The legal framework for the corporate income tax system in Malta is primarily governed by the Income Tax Act (Chapter 123 of the Laws of Malta) and subsidiary legislation issued thereunder. Specific articles and sections relevant to corporate income tax include:
- Article 2: Defines the chargeable income of companies.
- Article 3: Provides for deductions allowable from chargeable income.
- Article 14: Specifies exemptions from tax on certain types of income.
- Article 56: Establishes the corporate income tax rate.
Corporate income tax in Malta is calculated based on the net profits of a company, as determined under accounting principles, and adjusted for tax purposes. The steps involved in determining tax liability for corporations include:
- Calculating the company's accounting profits, typically derived from its financial statements prepared in accordance with International Financial Reporting Standards (IFRS) or other applicable accounting standards.
- Making adjustments to the accounting profits to arrive at the taxable income, considering various tax adjustments and allowances allowed under Maltese tax law.
- Applying the applicable corporate income tax rate to the taxable income to determine the tax liability.
Specific accounting practices and principles may apply in determining taxable income, such as rules regarding the recognition and timing of revenue and expenses for tax purposes.
Malta's corporate income tax rate is 35% on chargeable income. However, Malta operates a full imputation system, meaning that tax paid by the company is imputed to the shareholders as a tax credit when dividends are distributed. As a result, the effective tax rate may vary depending on the shareholders' residency and other factors.
Taxable income for corporations in Malta includes various types of income, such as:
- Trading income
- Investment income
- Capital gains
- Rental income
- Royalties
- Foreign income subject to certain conditions
Adjustments may be made to the accounting profits to arrive at the taxable income, considering deductions, allowances, and exemptions provided under Maltese tax law.
Certain types of income may be exempt from corporate income tax in Malta. Examples include:
- Dividends received from participating holdings or certain foreign subsidiaries under the participation exemption regime.
- Capital gains derived from the transfer of certain qualifying assets, such as shares in participating holdings.
These exemptions aim to promote investment, encourage economic growth, and attract foreign capital to Malta.
Malta's corporate income tax system follows a straightforward approach, with tax liability determined based on the net profits of a company adjusted for tax purposes. The effective tax rate may vary depending on factors such as shareholder residency and the application of tax credits. The Income Tax Act provides the legal framework for corporate taxation, including tax rates, taxable income categories, and exemptions, aiming to support economic growth and investment in Malta.
