Non-Domiciled Companies in Malta

In Malta, the taxation of individuals and entities is based on both residence and domicile status. According to the Income Tax Act, a "person" refers to individuals as well as "bodies of persons," which can include companies, associations, societies, and other similar entities, whether legally incorporated or not.

Although the term "domicile" is not explicitly defined in the Income Tax Act, for a "body of persons" like a company, domicile typically refers to its place of incorporation or its principal place of registration. A company incorporated in Malta is automatically deemed both domiciled and tax resident in Malta from the date of its incorporation, and is subject to a flat 35% tax on its global income. However, a company with international operations may still be subject to taxation in other jurisdictions, particularly in cases of dual residence where one country prioritizes the place of incorporation and another emphasizes the place of effective management.

If a company is incorporated outside of Malta, it will be considered tax resident in Malta only if its effective management and control are located within the country. The term "place of effective management" generally refers to where key management and commercial decisions are made, typically the location of board meetings.

Thus, a company incorporated in Malta is both domiciled and resident for tax purposes, while a company incorporated elsewhere but managed from Malta is considered resident but not domiciled.

Taxation of Resident, Non-Domiciled Companies

A company that is resident but not domiciled in Malta is taxed on income and capital gains arising within Malta, as well as on foreign income that is remitted to Malta. However, foreign income that is not remitted to Malta, as well as capital gains from abroad, are not subject to Maltese tax. Conversely, companies neither incorporated nor resident in Malta are only taxed on income and capital gains that arise within the country.

Companies incorporated abroad but with their management and control in Malta benefit from certain fiscal advantages. These include eligibility for Malta's full imputation tax system and the tax refund mechanism available to shareholders on the distribution of dividends.

Allocation of Distributable Profits

Companies that are resident in Malta (including those that are non-domiciled) must allocate their distributable profits into one or more of five tax accounts, depending on the origin and nature of the profits:
- Foreign Income Account (FIA)
- Maltese Taxed Account (MTA)
- Final Tax Account (FTA)
- Immovable Property Account (IPA)
- Untaxed Account (UA)

Full Imputation System

Malta operates a full imputation system for dividends paid from company profits. Although shareholders are taxed on dividends, they receive a full credit for any tax already paid by the company. This prevents economic double taxation, as the shareholder does not face further tax on the distributed dividends.

Tax Refund System

In addition to the full imputation credit, Malta also offers various tax refunds to shareholders of resident companies, reducing the overall tax burden. These refunds include:

- 100% Refund: Applies to profits derived from a participating holding that qualifies for the participation exemption.
- 6/7ths Refund: Typically applies to profits from trading activities, reducing the effective tax rate to 5%.
- 5/7ths Refund: Generally applies to passive interest, royalties, and non-qualifying participating holdings, with an effective tax rate of 10%.
- 2/3rds Refund: Available when the company has claimed double taxation relief, limited to the tax paid in Malta.

The participation exemption or 100% refund applies to Malta-registered companies earning profits or gains from a participating holding in a non-resident entity. In these cases, the company can either claim an outright tax exemption or pay the standard 35% tax, with shareholders receiving a full refund of the tax paid upon dividend distribution.

Withholding Tax

Malta does not levy withholding tax on dividend distributions to non-resident shareholders. Additionally, under certain conditions, payments of interest and royalties to non-residents are also exempt from withholding tax.

Key Benefits for Resident, Non-Domiciled Companies

- Global taxation is not applicable to companies that are resident but non-domiciled in Malta.
- No tax is imposed on foreign income that is not remitted to Malta.
- Capital gains remitted to Malta are tax-free.
- Companies can access Malta's extensive network of tax treaties and unilateral relief measures.
- Resident companies, including non-domiciled ones, benefit from Malta's full imputation system and tax refund mechanisms.

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