Malta´s tax system is designed to:

-   Promote international investment in Malta;
-   Support actively the development of financial services in Malta
-   Ensure that company profits are not taxed twice - i.e. at company and again at shareholder level.

Under Maltees tax system, a company is considered resident if it is incorporated in Malta or, in the case of a foreign body of persons, if its control and management are exercised in Malta.

Imputation System

All companies pay 35% on chargeable income; however tax paid by the company is then imputed to the shareholder in the event of a distribution.  As Malta operates a full imputation system, there is no withholding tax on dividends.

Upon distribution of dividends, shareholders will be entitled to a refund of a part or whole of the tax paid by the company on the underlying profits. Tax refunds are available to all shareholders in respect of the distribution of all profits other than those derived from immovable property. 
The Income Tax Act and Income Tax Management Act provide that the shareholders of all companies registered in Malta on or after 1st January 2007 may claim one the following refunds:

6/7ths refund of the Malta tax
A 6/7ths refund may be claimed on the distribution of any income allocated to the Foreign Income Account (FIA) and Maltese Taxed Account (MTA) subject to the condition that the company would not be entitled to claim double tax relief on income allocated to the FIA. The 6/7ths refund may not be claimed on income which is qualified as passive interest or royalties.

5/7ths refund of the Malta tax
A 5/7ths refund may be claimed on the distribution of any income allocated to the Foreign Income Account (FIA) and Maltese Taxed Account (MTA). This refund is also subject to the condition that the company would not be entitled to claim double tax relief on income allocated to the FIA. However, in this case one may also refunds on income which is qualified as passive interest or royalties

2/3rds refund of the tax payable in Malta
Notwithstanding the above, under the following conditions, shareholders of a Maltese company may only claim a 2/3rds refund on the distribution of any income allocated to the Maltese Taxed Account and Foreign Income Account. This occurs where the:

1.    Company claims double tax relief
2.    Company claims a Flat Rate Foreign Tax Credit on income arising outside Malta and allocated to the foreign    income account

In this case, any type of income may allocated to the FTA (or MTA) including passive interest and royalties

Participating Holdings

When dividends received from a participating holding are distributed by a Maltese company to its shareholders such shareholders are entitled to claim a refund of 100% of the tax paid on the distributed profits. 

With regard to acquisitions of participating holdings made on or after 1 January 2007, where the non resident company, having mainly passive income, is not resident or incorporated in an EU Member State or is subject to tax at a rate which is less than 15%, the following additional conditions must be satisfied:

-    The shares in the non-resident company must not be held as a portfolio investment; and
-    The non-resident company or its passive income must have been subject to tax at a rate which is not less than 5%.

Resident individual shareholders will be subject to Malta tax on the dividend and tax refund while non-resident shareholders and resident corporate shareholders in receipt of the dividend and tax refund will not be subject to tax thereon.

Participation Exemption

As from 1 January, 2007 a participation exemption has also been introduced. This exempts dividends derived from participating holdings and gains derived from the disposal of such holdings.  The participation exemption is also subject to the anti-abuse provisions described above for participating holdings.  Where the participation exemption applies obviously the refund system in respect of participating holdings will not apply.

If the conditions to qualify as a participating holding or for the participation exemption to apply are not met the normal general tax system including the normal tax refunds will be applicable.

Eligibility for refunds

The refunds are computed on the basis of tax paid by the company on the underlying profits and become due upon a distribution made by the company. Refunds of tax paid in Malta may be claimed by shareholders of the following:

-    Companies incorporated under the Laws of Malta
-    Companies not incorporated under the laws of Malta which are managed and controlled in Malta
-    Companies not incorporated in Malta and not managed in Malta but which operate through a branch in Malta.

The extension of tax refunds to branches creates new structuring possibilities.

Both resident and non-resident shareholders are eligible for refunds.