Exit Taxes in Malta

Exit Taxes is not an unknown term to most countries, however until the implementation of the EU’s Anti-Tax Avoidance Directive (ATAD) which lays down rules against tax avoidance practices that directly affect the functioning of the internal market, exit taxes were not contemplated in Maltese domestic law.

As from 1st January 2020, regulations relating to exit taxation will come into force in Malta. What does this mean for Malta and who will be affected by this?

The implementation of ATAD applies to all companies as well as other persons or body of persons who are treated as companies for tax purposes in Malta. These regulations are also applicable to persons or bodies of persons who are not resident in Malta but are deemed to have a permanent establishment in Malta which is subject to tax in Malta as a company. The new exit tax rules will ensure that Malta can impose tax on the economic value of any capital gain arising in Malta even if that gain has not yet been realised at the time of exit.

This applies to both the movement of assets as well as the change in tax residence from one jurisdiction to another.A taxpayer will be subject to an exit tax on unrealised capital gains in the following situations:

• When a transfer of assets is made by a taxpayer from its head office in Malta to its permanent establishment in another EU Member State or in a third country and where Malta no longer has the right to tax such capital gains from the transfer of such assets as a result of the transfer;
• When a transfer of assets is made by a taxpayer from its permanent establishment in Malta to its head office or another permanent establishment in another EU Member State or in a third country and where Malta no longer has the right to tax such capital gains from the transfer of such assets as a result of the transfer;
• When a transfer of tax residence of a taxpayer takes place from Malta to another EU Member State or to a third country, apart from those assets which remain effectively connected with a permanent establishment in Malta;
• When a transfer of the business carried out by its permanent establishment of a taxpayer takes place from Malta to another EU Member State or to a third country and where Malta no longer has the right to tax such capital gains from the transfer of such assets as a result of the transfer.

These rules have been put in place to ensure that taxpayers do not benefit from the opportunity of reducing their taxes simply by moving residence, assets or businesses to a lower tax jurisdiction.

The exit tax will be payable by the tax return date, however depending on the destination of the assets which are subject to exit taxation, a taxpayer may have the right to defer such exit tax payment by paying it in instalments over 5 years. This deferral would be subject to interest and possibly a guarantee against the risk of non-recovery.

If you would like more information on this topic, please get in touch on [email protected]