The Maltese Tax Refund System
Malta offers an extremely competitive tax regime, based on a full imputation system, in which tax on profits paid by the company distributing dividends is made available to the shareholder as a tax credit, to avoid double taxation on the same income (for the company and subsequently for the shareholder).
As the 35% tax rate applied to the company is equal to the maximum tax rate on individuals, paying out dividends does not lead to further taxation for shareholders.
The full imputation system and the tax refund system provide very efficient tax-planning opportunities.
In fact, a shareholder receiving profit dividends, allocated to the Malta Tax Account (MTA) and Foreign Income Account (FIA), can request a tax refund on those profits paid by the company in Malta. The amount of the refund depends on the nature of the distributed profits and if these have benefited, or not, of any double taxation relief mechanisms.
In most cases, the tax refund to the shareholder is 6/7 of the tax paid by the company on profits distributed as dividends. The tax refund rate may be different in the following cases:
Passive interest and royalties – 5/7 Tax refund;
Passive income subject to double tax relief mechanism – 2/3 Tax refund;
Dividends from participation holdings – 100% Tax refund.
Refunds are guaranteed by Law and are paid without delay by the Tax Authority within a short deadline, as of the date on which the refund is formally requested.
For the purposes of Maltese law, dividends include any profits distributed by the company to its shareholders and any amount credited to them as partners, including capital increases by incorporation of earnings and distributions to shareholders following the dissolution of the company, as long as distribution reflects earnings. Therefore, dividends do not actually have to be paid, i.e. the profits can be capitalised or merely credited to the shareholder.