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 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 mainly include manufacturing activities, qualify for investment tax credits whereby a percentage of qualifying expenditures are off-set against the tax charge (not against taxable income). The Investment Aid (July 2014) Regulations, 2014 (the 'Regulations') were issued on 24 October 2014, and guidelines in this regard have been published by Malta Enterprise. Such guidelines form the basis of the investment aid scheme that is in force until 31 December 2020. The Regulations apply to qualifying undertakings, which may benefit from investment tax credits in respect of certain qualifying activities, which are quantified as a percentage of qualifying expenditure incurred in terms of the guidelines. The tax credits range between 10% and 30% for projects commencing between 1 January 2018 and 31 December 2020, depending on the undertaking’s size. This scheme was extended to also cover investment projects with a start of works date on or after 1 January 2021 but in no case later than 31 December 2023. The application in relation to such investment projects should reach Malta Enterprise by 31 December 2021.
- 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) 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 small and medium-sized enterprises (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.
Under Operational Programme I (OPI) for Malta’s EU Cohesion Policy programme for 2014-2020, EUR 51 million were earmarked for ERDF Grant Schemes in aid of local enterprises. The grant schemes are aimed at supporting SME investments to enhance SME competitiveness. These grant schemes focus on the following areas: e-commerce, start-up investments, SME growth, SME diversification and innovation, SME internationalisation, and SME consultancy services. These schemes are administered through an open rolling call with monthly cut-off dates - currently the latest call closes on 30 June 2021.
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 tax credit for skills development has been introduced in 2018 with the aim of offering assistance for the development of training programs. Where Malta Enterprise is satisfied that an undertaking qualifies under this scheme, assistance with respect to eligible costs shall not exceed 70% for small undertakings, 60% for medium-sized enterprises, and 50% for large undertakings. The total amount of assistance that may be granted should not exceed the amount of EUR 2 million. Support in terms of this scheme may be awarded until 31 December 2022.
A further incentive introduced by Malta Enterprise is that an undertaking may be entitled to a cash grant as part of financing of up to 50% of the eligible costs when it requiresrequired 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 a small or a medium sized enterprise and meets any additional criteria established in the relevant guidelines. Applications for assistance may be submitted by 31st October 2023.
During the 2021 Government Budget, it was announced that improvements to the start-up tax credit scheme will be introduced in order to further incentivise new businesses setting up or relocating in Gozo.
The Research and Development Regulations provide a basis to assist undertakings which 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 Corporation until 31 December 2022. The Malta Enterprise Corporation may also provide additional assistance in respect of R&D, of up to 25% of eligible costs, if the undertaking carries out an 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.