Tax system in Malta

The first thing to understand is when a person becomes a resident of Malta. This is important because resident status can affect the way taxation is done, as residents are required to pay tax on their global income in Malta.

An individual is considered a tax resident in Malta if he resides there for at least 183 days during a calendar year.

Also, a person can be recognized as a resident if he is present in Malta for less than a period of time but has a “connection with the country”, which includes a permanent residence.

Malta has an attractive tax system that attracts many foreign investors. Characteristic features often include low corporate tax rates and the possibility of obtaining a refund of part of the taxable profit.

Corporate tax in Malta is quite high – 35%, but due to the unique tax refund system, companies can get a refund of up to 6/7 of the tax paid.

This makes the effective corporate tax rate just around 5%. This tax refund system applies to corporations that are resident in Malta.

Note: The tax refund system is seen as a way to ensure fairness and encourage investment.

Let’s consider what other potential problems there may be:

• The complexity of the tax system. Dealing with Malta’s tax system, with its various incentives and structures, can be challenging.
• International scrutiny: Malta has faced scrutiny from other countries and international organizations over its tax practices. There are countries that are concerned about aggressive tax planning and the possibility of tax evasion.
• Changes in tax laws: Like any other country, Malta may change its tax laws. These changes may affect businesses and individuals, requiring them to adapt their tax strategies accordingly.
• Risk of abuse. Although Malta offers incentives to attract business, there is a risk that some organizations may abuse these incentives for tax evasion. This could lead to problems with Malta’s reputation and increased scrutiny.
• Compliance and reporting requirements. Compliance with tax laws and compliance with reporting requirements can be complex. Failure to comply with these requirements can result in significant fines.

Tax on dividends

Dividends received from foreign investments may be taxed, but there is a possibility of obtaining a refund of part of the taxable amount.

Or, for example, dividends received by a Maltese company from foreign sources may be fully exempt from taxation.

Personal tax

Personal tax is determined based on an individual’s income and resident status.

Personal tax includes tax on income from work, dividends, interest, lease payments, and other sources of income.

Personal tax in Malta can be divided into two categories:

• Residents: Individuals who are residents in Malta are taxed on a global basis, which means that all their income, regardless of source, is taxable in Malta. Tax rates may vary depending on the amount of income.
• non-residents: individuals who are not residents of Malta are taxed only on income derived from Maltese sources. Such income may be taxed at different rates depending on the type of income.

Value Added Tax (VAT)

The VAT rate in Malta is 18%. Some goods and services may be exempt or subject to a reduced rate.

Real estate tax

There is a property tax that is calculated based on the assessed value of the property.

Regarding personal taxation, the system is also attractive for residents and non-residents. Individual tax rates may vary depending on income and residency status.

Although the stake may seem high on the surface, considering the additional elements of the taxation system, Malta can remain an attractive place for business and investment.

Of course, consulting with a tax and legal professional is important to determine the best approach for your particular case.

By contacting the law firm “Prikhodko and Partners”, you will receive a qualified answer to all your questions.