Business Services Overview
Setting up a
business in Malta
Malta operates the ‘full imputation’ system of taxation so that any tax
paid by the company is imputed to the shareholder in the event of a dividend
distribution. The tax withheld by the company from the dividend it
distributes is, therefore, no more than a payment on account of the
shareholder’s own liability.
Income Tax is the only tax imposed on the profits of companies. The
standard rate of income tax is 35% of taxable income, which is the net
profit (accounting profits) as reported in the companies’ audited financial
statements, subject to certain adjustments. All expenses incurred wholly and
exclusively in the production of the income are considered deductible.
In order to determine a company’s taxable income, the following
adjustments need to be taken into consideration:
Wear and tear allowances are calculated using the straight-line method,
and are distributed over the minimum number of years based on the following
schedule prescribed by Law.
* A ceiling of EUR6,988.12 on the cost of non-commercial motor vehicles
Unabsorbed tax depreciation may also be carried forward indefinitely, but
may offset only income derived from the same source.
A company that is part of a group of companies may surrender losses to
another member of the same group. Companies are considered to be members of
the same group of companies, for tax purposes, if they are resident in Malta
and not resident in any other country for tax purposes, and if one of the
companies holds 51% shareholding in the other or a third company (also
resident in Malta) holds more 51% shareholding in both companies.
(The group company surrendering the losses and the group company
receiving the losses must have accounting periods that begin and end on the
same dates except for newly incorporated companies and companies put into
Tax losses incurred in a trade or business may be carried forward
indefinitely to offset against all future income.
Malta's full imputation system of taxation and the refund of tax
provisions contained in its fiscal legislation make Maltese companies
potentially tax efficient vehicles, depending on the shareholder’s tax
treatment in its country of residence. Whilst Maltese companies are taxed at
the full rate of 35%, shareholders registered with the Inland Revenue
Department may qualify for substantial refunds of the Malta tax paid by the
company in respect of those profits allocated to the Foreign Income Account
and the Malta Taxed Account. Such refunds may only be requested by
shareholders subsequent to the settlement by the company of its Malta tax
liabilities and the distribution of a dividend by the company, and are
payable by the Inland Revenue Department not later than the fourteenth day
following the end of the month in which the refund becomes due.
Personal income tax is paid on all income tax accruing in or derived from
Malta and on income accruing in or delivered from abroad by persons
domiciled and ordinarily resident in Malta.
Income arising outside Malta to a person who is not ordinarily resident
in Malta or not domiciled in Malta will be taxed only if it is received in
Malta. Expatriate employees are not considered to be ordinarily resident in
Malta if they do not work or reside in Malta for more than 182 days in any
one year. Foreign personnel working in Malta in possession of a work permit
are taxable only on their income arising in Malta. The rules that apply to
local residents apply also to foreign personnel working in Malta.
Individuals are charged tax at progressive rates that reach a maximum of
35% on their gross income less any allowable deductions. The system is that
of filing an income tax return together with a self assessment of Income Tax
due. The period within which this Income Tax Return and Self Assessment form
is to be submitted is within 6 Months from the date of commencement of the
Year of Assessment.
There are two different sets of progressive rates, namely those for
Married Couples (who submit a joint calculation of income) and those for
Single Persons (also applicable to married persons who opt to submit a
separate calculation of income and are therefore taxed separately). Our
office will be happy to provide you with any guidance that you may require
in respect of your personal status for the purposes of taxation in Malta.
Income Tax due on income from employment is collected through a system
known as Final Settlement System (“FSS”) whereby the employer has a duty to
deduct any income tax chargeable on each employee’s monthly income, and has
the responsibility to remit to the Commissioner of Inland Revenue (“CIR”)
any deductions made within one Month from the end of the month during which
the deduction was made. This system allows for all income tax due on
employment income to be collected on a monthly basis.
Withholding tax at the rate of 15% is charged on Interest Income which is
considered to be the final tax to be paid on such income. However, the tax
payer has the option to opt in or out of the system of withholding tax. If
no withholding tax is deducted, the tax payer would then have to include
Interest Income in the Income Tax Return and Self Computation, to have this
income taxed at the appropriate rates. (This option is usually adopted by
persons whose yearly income does not exceed the tax free ranges)
Income Tax due on any other income (such as rent), which is calculated on
the income tax return is due to be paid to the CIR together with the
submission of the same return.
Employers and employees each must pay Social Security Contributions
(“SSC”) equivalent to 10% of the weekly salary of the employee (to a maximum
Once the 10% of the weekly salary of the employee is calculated, it is
multiplied by the number of weeks in the particular month, which is
determined by the number of Mondays for the month (4 Weeks or 5 Weeks for a
total of 52 weeks in one year). The result will be the value of SSC for that
The employer will then deduct the value of SSC for that month from the
employee’s salary which represents the employee’s share, add the same amount
representing his share and submit the payment to the CIR together with the
payment for the FSS deductions (as per the personal taxation section).
Foreign workers, who are not ordinarily resident in Malta are not liable
to pay contributions under the social security scheme if their employer is
already or has opted to pay contributions in respect thereof under a scheme
of social insurance in another jurisdiction.
* The maximum is revised annually depending on any Cost of Living
Adjustments to salaries. The amount of €32.33 is the maximum for 2009.
Given the limited number of residences and available land in Malta, the
accession agreement with the EU allowed for the retention of certain rules
relating to the restriction of acquisition of immovable property in Malta.
