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Part II Developments in the Member States

Current topics and prospects; policy orientation

M Malta's budget plan for 2012 foresees an increase of several taxes. The net deficit-reducing impact due to taxation
reforms is around 0.5 % of GDP for 2012. The reforms announced in the budget include several tax deductions and
a incentives for income tax as well as the introduction of a new category for parents with different income tax
l brackets to make the job market more attractive for parents (for details see below). At the same time several excise
t duties will be increased (for details see below). Tax burden will hence be shifted from direct to indirect taxation.

a
Main features of the tax system
Personal income tax
In 2007 Malta reformed substantially the personal income tax, with the aim of decreasing the tax burden. Now
Malta employs a four bracket system (0 %, 15 %, 25 % and 35 %) with different brackets for single individuals or
married couples. The 2012 budget introduces a third category: parents computation in order to make the job market
more attractive for parents. To facilitate the return of women to labour market the current tax credit of up to
€ 5 000 had been extended to include self-employed mothers. From 2011 self-employed women working on a part-
time basis will be given the opportunity to choose to pay a 15 % pro-rata contribution on their income, as per
employed person, instead of the minimum currently stipulated by law (€ 26.37 per week).

Individuals who are permanent resident and domiciled in Malta are taxable on their worldwide income. Apart from
the basic personal relief of € 8 500 for single individuals, of € 11 900 for married couples and since 2012 of
€ 9 300, the Maltese personal income tax system introduced income tax exemption from certain copyrights such as
books, film scripts, music and art. In addition, income tax deduction up to € 2300 will be granted for school fees
and of € 100 for cultural and creative education. In order to attract high quality labour to Malta a tax credit up to
€ 15 000 is provided to companies for the development of educational digital games and the 15 % PIT rate scheme
is extended to international professionals. The 2012 budget also foresees amendments in the income tax on part-
time work of pensioners and government employees.

Income tax paid by a company can be fully attributed to shareholders following the distribution of dividends by a
company. Under this system, dividends paid by a company resident in Malta carry a tax credit equivalent to the tax
paid by the company on its profits out of which the dividends are distributed. Shareholders are taxed on the gross
dividend at the applicable tax rates, but are entitled to deduct the tax credit attaching to the dividend against their
total income tax liability.

Corporate taxation
With a rate of 35 % (equal to the maximum personal tax rate), Malta exhibits one of the highest tax rates applicable
to companies in the EU. However, Malta applies the full imputation system of taxation described above and there
would be no further tax to pay when dividends are distributed to shareholders. Under this system, dividends paid
by a company resident in Malta carry a tax credit equivalent to the tax paid by the company on its profits out of
which the dividends are distributed. Shareholders are taxed on the gross dividend at their personal applicable tax
rates, but are entitled to deduct the tax credit attaching to the dividend against their total income tax liability.

Therefore the maximum rate of tax payable on company profits — taking into account the tax paid by the company
on its profits and the tax paid by the shareholders on dividends received — can never exceed 35 %. Trade losses
may be carried forward indefinitely while carry-backs are not permissible. The tax code is restrictive on the use of
provisioning for tax purposes (for doubtful debts or investment value losses) but depreciation allowances are
available. Capital gains realised by companies are aggregated with other income and taxed at a 35 % rate. The
imputation system described above also applies with respect to profits distributed by companies arising out of such
gains. Certain tax incentives are available for enterprises involved in shipping, targeted industrial sectors and free
port activities.

Small and medium sized enterprises (with maximum of ten employees) are entitled to a 40 % tax credit if they
invest in new technologies or create new jobs. For SMEs in Gozo this tax credit is 60 %.

126 Taxation trends in the European Union

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