date | theme

23. October 2020 | Liechtenstein – Saving Taxes at ESt & KSt and IP Boxes & Foundations

15. March 2018 | Isle of Man: legal status as crown property and tax law

06. April 2021 | Taxation in the Channel Islands (Jersey Guernsey Alderney)

17. May 2021 | Tax law in Austria: ESt KöSt VAT & real estate income tax

29. November 2021 | Taxes on Malta: fashionable tax haven in the Mediterranean? (this contribution)

Individual investment

Tax Rate | Income (EUR) | Tax Deduction (EUR)

0 % | 0 – 9.100 | 0

15% | 9,101 – 14,500 | 1,365

25% | 14.501 – 19.500 | 2.815

25% | 19.501 – 60,000 | 2.725

35% | over 60,001 | 8,725

Co-investment

Tax Rate | Income (EUR) | Tax Deduction (EUR)

0 % | 0 – 12.700 | 0

15% | 12.701 – 21.200 | 1.905

25% | 21.201 – 28.700 | 4.025

25% | 28.701 – 60,000 | 3.905

35% | over 60,001 | 9,905

Parental disposition (single parents)

Tax Rate | Income (EUR) | Tax Deduction (EUR)

0 % | 0 – 10.500 | 0

15% | 10.501 – 15.800 | 1.575

25% | 15.801 – 21.200 | 3.155

25% | 21.201 – 60,000 | 3.050

35% | over 60,001 | 9,050

Malta imposes both direct and indirect taxes. In certain cases, Malta grants generous relief, especially in the case of income taxes. For example, affiliated companies (holding companies with an operating subsidiary) can file a joint tax return. In addition, certain tax refunds of up to 80% are possible for foreign shareholders. Thus, the corporate tax falls from regular 35 % to an effective tax rate of only 5 %. Furthermore, Malta enables wealthy people from third countries who invest a million euros in Malta to take on Maltese citizenship. All this means that Malta is often regarded as a tax haven. As an EU member state, Malta is just as bound by the common tax directives of the Union as Germany.

Normally, an introduction should give a brief and concise first impression of a topic and justify a successful transition in its deepening. However, if you want to talk about taxes in Malta, then many fascinating details can fill the first paragraph to the bursting. Because Malta has a wealth of connecting points to offer.

Malta is an island nation in the Mediterranean with a rich cultural heritage. The extraordinary Maltese language alone can fill books. And if you look at the history of military conflicts, it is difficult to find a suitable point that could serve as a starting point for our topic. Therefore, we make it a bit simple and let our considerations on taxes in Malta start with 31.05.1814. On this day, Malta officially came under British supremacy with the first Paris Peace as a crown colony.

This is important for our further consideration because Malta is strongly influenced by the UK in its tax legislation. After all, it was also part of the British-dominated Commonwealth of Nations for many decades and is still part of it today. For example, this can be noticed by the fact that the Maltese tax laws were actually written in English instead of in the national language, which has other roots besides Arabic. Another example is that Maltese tax law also has a trust law. There is also an LLC as a company form in Malta.

In the 20th century, Malta finally gained its independence as a state. Since then, it has also managed its fortunes on its own with regard to tax legislation. It joined the European Union in 2004 and inherited Luxembourg as the smallest country in the Community. Four years later, it also adopted the euro as its national currency.

Since Malta had little economic strength at the time of its independence, it took early measures to attract foreign investors. In particular, it provided tax incentives. And since these measures were successful 50 years ago, it is hardly surprising that Malta has constantly evolved in this regard.

However, other factors have also been added in the meantime. Since its membership of the EU, Malta has enabled wealthy individuals from third countries to obtain citizenship. The prerequisite was that an amount of EUR 2,500,000 was invested in Malta. In addition to Malta, Cyprus has also introduced a similar procedure for obtaining citizenship. At least the European Parliament is critical of this. Nevertheless, it must be admitted that Malta also uses this form of international tax competition skilfully for itself, but at the same time does everything possible to comply with the European legal framework.

But now let’s look at the legal regulations with which Malta collects its taxes.

The tax liability in Malta differs in certain respects from our German tax law. It is true that Malta also collects taxes from natural and legal persons resident there. Thus, there is certainly an equivalent to the German unlimited and limited tax liability as well as the associated criteria of residence or permanent residence. However, Malta also reserves the right to levy taxes on persons who are neither resident nor habitually resident in Malta. For this it is sufficient that the income is collected in Malta. It does not matter from which country the income comes. Exceptional rules apply to foreign capital income. If you do not have a residence or habitual residence in Malta, there is no tax. However, if a spouse has a residence or habitual residence in Malta, this exception shall not apply. Also some fun exceptions are provided here, but rather affect locals.

