The Maltese taxation system is based on England’s taxation system. The Income Tax Act in Malta distinguishes between the taxation of income and capital and between their sources. Given Malta’s full imputation tax system, companies and shareholders receiving dividends can take advantage of the credit taxes amounting up to the tax applied to the profits dividends are paid from.
Companies are subject to the dividend tax in Malta based on two different criteria: residency and domiciliation. Companies that are resident and domiciled in Malta will be applied the income tax on the global income and capital gains.
Foreign companies are considered residents if they have a management board in Malta. They will be taxed as residents but not domiciled companies. Non- resident companies making profits in the country will be applied the same dividend tax as resident companies. Maltese non-resident companies distributing dividends to its shareholders may also apply for tax refunds.
The corporate tax rate in Malta is 35%, so shareholders will be subject to the same tax on the dividends they receive. However, the tax rate may be reduced due to Malta’s double taxation agreements, but also if certain types of legal entities are opted for. Among these, the participation exemption that applies to dividends received by a Maltese resident and domiciled company and which are considered part of its chargeable income. Dividends received from participating holdings, however, are not required to appear in their annual tax returns. This way, the dividends of the holding company will be deducted from the chargeable income by legal omission.
If a resident and domiciled company in Malta distributes dividends derived from a participation holding, the shareholders are allowed to file for a full tax refund with the Maltese Inland Revenue Department (IRD). In order to qualify for a participating holding a company must meet certain requirements. Also, in order to benefit from the full tax refund, companies must meet some demands, such as being registered in an EU country and the corporate tax paid by the company in the foreign country must be at least 15%.
Foreign shareholders receiving dividends from Maltese companies are allowed to claim refunds on the respective tax. They can claim them from the income allocated to the Maltese taxed account (MTA) or from the foreign income account (FIA). Refunds can be requested under the following circumstances:
Both resident and non-resident shareholders can apply for one of the following refunds: