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Relief From Double Taxation In Malta
Relief from double taxation in Malta is possible through various mechanisms; mainly treaty relief; unilateral relief and Flat Rate Foreign Tax Credit (FRFTC). Whereas treaty and unilateral relief may be availed from both by individuals and companies, FRFTC is limited only to companies registered in Malta.
Double Taxation Treaty Relief
Treaty relief is based on the availability of a double taxation treaty between Malta and the other contracting state. Malta currently has 58 tax treaties in force (refer to the table below) most of which are based on the OECD Model Convention and practice the credit method. Most of the treaties provide for a reduced withholding tax on dividends, interest and royalties paid to Maltese residents
||Isle of Man
Unilateral relief is a type of relief which may be claimed by a Maltese resident individuals and/or Maltese registered companies including branches of oversea companies, who derive income arising outside Malta and in respect of which foreign tax would have been suffered. Unilateral relief may be availed from when a double taxation treaty is not in force between Malta and the State where the income has been sourced. Similar to treaty relief, the credit shall not exceed the total tax liability in Malta on the receipt.
In order to claim unilateral relief, the recipient of the income must prove:
- that the income arose outside Malta;
- that the income would have suffered tax outside Malta; and
- the amount of tax suffered abroad.
Flat Rate Foreign Tax Credit (FRFTC)
A Flat Rate Foreign Tax Credit (FRFTC) may be claimed by a Maltese registered company (including branches of oversea companies) in respect of income derived from abroad. The FRFTC involves a relief of 25% of the net foreign income, before deducting any allowable expenses.
The FRFTC may be claimed without the need for the company to have incurred foreign tax, but a number of conditions must be satisfied:
- the company must be expressly empowered (through a clause in its Memorandum and Articles of Association) to receive and allocate income to its foreign income tax account (FIA);
- FRFTC is only possible in respect of income which falls to be allocated to foreign income tax account; and
- the company is in possession of a certificate from a certified public accountant/auditor certifying that the income in question stands to be allocated to the foreign income account.
The following example demonstrates the mechanics of the FRFTC:
|Net Foreign Income
|Gross foreign income
|Malta tax @ 35%
|Net Malta Tax Payable
If this relief would have been claimed, the shareholder would be in a position to claim a 2/3rds refund of the actual Malta tax paid.
last updated on: 18th February, 2014