In another respect, however, the tax liability in Malta again meets the standard we are familiar with. Because even in this tax regime, the world income principle applies in general. The assessment period in Malta also corresponds to the calendar year.

Income taxation covers a large number of incomes in Malta. This includes, in particular, commercial or other professional income, income related to employment, including pensions, bonuses and other remuneration. income from the sale of goods is only affected if it constitutes commercial trade; Private sales remain tax-free. Malta also pays taxes on rent, interest, dividends and similar income, including those earned by banks and insurance companies.

The income tax rates are staggered in five stages. However, an identical tax rate of 25 % applies to two stages. A distinction is made between individual predisposition, joint predisposition of spouses and, as a special feature without German equivalent, a parent predisposition for single parents. Details can be found in Article 56 of the Maltese Income Tax Act. We have summarized them in the following three tables:

In addition, there are many other income tax regulations that come into consideration as exceptions. However, the scope of these additions is beyond the capacity of this overview.

Business taxation

One of the most interesting tax aspects Malta has to offer is corporate taxation. A classic distinction is made between transparent and non-transparent taxation. Transparent taxation affects all individual enterprises (including agriculture and business in the broadest sense) and partnerships. Corporations, on the other hand, pay corporate tax.

An equivalent of the German trade tax, on the other hand, is completely unknown in Malta.

2.3.1. Transparent corporate taxation

In the case of transparent corporate taxation, the entrepreneurs or the partners of a partnership pay the taxes on a personal level. Taxes are therefore incurred in Malta as income tax.

2.3.2. Corporate income tax

Companies that have corporate status or are subject to taxation as such in Malta pay an astonishingly high corporate tax of 35% on their profits. This includes both LLCs established in Malta and foreign corporations operating in Malta. However, shareholders of these companies who are resident abroad receive a tax credit of 80 % on these taxes. However, the tax credit is then subject to taxation abroad. However, shareholders taxable in Malta can also benefit from this tax privilege by some simple means through intermediate companies in other EU countries.

It is particularly interesting that you can submit a uniform tax return for interconnected companies, for example a holding company including an operating subsidiary. This saves on the one hand several separate tax declarations. On the other hand, there has been the possibility for some years that the expected tax credit can be offset automatically with the corporate tax. This saves you the application that had to be made previously to claim the tax credit from each shareholder.

Even if the corporate tax rate may be quite high at 35%, the effective tax rate is only 5%. This can be regarded as a clever tax legislation in Malta because, on the one hand, the general corporate tax rate is kept well above 15%, which many countries see as a lower limit for fair tax competition, but on the other hand, a loophole is kept open, allowing foreign investors to pay only 5% in taxes in Malta. “Malta, a tax haven that is not a tax haven!” could also have been a worthy title for our contribution.

Malta generally pays 18% in sales tax. However, there are also special tax rates for individual types of sales. For example, in the hotel industry and for the operation of sports facilities, only 7% of taxes are due in Malta. On the other hand, with only 5% VAT, Malta covers a whole range of different supplies and services: medical equipment for the needy, books, magazines and newspapers, certain cultural services, home care services, the purchase of electricity and, to a limited extent, the repair of bicycles, shoes, leather, clothing and household linen. No sales tax applies to certain foodstuffs for human consumption (except already cooked food) as well as to cattle for slaughter, fruit, vegetables and other plant-based foodstuffs, cut flowers and prescription medicines, international and national means of transport (except road transport), gold and other precious metal bars.

The selection of exceptional cases may seem a little surprising at first glance. However, at least with regard to the foodstuffs affected, it must be borne in mind that agriculture in this country does not play an overriding role and is essentially economically limited to the even smaller island of Gozo. In this way, Malta promotes its own skills for independent self-sufficiency of the population.

Malta also levies taxes on the transfer of land. However, the system is quite complex because there are a number of exceptions. In addition, when selling real estate, you first initiate a process that is reminiscent of the dissolution in Germany.

2.5.1. Sale of a property in Malta

This notarial process, which precedes the actual acquisition, is called a promise of sale. Both seller and buyer have to carry various proofs. Sellers must provide proof of legal acquisition, a site plan of the land and the building permit required for the construction of any building. If spouses have jointly acquired the property, the date of the wedding is also required. If, on the other hand, the acquisition of the property took place by inheritance, the heirs to be sold must attach the valid will of the deceased as well as a certificate of inheritance and indicate the date of death.

