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TAX NEWS - april 2010

Malta Tax Alert: International tax rules enhanced

The Maltese Parliament approved a number of amendments to Malta's tax laws on 16 April 2022 that will further enhance the country's position as an EU domicile of choice. The key amendments are set out

Extension of participation exemption

Under Malta's participation exemption, dividends and capital gains are exempt from tax if they are derived by a company from an "equity holding" in a qualifying subsidiary resident outside Malta.

Before the amendments, an equity holding subsisted where the holder was entitled to a right to (i) votes; (ii) profits available for distribution; and (iii) surplus assets on a winding up. The amendments have broadened the application of the participation exemption by requiring the satisfaction of only two of the three criteria. Consequently, income and gains derived from previously non-qualifying holdings (such as holders of, for example, preference shares who are not entitled to votes) can now benefit from the application of the participation exemption.

The above amendment is effective from years of assessment commencing on or after 1 January 2009.

Introduction of opportunity for step-up in base cost

As from 1 January 2009, (i) persons transferring their residence and/or domicile to Malta, and (ii) companies resulting from a merger within the meaning of the terms of the EC Merger Directive 2005/56/EC are entitled (but not obliged) to claim a step-up in the tax base cost of assets situated outside Malta without any adverse Malta tax consequences. Such persons may opt to, for Malta tax purposes, revalue the assets from historic costs to fair market value at the time of a shift of residence/domicile to Malta / at the time of the merger.

The revaluation will apply for the purpose of determining gains on a subsequent disposal of the assets (with the result that previously accrued profits would be exempt from Malta income tax).

Persons electing for a step-up in the base cost must not have been resident or domiciled in Malta before their transfer of residence and/or domicile to Malta and, in the case of a merger, the assets must not have been owned by a merging company that was a company resident/domiciled in Malta before the merger.

Other provisions

Introduction of royalty income exemption: With immediate effect, royalty and similar income derived from patents in respect of inventions will be exempt from Malta income tax subject to such conditions as are to be prescribed.

Extension of Malta's unilateral double taxation relief: Double taxation relief for underlying taxes suffered on the profits out of which a dividend is distributed, which was, in multi-tier situations involving companies resident outside Malta, only granted with regard to foreign taxes, has now been extended, with effect from 1 January 2009, to include taxes suffered in Malta.

Reduction in rate of taxation of expatriates: With immediate effect, individuals not ordinarily resident in Malta deriving qualifying employment income received in respect of work or duties carried out in Malta, or in respect of any period spent outside Malta in connection with such work or duties, may opt to be taxed at a flat rate of 15%.

The applicability of the election is subject to such conditions and restrictions as are yet to be prescribed.
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