MALTA Law and Practice Contributed by: Rosanne Bonnici and Rebecca Diacono, Fenech & Fenech Advocates
the tax programmes may also be attractive to indi - viduals who do not have segregated funds overseas and therefore hold (for example) untainted capital or capital gains overseas. A remittance of said tainted funds presumed to be income in nature would thus be taxed in Malta at this reduced rate. Beneficiaries under the GRP are also issued with a residence card, which also acts as a Schengen visa. While not a tax programme per se, effective 1 January 2024, Malta introduced the Nomad Residence Per - mits (Income Tax) Rules, which apply to third-country nationals who are holders of a Nomad Residence Permit issued by the Residency Malta Agency. These Rules provide for a reduced flat rate of tax of 10% on authorised work carried out by the nomad worker in Malta. The Rules further contemplate that the nomad worker would benefit from an exemption from tax on authorised work carried out in Malta during their first 12 months, subject to the nomad worker’s stay in Malta being of a casual nature. Companies A Maltese company, as defined, is deemed to be resi - dent and domiciled in Malta by reason of its incor - poration in terms of Maltese law and, accordingly, is taxable in Malta on a worldwide basis, subject to any applicable double tax treaties. A foreign company that is effectively managed and controlled in Malta is tax-resident in Malta and, accordingly, is taxable on a remittance basis. For income tax purposes, the term “company” includes other entities, such as part - nerships and foundations, either by operation of the law or upon registration by the entity concerned to be taxed as such. The standard corporate tax rate is 35% when applied to taxable income (ie, income minus a generous range of tax deductions, including the recently introduced notional interest deduction that intends to provide for equivalent tax treatment of debt and equity financing by allowing an additional deduction for the amount of return on equity financing, such as retained earnings). When a company distributes dividends out of profits on which it has paid tax at 35%, no further tax is due from the shareholders, and a credit for the tax paid by the distributing company is available to the sharehold - ers against their tax liability in terms of the full impu -
tation system of taxation applicable to companies. Subject to statutory conditions, a dividend payment may trigger a right in the shareholder’s hands to a tax- exempt refund of part or all of the Maltese tax paid by the company on the distributed profits. The standard
tax refund is six sevenths. Participation exemption
The ITA also includes an attractive participation exemption, covering holdings of as little as 5% of equity, subject to various other conditions. The exemption applies, inter alia, to any gains or profits that a resident corporate taxpayer may derive from a holding (covering shareholdings, partnership interests, interests in investment funds, etc) that qualifies as a “participating holding”, subject as always to statutory conditions. Tax grouping More recently, Malta introduced tax grouping rules applying to companies, as defined, and allowing a group to be treated as a “fiscal unit” for income tax purposes. Where a group exercises this option, the parent company (which may be non-resident) shall become the “principal taxpayer”, with the underly - ing subsidiaries being treated as “transparent sub - sidiaries”. Among other things, the rules regulate the manner in which the group’s chargeable income is computed. Intra-group transactions are generally to be ignored; the same goes for dividends, the payment of tax by subsidiaries and any resulting right to a tax refund at the level of the parent, with the resulting net tax charge being payable. Foundations Foundations are regulated in terms of the Civil Code, which includes a full set of rules covering all aspects of foundations, including the creation, administration and termination thereof. Four types of foundations are catered for:
• the social/purpose foundation; • the public benefit foundation; • the private benefit foundation; and
• the private interest foundation (any reference herein to a foundation should be construed as a reference to a private interest foundation), which is common - ly availed of by families.
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