A company becomes tax resident in Malta, and subject to tax on its worldwide income, by virtue of its incorporation/registration. On the other hand, a non-Maltese company, although not registered in Malta, can be tax resident in Malta if its business is managed and controlled from Malta.
Although the concept of domicile is typically reserved for individual taxpayers (see Section 6.1), Malta is one of a handful of countries that applies the concept of domicile also to corporate entities. In a corporate scenario, the concept of domicile is essentially analogous to incorporation or registration of the company for company law purposes.
Therefore, a company that is incorporated in Malta is treated as both resident and domiciled in Malta. A company incorporated outside Malta but with its management and control in Malta is treated as resident but not domiciled in Malta. A company’s domicile is relevant to determine the type of income that is subject to tax in Malta (see Section 2.2.1).
Management and control
The Income Tax Act does not define the concept of management and control within the context of the Maltese tax system. This concept is directly inherited from English cases defining residence of companies and, therefore, it is common to refer to English case law in the interpretation of the term.
The notion of management and control is a factual notion, and all facts and circumstances have to be reviewed to establish whether a company or a body of persons is being managed and controlled in Malta. There are various factors which should indicate whether management and control is being exercised in Malta. If the majority of the members of the board of directors are resident in Malta, if the head office of the company is located in Malta, if the minutes of board meetings indicate that the most important decisions are being taken in Malta, if management decisions are being taken in Malta, if the company operates a Maltese bank account and if the financial statements are audited by a Maltese auditor are all indicators which point towards Malta as the place of tax residence of a non-Maltese company.
2.1.2. Taxable Status
Corporate entities are subject to income tax at the rate set out in Section 3.1.1.
With respect to partnerships, Maltese tax law, as a default, adopts the look through approach and the profits of the partnership are taxed at the level of the individual partners. It is, however, possible for a partnership to opt to be taxed as a company (i.e., as opaque), subject to certain conditions being met.
Specific rules apply to other entities such as clubs, trusts and foundations. For more information on non-corporate business entities, see Section 2.2.3.
2.1.3. Legal Classification of Nonresident Entities
When classifying nonresident entities for Maltese tax purposes, Malta uses the analogous principle whereby nonresident entities are compared to the definition for certain entities under the Companies Act.
Nonresident entities will be classified for tax purposes based on whether they are similar to one of the following:
- a limited liability company constituted under the Companies Act or under the Commercial Partnerships Ordinance;
- any other company constituted as such under any other law in force in Malta; or
- any partnership en nom collectif and any partnership en commandite constituted under the Companies Act or under the Commercial Partnerships Ordinance; any partnership regulated by the applicable provisions of the Civil Code; and any European Economic Interest Grouping (EEIG) which has elected to be treated as a company.