As a financial jurisdiction, Malta offers various advantages for setting up a company. A company incorporated in Malta is considered to be ordinarily resident and domiciled in Malta and subject to tax in Malta on a worldwide basis at 35%. Malta operates a full-imputation system of taxation which completely eliminates the economic double taxation of company profits. Consequently when a company distributes dividends out of profits on which it had paid tax, typically no further tax is due by the shareholders and a credit for the tax paid by the distributing company is available to shareholders. Upon distribution of dividends by the Malta Company, the shareholders of said company are entitled to claim a refund of the Maltese tax paid by the Malta Company. The amount of the refund depends on the company’s activities so where the income distributed as dividend is derived from trade or business, the amount of refund is 6/7ths of the Malta tax paid by Malta Company, resulting in an effective tax rate in the hands of shareholders of 5%, and 5/7ths for income that is considered passive, resulting in an effective tax rate of 10%. The Malta Company can also ask as a credit any foreign tax paid. A tax refund at the rate of 2/3rd of the Malta tax paid would be applicable in respect of dividends distributed out of profits in respect of which the distributing company has claimed double tax relief.
However companies that are not incorporated in Malta (overseas companies) are considered to be resident in Malta when the control and management of their business is exercised in Malta. A company is regarded as being managed and controlled in Malta if the functions of the company’s central administration, and the strategic decisions are made in Malta such as the majority of the directors are persons who are resident in Malta, all meetings of the board of directors are physically held in Malta, the company has properly equipped office space at its disposal in Malta, the company has sufficient human and technical resources at the disposal of the company in Malta so as to take key management and commercial decisions from Malta, etc.
A company which is not incorporated in Malta may transfer its tax residence to Malta by transferring the place of management and control of the company in Malta. Such a company for Maltese tax purposes is considered as resident but not domiciled in Malta and taxed in Malta on remittance basis i.e. on Malta source income and foreign source income received in Malta.