if the income and gains are remitted to Malta

Tax brackets Malta: Income Tax

Personal Income Tax:

Progressive tax rates are imposed on both resident and non-resident individuals in Malta.

Tax rates for single individuals are:

€0 – €9,100 at 0% with no subtraction

€9,101 – €14,500 at 15% with a €1,365 subtraction

€14,501 – €19,500 at 25% with a €2,815 subtraction

€14,501 – €60,000 at 25% with a €2,725 subtraction

€60,001 – at 35% with a €8,725 subtraction

 

Tax rates for married couples are:

€0 – €12,700 at 0% with no subtraction

€12,701 – €21,200 at 15% with a €1,905 subtraction

€21,201 – €28,700 at 25% with a €4,025 subtraction

€28,701 – €60,000 at 25% with a €3,905 subtraction

€60,001 – at 35% with a €9,905 subtraction

 

Tax rates for parents are:

€0 – €10,500 at 0% with no subtraction

€10,501 – €15,800 at 15% with a €1,575 subtraction

€15,801 – €21,200 at 25% with a €3,155 subtraction

€21,201 – €60,000 at 25% with a €3,050 subtraction

€60,001 – at 35% with a €9,050 subtraction

 

Tax rates for non-residents are:

€0 up to 700 – 0% with no subtraction

€701 up to 3,100 – 20% with a €140 subtraction

€3,101 up to 7,800 – 30% with a €450 subtraction

€7,801 and over – 35% with a €840 subtraction

Corporate Tax:

A corporate company in Malta is taxed at 35% on chargeable income.

However, Malta is the only EU member state which enjoys the Full Imputation System.

In such tax regime, the shareholders of a company are entitled to a tax credit amounting to the tax paid by the company upon distribution of profits.

This credit scheme is eligible for both residents and non-residents and is compliant with the EU.

Double taxation relief under Maltese law

Maltese law envisages four different mechanisms for the relief of double taxation of foreign-source income:

Treaty relief: Malta has an extensive network of double taxation treaties, the majority of it are based on the Organisation for Economic Cooperation and Development Model.

Commonwealth relief: this relief applies only if treaty relief is not available. Commonwealth Relief is applicable on a reciprocal basis to relieve taxes paid in Commonwealth countries other than the UK.

Unilateral relief: when treaty and commonwealth relief are not available, it is possible to claim unilateral relief, Malta allows such relief where overseas tax is suffered on income received from a country with which Malta does not have a tax treaty.
The overseas tax suffered is allowed as a credit against the tax chargeable in Malta on the gross amount.

Flat Rate Foreign Tax Credit: FRFTC is available to Maltese companies which receive income or capital gains from overseas allocated to its Foreign Income Account.
A certificate from the auditor stating that the income falls to be allocated to the Foreign Income Account is sufficient for this purpose.
FRFTC is equivalent to 25% deemed tax suffered on the net amount receivable and is to be added to such amount. From this aggregate amount, attributable expenses are deducted to arrive at the chargeable income.The chargeable income is taxed at 35%, but the amount of FRFTC is deducted from such an amount.
The FRFTC is limited is limited lower of the 25% credit and 85% of the Maltese tax due before deducting the credit itself.

The following is an illustrative example of how FRFTC works:

Double taxation relief under Maltese law

The FRFTC can be applied alongside the 2/3rds refundable tax credit providing some efficient tax structures.
The above FRFTC example is not optimized, and there is the possibility in terms of law of optimizing the FRFTC computation when the FRFTC deduction is curtailed due to the size of the expenses beign claimed.

The system therefore, sees shareholders of a Maltese company, able to claim back 6/7ths of tax paid on the profits earned from trading activities and 5/7ths on passive interest and royalties.

If the company claims double taxation relief on foreign tax already suffered, the tax rate can be further reduced to 0%.

Refunds to shareholders in this case will amount to 2/3rds  on the gross amount (before relief).

You can find more information about this Malta tax regime by following the links: Malta Holding Company Advisory – Taxation And Business Structuring

Griffiths + Associates tax team provides advice and assistance on all aspects of Malta taxation system, including income tax, capital gains tax, stamp duty and VAT in relation to companies, partnerships, trusts, foundations, non-profit organizations and individuals.

Griffiths + Associates is the sole Maltese representative member firm of PrimeGlobal, one of the top five largest associations of independent accounting firms in the world. This adds value to the servicing of client’s needs within an international perspective as a significant part of our tax advisory services relate to cross-border transactions. With such cooperation and support, we develop the most tax-efficient solutions and opportunities for any international clients.

Our tax team can assist clients with:

  • the tax benefits and implications for Malta companies and their shareholders as a result of Malta’s full imputation and refundable tax credit system and double taxation relief with a view to achieving an optimal Malta tax exposure;
  • the tax optimization for joint ventures, cross-border mergers, and companies re-domiciling to Malta;
  • the VAT registration process: we guide you through the different types of VAT registrations possible and compile and submit the necessary VAT related documents to ensure that periodic VAT returns and other required submissions are duly completed and filed appropriately with the relevant authorities in a timely manner;
  • the VAT rules and benefits in lease structures for yachts and aircraft;
  • the Malta tax treatment for retirement schemes;
  • tax status and benefits for high-net-worth individuals and retirees who take up Maltese tax residency;
  • tax status as highly qualified persons for Malta-based senior executives in the financial services, gaming and aviation sectors; and
  • family office structuring and the tax treatment of trusts and foundations, including their use for private purposes and for commercial transactions.

We can also assist clients with advice in relation to stamp duty and customs, and excise duty.

Our company’s mission – to provide quality financial services to our esteemed local and international clients, keeping their needs at the centre of our ethos; going the extra mile to efficiently and effectively assist them in growing and fulfilling their business and personal needs.

Peter Griffiths – Managing and Tax Director
Peter Griffiths
Managing and Tax Director, Griffiths + Associates
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