Foreign tax credit
A credit for foreign taxes may be applied against the Maltese tax charge (see Foreign income in the Income determination section for more information).
Investments by foreigners may be readily repatriated together with profits.
As of 1 January 2020, one would need to take into consideration the new provisions for exit taxation under Maltese tax law introduced in line with the adoption of the ATAD provisions.
In terms of these new exit tax provisions, with effect from 1 January 2020, a taxpayer may be subject to tax on capital gains where assets are owned by the taxpayer and are transferred outside the Maltese income tax net in the following circumstances:
- the assets are transferred from the head office in Malta to its PE outside Malta, in so far as Malta no longer has the right to tax capital gains from the transfer of such assets due to the transfer
- the assets/business of a non-resident are transferred from its PE to the head office/another PE outside Malta in so far as Malta no longer has the right to tax capital gains from the transfer of such assets due to the transfer, or
- transfer of tax residence from Malta to a place outside Malta except for those assets that remain effectively connected with a PE in Malta.
In the circumstances outlined above, the taxpayer is deemed to have transferred those assets and may be considered to have derived a capital gain. The capital gain is calculated by reference to an amount equal to the market value of the transferred assets, at the time of exit of the assets, less their base cost for tax purposes.
The income tax that may become chargeable on the deemed transfer becomes payable by not later than the taxpayer’s subsequent tax return date. This said, the payment may, in certain circumstances and subject to certain conditions, be deferred by paying it in instalments over five years.
Incentives for inbound investment
The Malta Enterprise Act and other related legislation provide a comprehensive package of incentives for inbound investment. These incentives are reserved for enterprises carrying on certain activities in Malta, mainly manufacturing activities. The focus is on high-value-added activities, and pre-approval of a project’s eligibility for benefits by Malta Enterprise may be required. In general, eligibility does not depend on whether the company produces for the local or export markets. The main tax incentives include the following:
- Enterprises carrying out qualifying activities, which include such activities as manufacturing activities, pharmaceuticals, R&D activities, industrial services, computer programming, audio-visual productions, certain educational activities, and certain hospitality activities, may qualify for aid in terms of the Invest - Support for Initial Investment Projects scheme. The scheme was launched by Malta Enterprise in May 2022, and the subsidiary legislation regulating this scheme was issued in September 2022. Eligible undertakings may be awarded aid in the form of investment aid tax credits, cash grants, subsidies on interest rates on loans, and/or bank guarantees. Such guidelines form the basis of the investment aid scheme that is in force until 31 December 2023. The aid is calculated as a percentage of qualifying expenditure incurred in relation to a qualifying initial investment project, and the aid intensities vary from 10% to 35%, depending on the size of the undertaking and as well on whether the project is to be carried out in an assisted area or otherwise. The application in relation to such investment projects should reach Malta Enterprise by 30 September 2023 and should cover eligible investment projects commencing on or after 1 May 2022 and by 31 December 2026.
- Certain tax credits and special incentives may be available, subject to certain conditions. These tax credits are calculated on the basis of specific expenditures incurred by a company, while the special incentives grant tax exemptions on all or part of the chargeable income in specified circumstances.
- No further tax is charged on distributions from profits that had previously been taxed at a reduced rate. This benefit is also extended to amounts that were not subject to tax on account of investment tax credits and specific tax credits/special incentives.
The combination of certain tax treaties and Maltese domestic law lowers the Maltese tax rate on certain companies receiving certain industrial assistance (i.e. mainly assistance in terms of the Malta Enterprise Act, Business Promotion Act, and Business Promotion Regulations) to 15%.
A number of other schemes administered by Malta Enterprise (e.g. the Investment Aid for Energy Efficiency Projects Scheme, Start-Up Finance Scheme) cater to undertakings operating in a number of industries and may provide tax benefits to the eligible undertakings.
