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Malta: Domestic Corporate Taxation

Withholding Tax

As regards dividends, Malta operates a full imputation system, but the situation is made quite complicated by the interaction of varying regimes for different types of income. Companies need to maintain three distinct income streams:

  • Foreign Income;
  • Taxed Local Income; and
  • Untaxed Local Income.

Untaxed local income is that received from fiscally-privileged companies of various types, who are allowed to pay untaxed dividends etc, and it can be passed on subject to a withholding tax of 15% or in some cases without any deduction; taxed local income will have borne corporate income tax at 35% and dividends are not subject to withholding tax; foreign income will have been relieved of all or almost all of any tax it has suffered (see above) and will then have borne 35% local income tax - no withholding tax, therefore.

Resident (tax-paying) shareholders have a full 35% tax credit in respect of taxed local or foreign income dividends. Non-resident shareholders can take the tax credit, or they can opt for refunds of either two-thirds or all of the domestic tax paid depending on whether the foreign income came through a 10% participation or not.

NB: This is a highly simplified description of the Maltese withholding tax regime; specialist professional advice is necessary before any action is taken.

Malta's November 2000 budget introduced witholding tax on Collective Investment Schemes. With regard to foreign funds (with a primary or secondary listing on the Malta Stock Exchange), the fund manager or representative must register with the Inland Revenue Department which means that income to the investors in the fund will be subject to a 15% final witholding tax.

Income that goes to local residents from Investment Collective Schemes (either traded on the primary or secondary listings on the exchange) will be subject to tax. This includes distributing funds and accumulator funds.

Further changes made by the budget include tax levied on all government stock bought directly by an investor. However, tax is not levied if the investor invests in an accumulator fund which then reinvests in government stock.

 

 

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