Question How to lower 35% income tax being domiciled in Malta?

[zxc]

Corporate tax can be lowered to 5% by getting 6/7 tax refund, however the income tax will still apply in full for domiciled residents. If that's the case isn't it even better to avoid refunds completely and just avoid paying income tax (but still pay 35% corporate tax in full)?

It seems no matter the scheme, at least 35% is being lost to taxes once you get domiciled here. Is there any legal way to lower the effective tax burden to say 15% - 20%? E.g. could the tax rate due to double taxation avoidance clauses by opening a company in some other EU country and passing dividends through a Maltese intermediary company? Or figuring out some kind of loan arrangement?

Honestly, at this point I'm just thinking about commissioning a regular literary works from myself (royalties are taxed at 15%) or maybe signing a contract with myself, saying that my job requires me to work mainly outside Malta (where "mainly" is exactly 31 days per year) as this is taxed at 15% as well.

 

[Martin Everson]

35% is the statutory tax rate. The tax rate you need to be concerned about is the effective tax rate. Also how much tax are you paying on the dividends of the company again?

Your a lot better of some most European countries overall when you compute total tax leakage .

 

[zxc]

35% is the statutory tax rate. The tax rate you need to be concerned about is the effective tax rate. Also how much tax are you paying on the dividends of the company again?

Your a lot better of some most European countries overall when you compute total tax leakage .

Well, is there any way to reduce effective tax rate below 35% to something reasonable (I wouldn't mind paying 15%-20%)? I had an Estonian company and residency and am moving to Malta (and I need to be domiciled here for the reasons beyond my control).

Haven't talked to a local accountant yet, but it seems there's no legal way to get total tax leakage below 35%. Or is there?

The way I understand local law a regular two companies setup requires that the first company pays 35% tax on dividends to the second company, second company gets 30% refund and puts the money into untaxed account. Once this money gets distributed as dividends to local residents, they pay income tax which is 35%. Some articles do mention a 15% withholding tax that gets applied to untaxed income of a company, so maybe the total rate is 5% + 0.95 * 15%? That would be bearable.

 

[Martin Everson]

Haven't talked to a local accountant yet, but it seems there's no legal way to get total tax leakage below 35%. Or is there?

Speak to an accountant and crunch the numbers first for your business type. Then see what your effective tax rate looks. You can see what tax deductions you can make for your business below.

https://taxsummaries.pwc.com/malta/corporate/deductions
I wouldn't go route of structuring stuff without knowing what your effective tax rate will actually be after you deduct as much as you can.

P.S You may even be able to setup a corporate pension as a tax deductible. Then you just stick money into something like a Canada Life cash fund. Maybe even make deductibles for various life and key person insurance policies which again are all just places to park tax deductible cash you can later access.

 

[uncreative]

Maybe the new rule will be an option in your case to pay directly just 5% with a second maltese company holding, but it depends if there are additional restrictions for maltese citizens with domiciled status.

Tax efficiency – new Income Tax Consolidation Rules from year of assessment 2020 onwards

Under the new rules (see Legal Notice 110 of 2019) a Malta company which elects to be treated as part of a fiscal unit (formed of one holding company and at least one or more trading companies) will not be obliged to pay the full 35% income tax, of which subsequently 6/7 could be regularly claimed back by its shareholders (Tax Refund).

Instead, the tax refund due to the shareholders is taken into account when calculating the final tax liability of the consolidated tax entity and is payable by the main taxpayer. As a result, the so-called 'Principal Taxpayer', i.e. the holding company in a group (Fiscal Unit), usually pays only 5% tax directly, which leads to a considerable simplification and acceleration of the procedure and a significant improvement of the cash flow position of the shareholders of Maltese companies.