Explained: The full imputation system in Malta

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Malta has a rapidly growing financial services sector which rivals some of the most established economies in the world and is an extremely attractive place to do business. Forbes has described Malta as one of the most business friendly countries in the world.

Malta offers huge incentives to the business community, including those based offshore or overseas as taxation for businesses is one of the most generous in Europe. Corporate tax is set at a rate of 35% but this can usually be reduced to a rate of 5% or in some situations even lower. This is down to an efficient tax refund system where the repayment of a tax refund by the Maltese tax authorities will usually only take on average 14 working days. Because of this the shareholders of a company are assured that their dividend income will be doubly taxed in their hands.

The Full imputation system

Malta utilises the full imputation system of company taxation where corporate prof­its are taxed to the company at the rate of 35%. However, when dividends are distributed to individuals out of taxed profits, the dividend carries an imputation credit of the tax paid by the company on the profits so distributed.

Taking as an example a company which makes taxable profits of 1,000:

Taxable profits of company

1,000

Corporate tax thereon at 35%

350

Profits after tax

650

 

The company distributes all the post-tax profits to its shareholder who is an individual resident in Malta. The company is obliged in terms of the provisions of the Income Tax Act to issue a dividend warrant which must contain the following information:

Dividend Warrant

Deemed gross dividend

1,000

Tax at source (imputation credit)

350

Net dividend

650

 

In Malta the highest tax rate which individuals suffer is also 35%. Should the shareholder declare the divi­dend in his tax return, the following would be declared:

Tax return

Deemed gross dividend

1,000

Tax charge at 35% (marginal tax rate)

350

Imputation credit

(350)

Tax payable

0

 

The imputation credit is put against the tax charge on the dividend in the hands of the individual. This system eliminates the economic double taxation that arises when the classical system is in operation. Under the full imputation system of company taxation, corporate profits are taxed only once.

Under the Income Tax Act the individual shareholders are not obliged to declare dividends received from Maltese companies as the dividend is already covered by the imputation credit of 35% which is equivalent to the maximum rate of tax that individuals pay in Malta.

The rates of tax chargeable on individuals income is progressive starting at 15% and reaching up to a maximum of 35%. If the shareholder receiving the dividend is not chargeable at the maximum rate of tax as his income is low, then the following would be declared in his tax return:

 

Dividend

1,000

Tax chargeable at say 15%

150

Imputation credit

(350)

Tax refundable

(200)

 

The individual will then receive a refund from the Revenue authorities following the submission of his tax return. The imputation system of company taxation applies to both resident and non­-resident shareholders.

 

EuroCompanyFormations can assist you with the Malta company formation process every step of the way and also advise you on the solutions that would best suit your requirements. For more information please contact Ana or Alen on +3531 6461627 or email This email address is being protected from spambots. You need JavaScript enabled to view it. .

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