Jurisdiction to Tax

Residence and Source basis of taxation

In addition to a ‘residence ‘and ‘source’ jurisdiction to tax, Malta also adopts the concept of ‘domicile’ as connecting factor this particular facet is common in other jurisdictions whose fiscal framework is derived or significantly influenced by British legislation.  An individual is domiciled wherever he has his permanent home which is defined under common law as where an individual is domiciled wherever he has is permanent home which is defined under common law as where an individuals are similar, what differs and or domiciled in Malta.

Taxation of Companies

Companies which are resident and domiciled in Malta are taxable on their worldwide income. On the other hand, companies which are either domiciled but not resident or resident but not domiciled are taxable on their Malta source income and capital gains and on any foreign sourced income which is received in Malta. Foreign sourced capital gains are not taxable in Malta even if such are received in Malta.

For Maltese income tax purposes a company is resident in Malta if it is incorporated in Malta or if the control and management of the business is exercised in Malta. Although ‘domicile is not defined in domestic legislation it is understood to be country of incorporation. Therefore, when one looks solely at Maltese domestic legislation, a companies which are incorporated outside Malta and have their place of effective management in Malta will be considered resident in Malta and taxable as per above, that is, on any Malta source income and capital gains and on foreign sourced income received in Malta.  Foreign source income which is not received in Malta and any foreign sourced Capital Gains (whether received in Malta or not) are nit taxable in Malta.

Taxation of individuals

The taxation of individuals is based on similar criteria as to taxation of companies, that is, individuals who are ordinarily resident and domiciled in Malta are taxable on their worldwide income. On the other hand, individuals who are either domiciled but not ordinarily resident in Malta or ordinarily resident but not domiciled are taxable on Malta sourced income and capital gains and any foreign source income which is received in Malta. Foreign sourced capital gains are not taxable in Malta (even if received in Malta) for such individuals.

Maltese legislation does not provide a definition of ‘’ordinarily resident’’ but only of them ‘’resident’’, therefore one would need to look at case law to be able to understand what the law is referring to. The term is understood to refer to residence of an individual in the ordinary course of one’s life.

In terms of Malta’s double tax treaties, when an individual is considered to be a resident of both contracting states in terms of Maltese legislation and the legislation of the other jurisdiction which is party to the treaty, one would need to look at the tie breaker rules in articles 4 of the relevant treaty.

For further information contact

  • Antoine Fiott

    Consultant

    Antoine Fiott started his career as a civil servant and worked as deputy registrar at the Law C... More

    T +356 2549 6000

  • Nicky Gouder

    Partner

    Nicky Gouder, tax partner of ARQ Group, completed his Association of Chartered and Certified Ac... More

    T +356 2549 6000

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