These rules are laid down in Chapter 246 of the Laws of Malta, namely the
Immovable Property (Acquisition by non-residents) Act, or as it is more
commonly referred to, the “AIP Act” which was originally enacted in 1974.
Consequently, the acquisition of immovable property in Malta may be
subject to certain restrictions which apply to persons who are not a citizen
of Malta or of any other Member State of the European Union and/or who have
not resided continuously in Malta for a minimum period of 5 years. In cases
where any such restrictions apply, prospective purchasers must apply for a
permit to acquire immovable property, in terms of the provisions of the AIP
Act. Application must be submitted to the Ministry of Finance after a
preliminary deed is signed between the prospective purchaser and the
prospective seller, but before the final deed of sale can be executed.
Failure to apply for an AIP permit where it is required may render the final
deed of purchase and sale of the immovable property null and void.
Citizens of all EU member states, including Maltese citizens, who have
resided in Malta continuously for a minimum period of five years (ignoring
any periods of absence in aggregate not exceeding ninety days in any
calendar year) at any time preceding the date of acquisition may freely
acquire immovable property without the necessity of obtaining an AIP permit
for such acquisition.
Citizens of all EU member states who have not resided continuously in
Malta for a minimum period of 5 years, may only purchase their primary
residence (defined in the AIP Act as a dwelling house in which an individual
habitually resides as his/her principal place of abode) or any immovable
property required for their business activities or supply of services
without the necessity of obtaining a permit. The further acquisition of any
immovable property (whether a secondary residence or other business
property) by such persons will require an AIP permit.
Individuals who are not citizens of Malta or any other European Member
state may not acquire any immovable property unless they are granted an AIP
permit in terms of the abovementioned Act.
The provisions of the AIP Act do not apply to those areas specifically
designated in terms of the said Act as “special designated areas”. Such
areas represent recently constructed developments intended to provide
top-end residential properties, the value of which must not be less than
€70,000 for an apartment or €116,500 for any other property which prices
must be adjusted according to the immovable property price index kept by the
National Statistics Office, with the 1st April 2004 being the original
The existing “Special Designated Areas” are the following:
Any property development having a superficial area not exceeding 10,000
square metres on which a minimum of 30,000 square metres of floor area is
constructed or is to be constructed may apply to the Minister of Finance to
obtain the status of a Special Designated Area against the payment of a fee
determined on the basis.
The Act also provides for various exemptions from the requirement to
obtain an AIP permit, such as cases where the property is acquired through
inheritance or where the immovable property being acquired is to serve as a
garage to, or an extension of, a previously acquired residence.
Companies and other bodies of persons are subject to a different set of
rules. Where such company or body is established in and operating from an EU
member state, therefore including Malta, such entity may freely acquire
immovable property that is required for the purpose for which it has been
set up as long as 75% of its share capital is held by a person (or persons)
being a citizen (or citizens) of an EU member state and who has/have resided
in Malta continuously for a minimum period of 5 years, at any time preceding
the date of acquisition, provided that the property is required for the
purpose of carrying out the activity for which the company has been set up.
Any other body of persons will require an AIP permit, which is only
granted if the property is required for an industrial or touristic project
or as a contributor to the development of the economy of Malta. Permission
may also be refused for the purchasing of a property which is considered to
be of historical importance.
Where property is purchased, the acquisition process typically involves a
preliminary agreement or “promise of sale” agreement (konvenju) which is
signed by the respective parties, and in terms of which the parties mutually
undertake to enter the final deed of sale, subject to the satisfaction of
certain specific conditions which must be clearly stated in the preliminary
agreement. The preliminary agreement must be registered with the Inland
Revenue Department within 21 days of its execution, together with a payment
equivalent to 20% of the duty on documents due on the purchase price on the
final deed of sale, in order to remain valid after such 21-day period.
Where applicable, the purchaser’s obligation to purchase should be made
conditional upon the issuance of an AIP permit and the obtaining of any
finance necessary for the payment of the purchase price. A sum of 10% is
usually paid on this preliminary deed, either by way of deposit on account
of the price or by way of earnest, although the parties may make any other
arrangement as they consider appropriate in this regard. The deposit is
typically retained by the Notary Public responsible for the publication of
the final deed of sale, by the vendor or by any other person/s nominated for
this purpose by the parties in the preliminary agreement.
The preliminary agreement may be valid for any period of time agreed upon
by, and between the parties, but would usually be for a period of between 3
to 6 months. During this time period, legal title in the property concerned
is established through the necessary notarial searches and any financing or
AIP formalities are duly followed-up in anticipation of the publication of
the final deed of sale. Once such formalities are finalised, the final deed
of sale is duly read by the notary public to the parties (or their legal
representatives) and signed in his presence. All relevant duties and taxes
must be paid to the notary public (who collects such funds on behalf of the
Inland Revenue Department) at the same time as the publication of the final
The rental of immovable property in Malta is subject to far less
formality than the purchase process outlined above. The renting of a
property would typically involve a written lease agreement setting out the
general terms and conditions governing the rental of the property in
question, namely a description of the property, the payment of rent, the
warranty of all necessary permits by the landlord, where applicable, the
provision of any security or damage deposit/s, the renewal of the lease
period upon expiration and other matters of similar importance.
OCRA Malta will be happy to provide you with any guidance or support that
you may require in the course of buying, leasing and/or selling any
immovable property in Malta, whether for business and/or residential
purposes. We will also be happy to recommend reputable real estate agents
who will see to your requirements in respect of any immovable property in