An Overview of Tax Compliances in Malta

In Malta, the residents are taxed on their worldwide income, whereas the non-residents are taxed on their source income. Personal tax varies from 0-35%. Corporate Income Tax paid by companies is at the rate of 35%. However, the Maltese shareholders can set off this tax against income tax at the time of distribution of dividends. Non-resident shareholders receive a refund of most of the tax, which allows a significant reduction in the effective tax rate. Based on the time of income, the tax can be reduced even to 0-10%. Capital Gains tax is included in the tax base of corporate income tax. VAT is levied at a standard rate of 18%; however, for some goods and services, the tax rate can be reduced to 7% and 5%.

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Different Types of Taxes in Malta

1. Personal Income Tax: Ordinary residents who are domiciled in Malta are taxed on their worldwide income. Whereas non-domiciled residents of Malta are subject to tax on income from Maltese sources and foreign income remitted to Malta other than income from the sale of foreign assets. Further, non-residents are subject to tax on income from sources in Malta. The tax rate in Malta varies based on income level and marital status.

Tax rates for single individuals are as follows:

The minimum income tax payable is EUR 5,000. Further, special tax rates may apply for part-time and overtime work. For highly qualified specialists and specialists employed in innovative industries, there are special residency programs and rules which provide preferential tax regimes. The preferential tax is often levied at a flat rate of 15%. Gains from selling real estate, shares, other securities other than fixed income instruments, business, intellectual property, and interest in a partnership or trust are subject to taxation at the maximum rate for their respective taxpayer. Special rates apply to certain categories of Maltese real estate. Gains from the sale of shares listed on a recognized stock exchange is exempt from tax except in a few cases.

In the case of shareholders, the tax paid by the Maltese company is considered as tax paid by the shareholder of the company. Dividend distributed to the shareholders of the Maltese company is not taxed in the hands of the individual, and any tax paid is credited against the tax paid on the company’s profits. Only domiciled residents pay tax on dividends from foreign companies.

2. Corporate Income Tax: The corporate tax rate is levied at the rate of 35%. Maltese shareholders can get a credit of tax on the distribution of dividends. The tax credit can be adjusted against the income tax of the shareholder. Non-resident shareholders can claim a refund of most of this tax which significantly reduces the effective tax rate. Based on the type of company, tax can be reduced by 0-10%. Tax is levied on the gains from the sale of shares except for gains from sales of shares listed on the recognized stock exchanges. Dividends from one Maltese company to another Maltese company are subject to tax. However, if the distributing company has paid the tax, then there is no further taxation. Under the substantial participation exemption, dividends from foreign sources and profits from the sale of shares are exempt from taxation. The conditions for exemption are:
   1. 5% participation interest; or
   2. Less than 50% of the distributing company’s income must be passive income; or
   3. The company must be resident in an EU member state or be taxed at a 15% rate.
3. Withholding Tax: No withholding tax is levied on income paid to non-residents.
4. Value-Added Tax: VAT is levied at a standard rate of 18%; however, on some goods and services, reduced rates of 7% and 5% are levied.
5. Social Security Contributions: Both employers and employees pay social contributions at the rate of 10% of the remuneration. For salaries exceeding EUR 24,986 per year, social security contributions are paid EUR 48.57 per week.
6. Stamp Duty: Stamp duty is paid on various transactions, especially transactions with real estate. The general rate of stamp duty is 5%, and on marketable securities, a 2% stamp duty is levied.
7. Property Transfer Tax: A withholding tax is levied on real estate transfers at various rates. The general rate for transactions made after 1 January 2015 in respect of Maltese real estate is 15%. The rates vary in different situations.

Tax Reporting in Malta

In Malta, husband and wife can file tax returns jointly. The spouses must mutually decide who among them would be registered as the "responsible spouse". Tax returns, along with self-assessment, must be submitted by the end of June of the year following the basic tax year. The self-assessment is deemed to represent the correct tax position. Penalties are imposed on the late filing of returns.