In addition, the Seed Investment Scheme (Income Tax) Rules offer tax relief to start-ups with the aim of encouraging access to finance to SMEs. In terms of these rules, ‘qualifying investors’ should be entitled to a tax credit amounting to 35% of the aggregate value of their investment in qualifying companies (total tax credit not exceeding EUR 250,000 per annum). Such tax credit would be set off against the tax due by the qualifying investor in respect of any income or gains brought to charge to tax in the year of assessment following the basis year when the investments are made. The tax credit may be carried forward until it is fully absorbed. In addition, qualifying investors may be entitled to an exemption from tax in respect of any gains or profits derived from the disposal of their qualifying investments, where such investments are disposed of after the lapse of three years from the date of subscription to the equity shares.
As part of Malta’s new Operational Programme, the Malta government has launched a number of new grant schemes to support SMEs in undertaking investments and enhance their competitiveness. The schemes that are currently available target investments in equipment, plant, and machinery related to expansion, diversification, and innovation of the operations, as well as on initial investments. The schemes are administered through an open rolling call with, generally, monthly cut-off dates; the last call closes on 30 November 2023. Furthermore, as part of Malta's Recovery and Resilience Plan, new grant schemes, targeting the digitalisation and renovation of enterprises, were issued. The schemes are operational until 31 December 2023, subject to availability of funds.
Malta Enterprise, throughout the past few years, launched various schemes and incentives, including:
- The Business Start 2021 scheme, where start-up undertakings in their early stage of development may apply for a grant of up to EUR 10,000 for the development of their business proposal and start-ups presenting viable business plans may receive funding of up to EUR 20,000 per quarter up to a maximum of EUR 200,000. Applications in relation to such scheme are accepted until 31 October 2023.
- The Business Development 2021 scheme, whereby undertakings carrying on or intending to carry out an activity contributing to the regional development of Malta, which require assistance to set up business development projects, may receive assistance of up to EUR 200,000 in the form of tax credits and/or cash grants. The scheme is available until 31 December 2023.
- In an effort to incentivise businesses to undertake investments that lead to a more sustainable and digitalised process, the Smart and Sustainable Investment Grant scheme was launched. The grant is available to businesses that undertake investment projects of more than EUR 10,000 and consists of cash grants of up to EUR 100,000 and which, in certain cases, may be topped up with an additional 10% (capped at EUR 40,000). Eligible projects should be implemented within 12 months from the date of approval of the funding, and beneficiaries should maintain the supported investment for at least three years. Malta Enterprise will be accepting applications under this scheme until 30 November 2023.
- The Access to Finance (Soft Loan) scheme provides support to undertakings wishing to accelerate plans in establishing new products or entering a new geographic market, addressing environmental concerns, and digitising processes by means of a soft loan of up to EUR 1 million.
- Family businesses may apply for cash grants of up to EUR 15,000 to access advisory, succession planning, and mediation services.
- The Innovate - Innovation Aid for SME scheme aims to facilitate the creation of a business research partnership between SMEs and research knowledge dissemination organisations to carry out projects leading to product, process, and organisational innovation through financial assistance of up to EUR 100,000 or, in certain cases, EUR 200,000 within any three-year period.
Furthermore, the Minister of Finance announced in the 2022 Budget Speech plans for Malta Enterprise to introduce a scheme through which a tax benefit will be handed to businesses that reinvest a percentage amount of their profits in the same business or another business, as long as such an investment is made within two years from 1 January 2022.
Start in Malta
In 2022, the Start in Malta initiative was launched, which is aimed at significantly boosting the Maltese start-up ecosystem. As announced by the Minister of Finance in the 2023 Budget Speech, Start in Malta is a one-stop shop that offers assistance services so that more start-ups may establish themselves in Malta, together with assistance for start-ups to apply for the schemes offered by Malta Enterprise, some of which have been detailed above. More information may be accessed at startinmalta.com.
