Tax Residence under the Income Tax Act
In terms of the Maltese Income Tax Act, a body of persons "resident in Malta" refers to "any body of persons the control and management of whose business are exercised in Malta, provided that a company incorporated in Malta on or after 1st July 1994 shall be resident in Malta and any other company incorporated in Malta shall be resident in Malta from 1st January 1995 where the management and control of the business of the company is exercised outside Malta".
Tax Residence by Incorporation
The first reference is to a company deemed resident by virtue of its incorporation in Malta. As a result, a company incorporate in Malta is deemed resident in Malta and chargeable to tax on a worldwide basis.
Tax Residence by Management & Control
The second reference is to a non-Malta body of persons (including a company) subject to Malta tax insofar as the control and management of its business is effectively exercised in Malta.
Effective Management & Control
The place of effective management is the place where key management and commercial decisions necessary for the conduct of the entity’s business are in substance made. This claim that a company is effectively managed and controlled in Malta may be substantiated by ensuring that all board meetings and general meetings are held in Malta and that management decisions are taken in Malta (and not anywhere else). Moreover, the company’s records should be maintained in Malta in order to reflect the company’s effective management in Malta.
Further substance may be establsiehd by appointing Maltese resident directors. Other connecting factors may include running an operating office and taking on employees in Malta.
An oversea company may also be registered in terms of the Malta Companies Act, 1995 as this is necessary to ensure the recognition and taxation of branches in Malta.
Taxation of non-Malta domiciled Companies resident in Malta
A company which is resident in Malta by virtue of its management and control effectively being exercised in Malta, but is not domiciled i.e. not incorporated in Malta, is charged to tax in Malta only:
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on income arising in Malta and
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on income arising outside Malta, but received in Malta.
Passive income arising outside Malta but which is not remitted to Malta is not subject to tax in Malta. Non-resident shareholders of companies resident in Malta may qualify for refunds of tax, provided that the relevant conditions are satisfied.
Subject to specific conditions in an applicable double tax treaty, companies resident in Malta may apply the provisions of a relevant Malta double tax treaty with another jurisdiction.