An Overview of Maltese Income Tax
Income tax is charged on income from all sources and on capital gains derived from the transfer of certain capital assets, including property, securities and intellectual property rights. The annual tax liability is calculated on the total income and capital gains of the taxpayer at progressive rates for individuals, with a maximum rate of 35%, and at a flat rate of 35% for companies.
The Income Tax Act also imposes a tax on transfers of immovable property situated in Malta, which is calculated by reference to the value of the property. The property transfer tax rate is 5%, 8% or 10%, depending on the circumstances, and it is payable in lieu of the tax on the profits derived from the transfer.
Persons who are ordinarily resident and domiciled in Malta are subject to tax on their world-wide income and capital gains. Persons who are resident but not domiciled in Malta are subject to tax on income and capital gains arising in Malta and on foreign income (but not foreign capital gains) that is received in or remitted to Malta. Non-residents are subject to tax only on income and capital gains arising in Malta but Maltese law grants to non-residents an exemption from tax on capital gains (excluding gains from the transfer of property situated in Malta or of shares in property companies), interest and royalties (unless they arise from a business carried on through a permanent establishment situated in Malta) and Investment income.
Companies incorporated in Malta are treated as Maltese resident and domiciled persons. Companies incorporated outside Malta but which are managed and controlled in Malta are treated as persons who are resident but not domiciled in Malta.
The taxation of dividends is regulated by the full imputation system which ensures that no further tax is payable by the shareholder when he receives a dividend paid out of taxed profits. Untaxed profits that are distributed to resident individuals are subject to a withholding tax of 15%, but dividends paid to non-residents are not subject to any withholding tax. The payment of a dividend can give rise to a refund of the company tax, or of part of the company tax, to the shareholder.
The Income Tax Act provides for various special schemes, including special rules on trusts, investment income, residence programmes, retirement programmes and the employment of highly qualified personnel.
Malta has concluded about 70 double taxation treaties. As an EU Member State, it has implemented the EU direct tax directives on saving, mergers and interest and royalties. Malta has ratified the Joint Council of Europe/OECD Convention on Mutual Administrative Assistance in Tax Matters and has concluded a number of information exchange bilateral agreements.
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