MALTA Law and Practice Contributed by: Donald Vella and Kirsten Debono Huskinson, Camilleri Preziosi Advocates
tices and artificial structures are already in place and are being implemented in Malta. Malta has introduced such measures and safeguards without compromising the fundamental principles on which the Maltese tax system is built. The transposition of the ATAD direc - tives and other multinational initiatives resulting from the BEPS Project, such as the adoption of the two- pillar solution to address the tax challenges arising from the digitalisation of the economy, should see Malta continuing in this direction. 9.5 The Competitive Tax System As a member of the EU, the Maltese government is prohibited from supporting companies in a way that would grant them an unfair advantage over their com - petitors. These state aid rules, which emanate from Article 107 of the Treaty on the Functioning of the European Union, include interventions in the form of grants, interest and tax reliefs and guarantees. European law provides that state aid may exception - ally be justified, as in the case of Malta’s tonnage tax system. 9.6 Hybrid Instruments and BEPS Implementation Malta is fully committed to counteracting abusive tax practices involving hybrid mismatches. For instance, following recommendations from the Code of Con - duct Group in 2010, the Maltese tax authorities took action and published guidelines targeting abusive tax practices related to hybrid financial instruments giv - ing rise to double non-taxation. The Commissioner for Tax and Customs has issued a guideline that clarifies the position vis-à-vis profit-participating loans, which states that interest thereunder is chargeable to tax under the provisions of the ITA. Interest received from sources situated outside Malta is taxable in Malta and does not benefit from an exemption related to income from participating holdings under the ITA or any other law. The guideline clarified that income from a loan – including a loan that has characteristics of both debt and equity – shall be considered to be interest and taxable under the ITA and is not considered to be income from share capital or from an equity hold - ing for tax purposes that could result in the relative income being exempt from tax in Malta. Malta has fur - ther transposed ATAD’s anti-abuse measures, seeking
to counteract a broader range of arrangements relying on hybrid mismatches. 9.7 Interest Deductibility and Territorial Tax Regime Companies registered in Malta are considered to be resident and domiciled in Malta, so are subject to tax on their worldwide income minus permitted deduc - tions in the corporate income tax rate, which currently stands at 35%. One of the introduced tax-related anti-abuse meas - ures based on ATAD is an interest limitation rule that limits the deductibility of borrowing costs to a certain level. ATAD caps the deductibility of interest expenses at 30% of a taxpayer’s earnings before EBITDA. The limitation is not applicable where borrowing costs do not exceed EUR3 million and will also not apply to financial undertakings. 9.8 Controlled Foreign Corporation Reform The consequences of CFC rules for investment and financial services-oriented countries must be carefully monitored at this time. 9.9 Anti-Avoidance Rules It does not appear that the additional anti-abuse leg - islation implemented in this area, such as a double taxation convention limitation, has had any significant effect on the current level of inbound and outbound investments in Malta. 9.10 Transfer Pricing and IP Taxation The introduction of formal transfer pricing rules (see 4.4 Transfer Pricing Issues for Inbound Investors ) has undoubtedly brought about certain changes with - in Malta’s tax regime, with effect from 1 January 2024. Profits from IP are generally not a source of contro - versy in the Maltese tax jurisdiction (other than the old patent box regime, which has now been replaced by a new regime). 9.11 Country-by-Country Reporting and Transparency Provisions Malta supports proposals in country-by-country reporting and related areas, including with respect to what they aim to address. The exchange of informa -
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