Malta: Domestic Corporate Taxation
Calculation of Taxable Base
Allowable expenditure needs to be incurred 'wholly and exclusively' for the business; however, mixed private/company expenses can often be apportioned. Expenses can only be offset against the income in whose production they were incurred; they can be apportioned between types of income (losses, however, are transferable between income types). Among others, the following expenses are allowable:
- Repairs and the cost of maintaining the equipment used;
- Interest on capital employed in acquiring income;
- Bad debts and provisions for them;
- Capital allowances: first year 20%, but only 10% for hotels and industrial buildings; wear and tear allowances in future years.
Some types of expense are non-deductible, including:
- expenses incurred prior to production of the income, eg company formation, equity issuance or installation costs;
- charitable contributions (and other spending away of net income);
- capital items.
Unrelieved losses can normally be carried forward indefinitely to offset future profits from whatever source (but only within the overall category of 'foreign-source' or 'local-source' - losses cannot cross that boundary line). Unabsorbed capital allowances however can only be applied to income from the same source.
Foreign-source income is protected against double taxation through 'Commonwealth Relief' which is now hardly ever used, Double Taxation Treaty relief, Unilateral Relief (often applies when Double Taxation relief is not available), and finally a 25% Foreign Tax Credit if all else fails. Only one of these four reliefs is available, and they apply in the order stated. (See also Offshore Legal and Tax Regimes and see below under Withholding Taxes.)
Group relief is available both for income and capital, but with limitations.
NB: This brief summary of some of the more important aspects of Maltese income tax law is given for general information only; it should not be relied upon in actual situations, for which professional tax advice is necessary.