Start-Up Residence Permit
As part of the Start in Malta initiative, the Malta Start-up Residence Programme was launched in 2022 and grants a three-year residence permit (which may be extended for an additional five years), which entitles non-EU nationals to reside in Malta while launching a start-up venture. Enterprises qualifying for this programme need to have been registered for not more than seven years, and a tangible investment of EUR 25,000, which increases to EUR 35,000 in case the enterprise involves more than four founders, is required to be made.
International business profits
Other Maltese tax considerations that may be relevant in an international business context include the following:
- Maltese tax law provides for a beneficial tax treatment in respect of securitisation vehicles and similarly to re-insurance special purpose vehicles.
- Possibility to set up cell entities in Malta, inter alia, for insurance business, collective investment schemes, securitisation vehicles.
- The possibility of setting up protected/segregated cell companies in the aviation and shipping sectors has been introduced in Maltese law. Consequently, Maltese company law now provides for the formation, constitution, authorisation, and regulation of cell companies carrying on or engaged in aviation or shipping business. Such cell companies allow for the possibility of segregating vessels or aircraft portfolios within the same corporate entity, thus segregating the risks and benefits attributable to the particular cell, without affecting the risks and benefits attributable to other cells within the same cell company. This should grant additional flexibility for the Maltese aviation and maritime sector, especially in respect of the variety in the types of entities that may be used in carrying on the particular activities and relative to the granting and receipt of financing involving ships and aircraft.
- A beneficial tax regime is available in respect of collective investment schemes.
- The Maltese fiscal implications relative to trusts and private foundations vary, depending on a number of circumstances, including: (i) the particulars of the parties involved (e.g. domicile or residence of the trustees/administrator or beneficiaries), (ii) the act or event under review (e.g. the settlement of property, transfers of beneficial interests, distributions of trust/foundation assets), and (iii) the nature of the trust/foundation assets. Furthermore, in certain circumstances, tax transparency provisions are set out in the law, particularly so as to allow, among other things, the application of tax exemptions that would have applied to beneficiaries if there was no trust relationship or foundation.
- An option exists for a step-up in the cost of acquisition of assets situated outside Malta (including companies) effecting a change in domicile or residence or becoming Maltese companies as a result of cross-border mergers.
Other tax credits
A tax credit for micro enterprises is provided under the Micro Invest Scheme. The credit amounts to 45% (or 65% for undertakings operating in Gozo) of eligible capital expenditure and/or wage costs incurred, which tax credit would then be utilised against the tax incurred on income derived from the qualifying trade or business activity for that financial year, subject to certain maximum limits applied over three consecutive fiscal years.
The applicant undertaking cannot employ more than 50 full-time employees, and the maximum eligible tax credits per single undertaking is EUR 50,000 over any period of three consecutive fiscal years. This maximum credit is further increased to EUR 70,000 in respect of undertakings operating in Gozo, family businesses, and female-owned undertakings.
A further incentive was introduced by Malta Enterprise, i.e. the Business Re-Engineering and Transformation Scheme, to assist eligible undertakings through a cash grant as part of financing of up to 50% of the eligible costs when it requires the services of external advisors to further develop the business. An undertaking shall qualify for such grant only if such undertaking is carrying out an economic activity in Malta, is an SME and meets any additional criteria established in the relevant guidelines. Applications for assistance may be submitted by 31 October 2023.
The Research and Development Regulations provide a basis to assist undertakings that carry out R&D projects (as defined) intending to develop or improve services, products, or processes through experimental development and/or industrial research. This measure also encourages cooperation between undertakings by providing additional assistance for collaborative R&D projects. The aid consists of a tax credit or cash grant calculated at a rate of up to 45%, depending on the size of the undertaking. Assistance in the form of a cash grant may only be approved prior to the commencement of the project. Applications under this scheme will be accepted by Malta Enterprise until 31 December 2022. Malta Enterprise may also provide additional assistance in respect of R&D, of up to 25% of eligible costs, if the undertaking carries out industrial research. In addition, a project may receive additional assistance of not more than 15% of eligible costs of up to a maximum aid intensity of 80% of eligible costs.