Malta’s wide network of double taxation agreements as well as other methods for relieving double taxation on cross border transactions provide an excellent basis for establishing tax efficient structures including international trading and holding companies.

Malta’s full imputation system of taxation and the refund of tax provisions contained in the legislation make the ITC a very tax efficient vehicle for non-resident shareholders.

An ITC is taxed at the normal company rate of tax which is currently 35%. However, upon a receipt of a dividend from an ITC, non-resident shareholders are:

• taxed at a flat rate of 27.5% on the gross amount of the dividend and are credited with the amount of tax paid by the company on the profits out of which the dividend was paid;

• entitled to a refund under the provisions of the Income Tax Management Act of two-thirds of the Malta tax paid by the company on the same profits. This refund is payable by the Inland Revenue not later than the fourteenth day following the end of the month in which the refund becomes due.

Non-resident shareholders of a Maltese holding company which has a participating holding in a non-resident company qualify for a full refund of the Malta tax paid by the Maltese company on income arising from these foreign holdings. Such refund is triggered upon a distribution of this income to the non-resident shareholders of the Maltese company.

The following example illustrates how the provisions relating to International Trading Companies work in practice:

N.B Any refund due by the tax authorities is payable not later than the fourteenth day following the end of the month in which the refund becomes due and is recoverable as such, and must be claimed with 4 years from payment.

International trading and holding companies may request an advance ruling on their taxable status. Such a ruling guarantees the tax position of the company for a minimum period of five years and may be renewed for a further period of five years. Any changes in the tax legislation during these periods will not become operative before the lapse of two years from the coming into force of the new law.