Download Double taxation relief in Malta

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Double taxation relief in Malta
Due to the fact that Malta has signed over 40 treaties on relief from double taxation, most of which are
based on OECD model , the same income is never taxed twice in two different jurisdictions. Relief from
double taxation is also provided through a single low rate of foreign tax credits, through the release of
income tax applicable to the Commonwealth, and through the unilateral release.
Exemption from income tax in the Commonwealth applies in cases when Malta and another country
have no double taxation relief treaty. This is a limited form of release applicable to the taxes paid in the
countries of the Commonwealth, and it obeys the principle of reciprocity.
The unilateral relief is possible in cases when foreign income tax is charged in the country with which
Malta does not have a double taxation relief treaty, and for which there is no exemption from income
tax of the Commonwealth. The foreign tax is allowed to be used as a credit against the tax suffered in
Malta but such credit shall not exceed the total amount of tax on such income in Malta. When a
taxpayer is a Maltese company that owns more than 10% of the equity shares in a foreign company
paying the dividends, the exemption form the main tax paid is also possible.
In order to get tax exemption under a bilateral agreement, the agreement of the Commonwealth or a
unilateral agreement, the beneficiary of income must show prove to the tax authorities that the income
was earned from foreign sources, and that it was already taxed abroad, as well as provide information
on the amount of tax paid abroad. Single rate of foreign tax credits apply in cases where other forms of
relief from double taxation are not available, including those where there is no evidence of taxes paid
abroad. This type of tax exemption is possible for the Maltese company in receipt of income and / or
capital gains from abroad on the foreign source account Flat rate foreign tax credit is calculated at a rate
of 25% of the amount of foreign income received by the company before deductions. Income plus
credits and minus deductible expenses - this amount is subject to a full Malta income tax of 35% with
the release of the calculated credit.
Example:
Net foreign profit 800 EUR
Flat rate foreign tax credit EUR 200
Gross profit 1,000 EUR
Malta tax at a rate 35% 350 EUR
Less flat rate foreign tax credit (up to 85% of the Maltese tax) (200 EUR)
Tax to pay in Malta EUR 150
Tax refunds to shareholders (2 / 3 of 150) 100 EUR
Net tax to pay in Malta EUR 50
De facto tax rate on net income 6.25%
_______________________________________________________________________________
MaltaVIP Ltd., Registration Number C46176
Tel: +356 99999097 e-mail: [email protected] URL: www.maltavip.eu
Your luxury way to Malta…
This example shows that even without taking into account company expenses corporate tax rate on
profits which is 35% can be reduced to a rate of 18.75% on net profit. After the distribution of dividends
refund schemes and credit systems are used in such a way that, the tax rate is effectively lowered to
6.25% or even less. Transitory conditions are applied for companies registered before 1st of January
2007.
_______________________________________________________________________________
MaltaVIP Ltd., Registration Number C46176
Tel: +356 99999097 e-mail: [email protected] URL: www.maltavip.eu