Dividends and Capital Gains

The Malta tax system is very attractive for holding participations in other companies. This is because income or gains derived from participating holdings are exempt from tax in Malta by virtue of the participation exemption when certain conditions are fulfilled.

The participation exemption generally applies where a Malta company has a participating holding in another company. A participating holding in a company exists where any one of six conditions is satisfied, the most commonly satisfied being:

  • the equity shareholding amounts to 10% of the equity share capital of the other company and entitles the shareholder to 10% of rights such as voting, dividend or distribution of assets upon winding up
  • the equity shareholding confers a right to the Malta company to sit on the Board of Directors or to appoint a director of that company
  • the investment of the Malta company on the date of acquisition represents a minimum total value of Euro1,164,000 which investment is held for an uninterrupted period of not less than 183 days

Where the Malta company has a participating holding in another company, capital gains received by the Malta company from such participating holding are always exempt from tax in Malta, whereas dividends received by the Malta company from such participating holding are exempt from tax where certain wide ranging conditions are satisfied.

Where the dividends and/or capital gains are not eligible to benefit from the participation exemption, (either because the holding does not qualify as a participating holding or otherwise because, in the case of dividends, the wide ranging conditions are not met), such dividends and/or capital gains will be included in the chargeable income of the Malta company and will be taxed at 35%. However, upon the Malta company making a distribution of dividends to the shareholder from such stream of income, the shareholder will be entitled to claim a 5/7ths, 6/7ths or 2/3rds refund, as applicable, with respect to the tax paid by the Malta company on such income.