MALTA Law and Practice Contributed by: Donald Vella and Kirsten Debono Huskinson, Camilleri Preziosi Advocates
case-by-case basis. However, branches of non-local corporations would only be subject to tax in Malta on income that is attributable to the branch. The calcu - lation of the taxable income follows the same princi - ples adopted in respect of local companies. It would be possible for the branch to deduct a proportion of its head office expenses if these are related to the income-generating activities of the Maltese branch. By way of net effect, there should be a minor distinc - tion between the taxation of a branch and a locally registered subsidiary. 5.3 Capital Gains of Non-Residents Any gain or profit derived by any person not resident in Malta on a transfer of shares or securities in a local company is exempt from tax in Malta if the beneficial owner of such gain or profit is a person who is not resident in Malta and is not owned and controlled by, directly or indirectly, nor acts on behalf of, an indi - vidual or individuals who are ordinarily resident and domiciled in Malta. The exemption will also apply to the extent that the local company does not qualify as a “property company” in terms of the ITA. 5.4 Tax Implications of Change of Control Maltese tax legislation provides a type of change of control provision that is applicable to Maltese com - panies, namely value-shifting provisions. However, these are applicable in limited instances and should not come into effect vis-à-vis a disposal in a foreign indirect holding within the overseas group. Rather, they apply to certain changes to the share capital of certain Maltese companies. For instance, when the market value of shares held by a person (the transferor) in a company is reduced as a result of a change in the issued share capital of the company or a change in voting rights attached to such shares, and this difference in value is passed on to other shares in or rights over the company held by another person (the transferee), the transferor shall be deemed to have made a taxable transfer of shares amounting to this value to the transferee. Any gains or profits shall be calculated for the transferor by taking into account the difference between the market value of the shares held immediately before and after said change.
These value-shifting provisions should not apply to bona fide commercial transactions in Maltese compa - nies that do not own, directly or indirectly, immovable property situated in Malta. 5.5 Formula-Based Income Attribution IFRS are used to determine the income of local com - panies from an accounting perspective. This determi - nation is then subject to adjustments imposed by the ITA (deductions, exemptions, corrections for taxable period, etc). 5.6 Deductibility of Intra-Group Management and Administrative Charges The ITA sets out a list of expenses that may be deductible for tax purposes. All expenses and out - goings incurred by a person or company, including management and administrative expenses, could be deductible to the extent to which such outgoings and expenses were wholly and exclusively incurred in the production of income. This connection between expenses and taxable income is also a requirement for the expenses expressly listed in this provision. 5.7 Restraints on Related-Party Borrowing The tax-related anti-abuse measures based on ATAD that have been introduced in Malta include an interest limitation rule, which limits the deductibility of borrow - ing costs to a certain level. ATAD caps the deductibility of interest expenses at 30% of a taxpayer’s earnings before interest, tax, depreciation and amortisation (EBITDA). The limitation is not applicable where bor - rowing costs do not exceed EUR3 million and will also not apply to financial undertakings. 6. Taxation of Foreign Income of Local Corporations 6.1 Foreign Income Exemptions Malta tax-resident companies are subject to Maltese tax on their worldwide income and capital gains, irre - spective of where their income or gains arise, and irrespective of remittance of such income or gains to Malta. The chargeable income of a company resident in Malta is subject to tax at a flat rate of 35%. Certain tax refunds and exemptions may be available, as fur -
312 CHAMBERS.COM
Powered by FlippingBook