Tax Accounting test
Profits are allocated into five tax accounts. The allocation of profits in these accounts determines the tax treatment applicable to shareholders and the tax refunds which may be claimed upon a distribution of profits. The different types of tax accounts are:
Foreign Income Account (FIA), where foreign source passive income such as dividends, interest, royalties, rent and capital gains from foreign sources are allocated;
Immovable Property Account (IPA), whereby profits resulting from the sale of immoveable property situated in Malta as well as profits derived from rent, accommodation and activities related to immoveable property are allocated;
Final Tax Account (FTA), whereby taxable profits which are subject to final withholding tax and those profits which are exempt from income are allocated;
Maltese Taxed Account (MTA), whereby profits from trading activities, and which do not fall under the FTA, FIA and IPA, are allocated;
Amounts allocated to the Untaxed Account (UA) result from the difference between the company’s accounting profits or losses and the total of the amounts allocated to the other four tax accounts as outlined above.
Corporate taxation
Maltese registered companies are subject to income tax on their chargeable income at a standard rate of 35%. Companies incorporated in Malta are subject to tax on their worldwide income whereas companies incorporated outside Malta, but tax resident in Malta by virtue of their effective management and control, are subject to tax on income remitted to Malta and income arising in Malta.
The application of the full-imputation system and with the use of the various double taxation treaties, investors can achieve fiscal efficiency using Malta as their tax base. In the case of the full-mputation system, the tax paid by the company is credited in full to the shareholders on profits distributed to them. The credit given may be utilized by the recipient of such a distribution to offset any income tax liability. This also ensures that there is no double taxation under this system.
Individual taxation
In the case of individuals, the Maltese tax regime offers the opportunity to the individuals to become tax residents in Malta and obtain a special tax status under various Programmes which all offer various conditions.