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 Trading Companies and Tax Treaties
Taxation of International Trading Companies At the end of the accounting year, the ITC being a normal onshore company, pays company tax at the normal rate of 35% on trading profits. However, a system of tax refunds and imputations made to the non-resident shareholders ensures that once the profits are distributed to the non-resident shareholders, they directly receive a refund of 30.83% and therefore the effective tax rate is only 4.17%. Let us assume that the ITC receives MTL 1,000 income. At the end of the accounting year (every ITC can choose its accounting date to suit its purpose) the ITC pays 35% tax, (i.e. MTL 350) and distributes the remaining MTL 650 as a dividend. At that stage the shareholders will claim a refund of 7.5% of the gross income, that is MTL 75, and a refund of two thirds (2/3) of the corporate tax paid, that is 2/3 of MTL 350 = MTL 233.33. These refunds are paid by the Inland Revenue Department to the ITC within 14 days from the date of the request made to the Inland Revenue Department. Still using the above figures, if the ITC during the year receives MTL 1,000, and say its accounting period ends on 31st December, then on the 31st December it pays MTL 350 corporate tax, and on the 1st January the shareholders apply for the refunds. By the 15th January they will receive MTL 308.33 by way of tax refunds, which means that only MTL 41.67 is paid by way of final tax - that is an effective tax rate of 4.17%. No withholding taxes, stamp duties or exchange control restrictions apply on distribution of the profits or dividends to the shareholders and there are no taxes or restrictions on the payment of dividends out of Malta. Taxation of International Holding Companies As in the case of the ITC, the IHC is a normal company and therefore pays corporate tax at 35% on its world-wide income, but shareholders can then benefit from a full tax refund for qualifying holdings. A non-resident shareholder receiving dividends from an IHC has a right to a refund equal to two-thirds of the tax paid by the company on its profits and such dividends distributed to non-resident shareholders are exempt from any withholding tax. Therefore the total tax payable on profits distributed to non-resident shareholders is equivalent to 11.67%. However, more interestingly, where the income of the IHC emanates from a qualifying, so called 'participating holding' (that is where the IHC holds at least 10% equity in a foreign company or holds an equity holding of at least US$ 1,250,000 in a foreign company), the tax refund to the shareholder will amount to 100% and in effect therefore no tax is paid. A Maltese holding company will usually be exempt from tax on dividends received from a foreign subsidiary, even if the foreign subsidiary is not subject to tax. Furthermore, the Maltese company is not subject to capital gains tax on the sale of shares. Maltese tax treaties Malta currently has tax treaties with the following countries:
Treaties with countries marked with an asterisk (*) are not yet in force, pending ratification.
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