Women in Tax Leaders

Malta
Full imputation system
Although any shareholder of a Maltese company is, in principle, subject to tax in Malta on
any dividends derived from such company, any economic double taxation is relieved through
the operation of a full imputation system of taxation. Consequently, the tax paid by the
Maltese company on the profits that it distributes as a dividend in favour of its shareholder is
credited in full against the Malta tax liability of that shareholder.
The 35% default tax rate applicable to companies is equivalent to the maximum progressive
rate of tax applicable to individuals. Therefore, a dividend distribution received by either
a corporate or a natural shareholder (resident in Malta or otherwise) would typically result in
no further tax payable at the level of the shareholder. In fact, a shareholder that is subject to
tax at a rate lower than 35% may claim a refund of the excess tax paid in Malta at the level of
the company. Many states recognise the fact that Malta is one of the few remaining countries
to operate a full imputation system. Consequently, most of Malta’s tax treaties effectively
enable Malta to continue to operate its full imputation system in a cross-border context.
Tax refund system
Over time, Malta has developed its imputation system to allow for a tax refund mechanism
applicable at the level of the shareholders. A shareholder in receipt of dividends distributed
out of certain profits of a Maltese company can claim a refund of the tax paid in Malta by
such company on those profits.
The amount of the refund to which the shareholder is entitled depends on:
• the nature of the underlying profits out of which the dividend is distributed by the company;
and
• the claiming of double taxation relief by the company on such profits.
In most cases, the refund entitlement of a shareholder would be six-sevenths of the Malta
tax suffered by the Maltese company on the profits out of which the dividend is distributed.
However, this rate may be reduced in the following circumstances:
• Where the profits out of which a dividend is distributed consist of passive interest or royalties,
the refund is reduced to five-sevenths of the Malta tax suffered on those profits.
• A tax refund at the rate of two-thirds of the Malta tax applies to dividends distributed out
of certain profits in respect of which the distributing company has claimed a foreign tax
credit to relieve cross-border double taxation.
On the other hand, a company in receipt of dividends (or gains) derived from an investment
that qualifies as a participating holding may either:
a) elect to apply the participation exemption, in which case such income (or gains) will be
exempt from Malta tax; or
b) include such income (or gains) as part of the taxable income of the Maltese company,
which would entitle its shareholder in receipt of a dividend out of those profits to a full
refund of the Malta tax paid by the company on that income (or gains).
No such tax refunds as those referred to above can be claimed in connection with income
derived, directly or indirectly, from immovable property situated in Malta. In addition, in
certain situations – for example, where the Maltese company is beneficially owned by Malta
resident and domiciled individuals – income derived by said company on which tax refunds
are claimed requires reclassification as investment income and is taxable accordingly.
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