The intended acquirer also identifies. Furthermore, he must deposit two checks with the notary. One contains an amount of about 10% of the purchase price. The second includes a further amount corresponding to 1 % of the purchase price and paying the necessary fees for the deed.

Legally, a validity period of three months is provided for this process, but the two parties involved can also determine a different validity period. However, if this has expired, the seller and buyer are exempt from the previously made mutual obligation. In this case, the potential buyer receives the deposited purchase price share back.

2.5.2. Standard taxation and exceptions when acquiring real estate in Malta

Malta changed the taxation rules on property transfers a few years ago. The turn of the year 2014/2015 is considered decisive here. The legal regulations are relatively complex because they contain a whole series of special exceptions. We therefore focus only on the higher-level rules.

In principle, Malta levies 8% of taxes on the transfer of land. This applies if the transfer of a property takes place after 2014. We also want to limit the other rules explained here to transfers after this deadline. However, sometimes the time of the previous acquisition plays a role. For example, 10% of taxes are due in Malta if the property to be transferred was purchased before 2004. In this case, as well as those described below, the notary issuing the deed of transfer retains the tax and transfers it to the tax administration.

On the other hand, only 5% of taxes are incurred if the property is located in specially designated areas and is renovated with state approval granted on request. The application must have been received by the competent authority after 2014. In addition, one must prove the completion of the approved conversion measures.

Only 2% of taxes are incurred in Malta if you purchase the property from a person who was the owner for a maximum of three years and who at the time of purchase provided a notarized assurance that this purchase took place for the purpose of establishing the single place of residence. This also applies if a married couple as previous owners meet these conditions.

However, this taxation only partially corresponds to our real estate transfer tax. Because in Malta, taxes apply in principle to all transfers of real estate. For example, this is the case for inheritance or donation (for details see 2.7. other taxes in Malta). Exceptions are also provided for in the case of a transfer between an undertaking and the entrepreneurs or shareholders involved.

Social security contributions are divided into two classes in Malta. The amount of social security contributions is set annually by the legislator.

There are six categories from A to F in Class 1. They distinguish between employees under and over 18 years of age with income up to certain limits (salary categories A, B, C and D) and students under and over 18 years of age (categories E and F). Employees are also distinguished between people born before 01.01.1962 (category C) and those who are younger (category D). Each category shall show a specific lump sum or a percentage of the weekly wage converted as a social security contribution. Employers and employees share social security contributions equally. The fixed weekly social security contributions range from a total of EUR 13.24 to EUR 97.14. If there is a pregnancy, special relief applies.

According to this, class 2 includes all other taxpayers who receive income from other sources. A distinction is made between taxpayers who receive income from their own commercial or professional activity (including state-approved full-time farmers) and those who receive passive income from rents, returns and similar remuneration. In both cases, this only applies from a certain annual amount (2021: EUR 910). This shall be determined by the year preceding the contribution. In both cases, six categories are distinguished, the date 01.01.1962 is again important. Full-time farmers as well as women working part-time and full-time students under 24 years of age (both of whom have an annual net income of a maximum of EUR 10.757) receive some relief. Here, too, one calculates either a fixed weekly or a percentage amount as a social security contribution. The flat-rate weekly social contributions are usually between EUR 26.82 and EUR 72.86, for farmers between EUR 0 and EUR 48.57.

There is no property tax in Malta. Taxes on gifts or inheritances in the strict sense are also unknown in Malta. However, the transfer of real estate upon inheritance or gift is a taxable process. However, Malta only levies the previously described reduced real estate transfer tax on these transfers, if they are first-degree relatives and their spouses or their own spouse. If there are neither first-degree relatives nor spouses, siblings and their first-degree descendants benefit from these tax benefits. Alternatively, recognised public philanthropic institutions may also benefit from the tax advantage.

In an interview with Roman Jagersberger, we explain to you which taxes Austria levies and which differences to Germany exist.

Like many other EU countries, Malta has concluded a number of double taxation agreements with other partner countries of the Union and the European Economic Area. In addition to Germany, Austria, Liechtenstein and Switzerland, this also includes many Gulf States, the USA, China and India. Not surprisingly, Malta also concluded agreements with many states that were also under British influence for many years. Malta is very well connected with over 70 other tax regimes. In many cases, the double taxation agreements are also based on the OECD MLI Convention. With its help, Malta also cooperates at international level in combating the erosion of tax bases.