Full Imputation System
Malta adopts the Full Imputation System where dividends paid by a Maltese resident company carry a tax credit equivalent to the tax incurred by the company on the profits out of which the dividends have been paid. Shareholders (both companies and individuals) are taxed on the gross dividend they receive at the applicable tax rates, but are entitled to deduct the tax credit against their total income tax liability. This system applies to both resident and non-resident shareholders.
The standard corporate tax rate in Malta is 35%. Companies apply this rate annually to their taxable profits which are reported in the company’s audited financial statements after adjusting for non-deductable expenses and non-taxable income.
Groups of Companies
Companies are deemed to constitute a group of companies for tax purposes if they are all resident in Malta and not resident in any other country for tax purposes. Two companies are deemed as a group if one of the companies owns at least 51% of the shares of the other company or else both are owned to at least 51% by another company that is resident in Malta. For capital gains purposes, a group of companies also includes companies that are controlled and beneficially owned directly or indirectly to the extent of more than 50% by the same shareholders.
A member company can surrender its trading losses to another corporate member of the group. With respect to capital gains, the Maltese law provides for rollover relief on the transfer and replacement of business assets and on the transfer of assets within a group of companies.