Under Maltese Law the taxation of investment funds is determined by the categorization of the fund as either a prescribed or a non-prescribed fund. What distinguishes the two categories is the following: a fund is prescribed if at least 85% of the value of its assets is based within Malta, whereas a non-prescribed fund does not have at least 85% of the value of its assets based in Malta. A prescribed fund must also be acknowledged as such in writing by the Commissioner for Revenue.
Non-prescribed funds are generally not subject to taxation under Maltese law. The only exception to this rule is if the non-prescribed fund enjoys income deriving from an immovable property situated locally. That income would be subject to taxation under the normal Maltese laws.
Prescribed funds are taxed as follows:
- Bank Interest is charged at 15% withholding tax;
- Interest, discounts or premiums received from the Maltese government, corporations, or authority established by law in Malta or any other company or legal entity in respect of a public issue are charged at 10% final withholding tax;
There is also the normal rate of tax on income deriving from an immovable property situated locally.
Any other income deriving from an investment fund is not subject to taxation under Malta's jurisdiction.
Tax Legislation and additional Considerations
Taxation of Investment Schemes in Malta is regulated by the following legislations:
- The Income Tax Act (Chapter 123 of the Laws of Malta);
- The Income Tax Management Act (Chapter 372 of the Laws of Malta);
- The Collective Investment Scheme (Investment Income) Regulations (SUbisidary Legislation 123.51 of the Laws of Malta);
One of Malta's great tax advantages is the full imputation system, which means that any tax paid by the company will subsist as a prepaid tax on behalf of the tax liability of the shareholders. A Maltese company is required to pay tax on its profits in Malta, however, once such company distributes its profits to its shareholders in the form of dividends, the shareholders are entitled to receive a refund consisting of part of the tax paid by the company distributing the dividends. The full imputation system applies to both local and foreign shareholders alike.
It is possible for the categorisation of a fund to change from prescribed to non-prescribed or vice versa, if there is a change in the proportion of local assets. Significantly, this change in category is at the discretion of the Commissioner of Inland Revenue.
It is essential to record the timing of any such changes in category, as this will affect whether or not Maltese taxation is required. When a prescribed fund alters and becomes a non-prescribed fund, it will not be possible to apply for any refunds for tax received prior to the change in category.
Due to the significance of any changes in categorisation, Collective Investment Schemes (CISs) are obliged to keep payers informed of any updates in their status as acknowledged by the Commissioner of Inland Revenue.
CISs may choose not to receive any investment income not subjected to the appropriate withholding tax rates.
Taxation on Individuals
The incidence of tax will depend on the type of transfer whether the Fund is prescribed or non-prescribed. And the tax residence of the investor. Since the withholding tax on prescribed funds is charged at fund level, any capital gains made by investors from the redemption, cancellation or liquidation of securities in a listed fund are not subject to further tax in hands of the investor.
Taxation on Highly “Qualified Individuals”
A scheme was recently launched for non-Malta domiciled or ordinarily resident “Highly Qualified Persons” in receipt of employment income of a minimum of €75,000 (excluding the annual value of fringe benefits) with companies licensed and/or recognized by the MFSA. These are subject to tax at a flat rate of 15% on their employment income which is subject to tax in Malta (rather than the usual progressive rates which can go up to 35%). This incentive applies for five years for European Economic Area and Swiss nationals and four years for third country nationals.