KNOWLEDGE BASE

MARKET ENTRY INFORMATION

DOING BUSINESS IN MALTA

Malta Business Services Overview About Malta Setting up a business in Malta Taxation

TAXATION IN MALTA

Corporate Taxation

General

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.

Tax Rates

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.

Taxable income

In order to determine a company’s taxable income, the following adjustments need to be taken into consideration:

  • Disallowable Expenses which include amortisation of goodwill, pre-trading expenses, and unrealised differences on exchange amongst others, are considered not to be incurred in the production of the income, and thus are to be added back to the accounting profits;
  • Accounting Depreciation and Wear and Tear Allowances (Tax Depreciation) sometimes differ in rates and methods of calculation. Accounting depreciation is disallowed and added back to the accounting profits. Wear and Tear Allowances rates and methods as stipulated by the Income Tax Act (and Subsidiary Legislations) are then applied and the relative deductions calculated.

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.

Asset No of years
Computers and electronic equipment 4
Computer software 4
Motor vehicles 5
Furniture, fittings and soft furnishings 10
Construction and Excavation Equipment 6
Catering Equipment 6
Aircraft 12
Ships and vessels 10
Electrical and Plumbing Installations and Sanitary Fittings 15
Cable Infrastructure 20
Pipeline Infrastructure 20
Communication and Broadcasting Equipment 6
Medical Equipment 6
Lifts and Escalators 10
Air-conditioners 6
Equipment mainly designed or used for the production of water or electricity 6
Other machinery 5
Other plant 10

* A ceiling of EUR6,988.12 on the cost of non-commercial motor vehicles applies.

Unabsorbed tax depreciation may also be carried forward indefinitely, but may offset only income derived from the same source.

Back to top
Group Relief

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 liquidation.)

Tax Losses

Tax losses incurred in a trade or business may be carried forward indefinitely to offset against all future income.

Tax Refunds

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 Taxation

General

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.

Tax Rates

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.

Payment of Tax

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.

Social Security Contributions

Employers and employees each must pay Social Security Contributions (“SSC”) equivalent to 10% of the weekly salary of the employee (to a maximum of €32.33*).

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 month.

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.

Back to top

Commercial & Residential Property in Malta

Restrictions to the Acquisition of Immovable Property

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.

EU Citizens

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.

Non-EU Citizens

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.

Special Designated Areas

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 reference date.

The existing “Special Designated Areas” are the following:

  • Portomaso Development, St. Julian’s, Malta
  • Portomaso Extension I, St Julian's, Malta
  • Cottonera Development, Cottonera, Malta
  • Manoel Island / Tigne Point, Tigne/ Gzira, Malta
  • Tas-Sellum Residence, Mellieha, Malta
  • Madliena Village Complex, Malta
  • SmartCity, Malta
  • Fort Cambridge Zone, Tignè, Malta
  • Ta’ Monita Residence, Marsascala, Malta
  • Pender Place and Mercury House Site, Malta
  • Metropolis Plaza, Gzira, Malta
  • Fort Chambray, Ghajnsielem, Gozo
  • Kempinski Residences, San Lawrenz, Gozo

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.

Bodies of Persons

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.

The Acquisition Process

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 deed.

Renting

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 Malta.

Back to top
Legal Warnings | Privacy Policy | Feedback     OCRA Worldwide 1995 -
Disclaimer: Whilst every effort has been made to ensure that the details contained herein are correct and up-to-date, it does not constitute legal or other
professional advice. OCRA Worldwide does not accept any responsibility, legal or otherwise, for any errors or omission.