MALTA Law and Practice Contributed by: Donald Vella and Kirsten Debono Huskinson, Camilleri Preziosi Advocates
2.7 Capital Gains The ITA imposes tax on capital gains in respect of transfers of those assets listed specifically and exhaustively by the ITA. There are specific rules on how to calculate capital gains derived from the dis - posal of certain assets, contemplating certain adjust - ments. Once calculated, a capital gain is brought to charge as part of the chargeable income. Companies that derive capital gains from a “par - ticipating holding” may, to the extent that the condi - tions are satisfied, qualify to apply the “participation exemption”, in which case any gains derived from such participating holding would be exempt from tax. Alternatively, a Maltese company may elect to be sub - ject to tax and pay income tax on capital gains aris - ing from the transfer of a participating holding. Then, upon the distribution of profits, the shareholder may, to the extent that the conditions are satisfied, claim a full refund of the tax paid by the company on such capital gains. A holding of equity will qualify as a participating hold - ing for the purposes of applying this exemption to capital gains in the following circumstances: • when the holding constitutes a direct holding of 5% or more of the equity shares or partnership capital – this participating holding entitles the com - pany holding the shares to two out of the following three equity rights: (a) voting rights; (b) rights to profits available for distribution; or (c) rights to assets available for distribution in the case of a winding up of the company in which the shares are held; • when a company is an equity shareholder in a company, and the equity shareholder company is entitled at its option to call for and acquire the entire balance of the equity shares not held by that equity shareholder company, to the extent permit - ted by the law of the country in which the equity shares are held; • when a company is an equity shareholder in a company and the equity shareholder company is entitled to first refusal in the event of the proposed disposal, redemption or cancellation of all of the
equity shares of that company not held by that equity shareholder company; • when the amount invested in the holding is at least EUR1,164,000 (or the equivalent sum in a foreign currency) and is held for an uninterrupted period of at least 183 days; • when the shareholder in question is entitled to sit or be represented on the board of directors of the company in which the equity holding is held; or • when the equity shares are held for the furtherance of the business, and the holding is not held as trad - ing stock for the purpose of a trade. 2.8 Other Taxes on Transactions Maltese entities may be subject to the following addi - tional taxes when undertaking a transaction. Malta imposes a “stamp duty” on certain legal docu - ments, such as policies of insurance and notarial deeds, and also on transfers in certain transactions (including deemed transfers), such as transfers of immovable property situated in Malta, certain market - able securities and certain other transactions. In addition, Malta imposes value-added tax, at a standard rate of 18%, on the supply of goods and services that are not exempt or subject to a reduced rate of 5%, 7% or 12%. 2.9 Other Notable Taxes Maltese entities may be subject to customs duties, which are levied on certain imports from non-EU coun - tries. Excise duties are levied on particular classes of goods, such as alcohol and tobacco. 3. Corporations and Non-Corporate Businesses 3.1 Form of Closely Held Local Businesses The majority of local business is conducted in cor - porate form. The most common legal form for busi - nesses in Malta is the private limited liability company. 3.2 Individual and Corporate Rates The income tax rate applicable to companies and the majority of other corporate entities is 35%. The high - est personal tax rate imposed on Maltese tax-resident
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