To incentivize foreign investment in Malta, companies have two options when paying taxes. They can opt for a 6/7th refund or apply for fiscal unity. To qualify for either scheme, the applicant must be a foreign resident with a company in Malta, or a Maltese company with a foreign holding company. These tax constructs offer good opportunities for entrepreneurs and companies to move their operations to Malta.
The Maltese company can opt to pay the standard 35% corporate tax rate. Then, a tax refund application needs to be submitted to the International Tax Unit, and dividend warrants are issued. Once the application is submitted and vetted by the Tax Department, the shareholders will receive the 6/7th refund. This means that only 5% of the tax charge is paid.
If a company has a tighter cash flow and waiting for a refund is not ideal, the company can apply for fiscal unity. Rather than paying a 35% tax charge, under fiscal unity companies pay a 5% flat tax charge. For the Maltese company to qualify as a fiscal unit, an application for Consolidated Group (Income Tax) Rules has to be submitted. The Maltese company and its parent company will be considered as a single fiscal unit by the Tax Department if the following conditions are met:
- The Maltese company and its parent company must have the same year-end.
- The parent company must hold at least 95% in the Maltese company.
- The holding company must not have any pending taxes or fines to be settled and must be registered for tax purposes in Malta.
- The holding company needs to prepare the consolidation accounts consolidating the Maltese company.
- Consolidated tax returns would need to be prepared and submitted.
The company will be permitted six months to register for fiscal unity, starting from the next day of the financial period end but not before 1st August of the calendar year of the financial period end. For example, if the financial year ends on 31st December 2020, the opportunity to apply for fiscal unity is between 1st January 2021 and 30th June 2021. Should there be any changes to the structure of the fiscal unit, the company must inform the Commissioner for Revenue within 6 months of the change for the applicable year of assessment.
Disclaimer: This article is only a summary of the guidelines. This article is purely informational and does not replace the formal guidelines enforced by the authorities.