Malta does not have a separate system of tax for capital gains. All taxable capital gains are added to the company’s other profits and taxed accordingly at the standard corporate tax rate (for which see Section 3.1.1).
In contrast to the taxation provision on income, the scope of the taxation provision of capital gains is limited. Only items which are specifically listed in the Act are taxable, whilst anything else falls out of the scope of the Act.
Furthermore, nondomiciled companies (see Section 2.2.1) are exempt from all foreign-sourced capital gains. Therefore, in the case of a nondomiciled company, only capital gains arising in Malta, which fall within the list of taxable capital gains below, are subject to Maltese tax.
Taxable capital gains in Malta arise on gains or profits from the transfer of:
- ownership, usufruct and assignment of immovable property or cession of any rights over such property;
- ownership, usufruct and assignment of securities or cession of any rights over such securities;
- a beneficial interest in a trust; and
- ownership, usufruct of or assignment or cession of any rights over any interest in a partnership.
Certain transactions are exempt, including:
- transfers of shares listed on a stock exchange recognized by the Commissioner, not being securities in a collective investment scheme;
- transfers of shares listed on a stock exchange recognized by the Commissioner, being securities in a collective investment scheme held in a prescribed fund;
- nonprofit participating shares or shares with a fixed rate of return;
- gains from the disposal of equity holdings in a Maltese or foreign non-property participating holding; and
- certain transfers of units and such like instruments relating to linked long term business of insurance.
In the case of nonresident investors, the Income Tax Act specifically exempts capital gains on the transfer of, or on the transfer of any rights over, Maltese securities (i.e., units in a collective investment scheme, units relating to linked long-term business of insurance, interest in a partnership, and shares or securities in a company) realized by a nonresident transferor, as long as either the shares being transferred are not shares in an immovable property company or the transferor is not owned or controlled by, directly or indirectly, nor acts on behalf of an individual or individuals who are ordinarily resident and domiciled in Malta.
It is important to keep in mind that stamp duty may still apply on a transfer of securities and, therefore, it is important to analyze a transfer also from a stamp duty point of view.
The Act also provides for an asset rollover relief, which even though not an outright exemption, still grants substantial cash flow advantages. This relief applies to assets which have been used in the business for a period of at least three years and which have been transferred and replaced within the same year by an asset used solely for a similar purpose in the business. In this case, any capital gain realized on the transfer of the first asset is not taxed, but reduced from the tax deductible cost of the new asset therefore allowing for the company to gradually suffer the tax payable through a reduction of the capital allowances.
A capital loss may only be set off against capital gains, with any unutilized amount of losses carried forward indefinitely until it is set off against future gains.