Relief from Double Taxation Relief from double taxation in Malta is possible through various mechanisms; mainly treaty relief; unilateral relief and Flat Rate Foreign Tax Credit (FRFTC). Whereas treaty and unilateral relief may be availed of both by individuals and companies, FRFTC is limited only to companies registered in Malta. 1. Double Taxation Treaty Relief Treaty relief is based on the availability of a double taxation treaty between Malta and the other contracting state. Malta currently has over 60 tax treaties in force (please refer to our website for an updated list of Malta’s double taxation treaties) most of which are based on the OECD Model Convention and practice the credit method. Most of the treaties provide for a reduced withholding tax on dividends, interest and royalties paid to Maltese residents. 2. Unilateral Relief Unilateral relief is a type of relief which may be claimed by a Maltese resident individuals and/or Maltese registered companies including branches of oversea companies, who derive income arising outside Malta and in respect of which foreign tax would have been suffered. Unilateral relief may be availed from when a double taxation treaty is not in force between Malta and the state where the income has
been sourced. Similar to treaty relief, the credit shall not exceed the total tax liability in Malta on the receipt. In order to claim unilateral relief, the recipient of the income must prove: that the income arose outside Malta; that the income would have suffered tax outside Malta; and the amount of tax suffered abroad. 3. Flat Rate Foreign Tax Credit (FRFTC) A Flat Rate Foreign Tax Credit (FRFTC) may be claimed by a Maltese registered company (including branches of oversea companies) in respect of income derived from abroad. The FRFTC involves a relief of 25% of the net foreign income, before deducting any allowable expenses. The FRFTC may be claimed without the need for the company to have incurred foreign tax, but a number of conditions must be satisfied: the company must be expressly empowered (through a clause in its Memorandum and Articles of Association) to receive and allocate income to its foreign income tax account (FIA);
© 2014 KSi Malta, a member firm of the KS International an association of independent member firms. All rights reserved. No one should act or rely on information prior to seeking appropriate professional advice on his/her specific situation.
FRFTC is only possible in respect of income which falls to be allocated to foreign income tax account; and the company is in possession of a certificate from a
certified public accountant/auditor certifying that the income in question stands to be allocated to the foreign income account. Example of FRFTC Calculation Net Foreign Income
1,000
FRFTC (25%)
250
Gross Foreign income before expenses
1,250
Allowable expenses
150
Foreign Income
1,100
Malta Tax @35%
385
Less FRFTC
250
Net Malta Tax Payable
135
If this type of relief would have been claimed, the shareholder would also be in a position to claim a 2/3rds refund of the actual Malta tax paid.
Quick Facts: Malta’s current network of double taxation treaties includes over 60 treaties which are currently in force; Several other treaties are in the process of being ratified; In addition to double taxation treaties, Malta offers various other ways how to enjoy double taxation relief; The FRFTC is a means by which one could claim a tax credit without having actually incurred any tax abroad.
Malta offers the lowest effective corporate tax rate in Europe, generally ranging between 0% and 6.25%. Malta levies no withholding taxes on outbound payments of dividends, interest and royalties. Malta has no CFC, Transfer Pricing and Thin Capitalisation legislation.
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Bernard C. Gauci Senior Advisor bgauci@ksimalta.com
Villa Gauci Mdina Road Balzan BZN 9031 Malta Tel: (+356) 21226176 Fax: (+356) 21226019
Benjamin Griscti Senior Advisor bgriscti@ksimalta.com
www.ksimalta.com
A member of KS International
© 2014 KSi Malta, a member firm of the KS International an association of independent member firms. All rights reserved. No one should act or rely on information prior to seeking appropriate professional advice on his/her specific situation.