Unlike traditional corporate tax systems, Malta’s income tax system employs a tax credit system to prevent economic double taxation.
While not considered a tax haven, Malta offers highly advantageous tax benefits under certain conditions.
Malta does not impose inheritance or gift taxes, nor does it have a general wealth tax or property tax.
Malta’s strategic location makes it an ideal choice for incorporating it into a tax planning strategy involving other Mediterranean countries.
Malta operates a multi-tiered tax system, which utilizes various sources of revenue to meet its financial needs. However, compared to other countries, especially Germany, Malta’s tax system is relatively straightforward.
The Income Tax Act of 1949 and the Income Tax Management Act of 1994 form the legal basis for income and corporate taxation in Malta. The Maltese income tax system, which includes both personal and corporate income tax, is based on a synthetic income concept.
Maltese income tax law distinguishes between resident and domiciled taxpayers. Residence is generally established by spending 183 days or more in Malta, but it can also be determined based on the intention to reside in Malta long-term. Domicile is a personal criterion that reflects an individual’s connection to Malta. If an individual is both resident and domiciled in Malta, their worldwide income is subject to taxation.
If an individual is either resident but not domiciled or domiciled but not resident, the taxation is based on the remittance principle. This means that only income remitted to or consumed in Malta is subject to taxation.
If an individual does not meet the criteria for residence or domicile, they are considered a limited tax resident, and only their Maltese-sourced income is subject to taxation.
Corporate taxation in Malta depends on whether a company is resident and domiciled in Malta. If a company is both resident and domiciled, its worldwide income is subject to taxation. If a company is resident but not domiciled (or vice versa), only income remitted to Malta or derived from Maltese sources is subject to taxation.
Certain dividends and capital gains from qualifying shareholdings are exempt from taxation, provided they meet specific criteria.
Special Regimes:
Malta offers various special regimes and incentive programs. These include the Malta Enterprise Investment Aid 2021 program, which replaced the previous Seed Investment Scheme for startups. Additionally, Malta provides favorable tax treatment for the shipping industry through the Merchant Shipping Regulations and offers a patent box regime for income derived from qualifying intellectual property.
Incentives for Residency:
Malta offers attractive residency programs for both non-EU/EEA citizens and EU/EEA citizens and Swiss nationals. These programs provide favorable tax treatment for foreign income, subject to certain conditions.
Inheritance and Wealth Taxes, Property Tax:
Malta does not impose inheritance or gift taxes, nor does it have a general wealth tax or property tax.
Transaction Taxes:
Malta levies stamp duty on certain transactions, with particular importance placed on property transactions. The stamp duty rate for properties on the main island of Malta is 5%, while it is 2% for properties on Gozo. Additionally, Malta imposes an 8% property transfer tax.
Consumption Taxes:
Malta applies a value-added tax (VAT) system, with a standard rate of 18%. Certain goods and services are subject to reduced rates of 7% and 5%, while some are zero-rated.
Double Taxation Agreements:
Malta has an extensive network of double taxation agreements (DTAs) with 81 countries. The DTA between Malta and Germany, for example, follows the credit method for income derived from Germany and the exemption method for individuals resident in Germany.
Conclusion
Malta’s attractive tax regime, coupled with its strategic location and favorable incentives, has positioned it as an appealing destination for individuals seeking residency or investment opportunities. The country’s tax system offers unique features that can benefit both individuals and businesses. Whether you are considering relocating or investing in Malta, it is essential to understand the intricacies of the Maltese tax laws and seek professional advice to maximize the advantages available.
For further information or assistance, please feel free to contact us.
Thanks to Prof. Dr. Adrian Cloer for this information.
